Preparing Founder Arrangements for Legal Advice

Start with the proposed working relationship

Before asking for a founders’ agreement, write down what each founder will contribute and how the business will operate. Contributions may include money, time, existing intellectual property, equipment or customer relationships. Record which contributions have already been made and which are promises for the future. A proposed equity split alone does not explain these expectations. Counsel needs the business context to identify the documents and decisions the arrangement requires.

Record ownership and existing commitments

Prepare the current ownership record, incorporation documents if the entity exists, and any previous agreements or written promises concerning shares or options. Identify whether a founder holds an interest personally or through another entity. If the numbers do not reconcile, explain the discrepancy rather than presenting a polished but inaccurate cap table. Include side letters, investment discussions and relevant commitments to early employees or advisers.

Discuss roles and decisions

Describe the anticipated roles, expected time commitments and areas of decision-making. Distinguish day-to-day operational decisions from matters the founders want to consider together. Record what happens when someone is unavailable and how disagreements will be raised. The aim is to identify questions for drafting, not to assume that a particular voting threshold or veto arrangement will suit every company.

Identify intellectual property and outside obligations

List material code, branding, designs, research or other work intended for the business and identify who created it. Note whether the work predates the company, was created under another employment or consulting arrangement, or uses third-party material. Do not assume that access to a repository proves ownership. Tell the adviser about outside employment, confidentiality restrictions and other commitments that could affect the proposed arrangement.

Prepare for changes in participation

Discuss what the founders want to happen if someone leaves, reduces their involvement or cannot continue. Distinguish the desired commercial outcome from the legal mechanism needed to achieve it. Questions about transfer restrictions, vesting, buyouts and ongoing rights need to be considered alongside the entity’s documents and other commitments. Do not copy a provision from another startup without explaining the circumstances it is intended to address.

A useful first-meeting pack

Bring a short business description, contribution table, current or proposed ownership record, existing agreements, IP inventory and a list of unresolved decisions. A fictional contribution table might distinguish one founder’s cash investment from another founder’s full-time work and a pre-existing software prototype. That table identifies questions; it does not value the contributions or determine ownership. Agree a secure sharing process before providing confidential records.

Connect the agreement with the company’s documents

Founder arrangements should be considered alongside the company’s constitutional documents, existing investment terms and the proposed route for implementing decisions. A commercial understanding between individuals may require action by an entity or other participants. Identify the matters intended to appear in each document and the persons whose agreement is required. Counsel should review the relationship between documents rather than assume that one founder agreement resolves every corporate question.

Keep future fundraising and changes in view

Explain any current investment discussions, promised options or proposed changes to participation. A later investor may ask for a different governance or transfer structure, so the initial brief should identify commitments already made and the flexibility the founders wish to preserve. Record unresolved commercial positions in a decision list. Avoid describing a proposed departure mechanism as automatic: the drafting, entity records and actual circumstances need to support the agreed arrangement.

References

• Companies Act, 2013 — India Code