Founders and Partnership Agreements

When you go into business with someone, you’re putting an exorbitant amount of trust into them to support this venture with their time, effort, and sometimes even their money. This kind of partnership can’t be based on only words. There should always be some official paperwork to support it. Without it, you or your partner(s) are at risk of being abandoned or unsupported by the people who originally claimed they would help you run your business. These types of documents are called founder’s agreements, or partnership agreements.

These documents are contracts that establish many different facets of your business and its structure. This includes personal goals for the partners of the business, each founder’s rights to the business shares/holdings, their responsibilities to the business, and their obligations to other partners. Without a founder’s agreement, it becomes much more dangerous when partners disagree. There would be no parameters set for how much each person owns, how much they can take should they cash out, and what process they would need to go through to fight against business decisions made by other partners.

With a founder’s agreement, the parameters for these situations can be hammered down. This works to prevent future turmoil and preserve a business’s integrity. If you’re partnering with other people for a new business, or recently have, contact the entrepreneurial law attorneys at Tressler & Associates. We can work with you to draft an airtight founder’s agreement for you and your partners.

What Should Founder’s Agreements Include?

A founder’s agreement can list responsibilities for each partner, but that won’t necessarily hold up for a long period of time. Businesses evolve and change, an individual may come to need more or less ownership in the business, or maybe the business’s goals change, necessitating new leadership. A lot can happen, so it’s better to have a founder’s agreement with clauses and provisions that provide guidelines for what the company should do in a myriad of situations. To start, every founder’s agreement should include:

1. Transfer of ownership – If a partner wants to decrease their stake in the business, the business needs to increase another partner’s stake, or the business needs to add another entity to the circle of partners, there should be an agreed-upon process for transfer of ownership. Changing ownership between the partners should not be a different process every time.
2. Ownership Structure – Establish who owns what and how much of the company to start. Then create a structure where there are positions that must be held in the company and among the partners, so there’s a hierarchy and stated responsibilities. Your business structure should include what you think is best for your business, and this partnership agreement puts it in writing.
3. Confidentiality – Whether it’s a recipe, a patent, or a strategy, there is likely something that helps your business stand out from your competitors. In this case, you do not want anyone outside your company to know what this is for as long as possible, among other things that shouldn’t be public knowledge. The promise of confidentiality encourages your partners to keep proper secrets and create a path to recompensation if this confidentiality is broken.
4. Decision-making and Dispute Resolution – Having more informal solutions to disagreements can be taxing on time and revenue. You can’t always hash out every decision so deciding in an agreement that partners should vote to end disputes is one of the ways to prepare for the future. You should discuss other options in greater detail with an attorney.
5. Representations and Warranties – This is an agreement that keeps a partner from using or taking any of the business’s intellectual property, such as recipes, patents, or strategy to a third party they’re associated with. This is an extension of typical confidentiality clauses to make sure there are no loopholes a third party could use to access your business’s property.
6. Choice of Law – A certification that this partnership agreement is in accordance with state and county laws where the business is founded.

Contact the Entrepreneurial Law Attorneys at Tressler & Associates to Get Started

A founder’s agreement is integral to the future of your business. This is how you formally decide how your business will operate and run, who will operate and run it, and protect your business from mistakes these people will make. If you operate without it, you run the risk of problems later on that can seriously affect your business’s chances of success.

Tressler & Associates has experience in creating partnership agreements that set businesses up for the future. We’ll make sure it’s ironclad to protect your business from outside influences and to establish procedures that can guide your business out of tough spots for years to come. Contact our entrepreneurial law attorneys for help today.