When you join forces with your co-founders to start a new business, legal stuff is probably one of the last things you want to spend time on – especially the sometimes sensitive subject of commitment, cooperation and ownership. Nevertheless, agreeing on these topics from day one may save you a lot of arguments and headache down the road. That’s why you should have a shareholders’ agreement, also called a founders’ agreement.
This version is a special kind of shareholders’ agreement for companies without investors or any other major external shareholders. That’s why it’s also called a founders’ agreement. Some of the topics are dedication, vesting, share transfers and decision-making. If you have some shareholders who are not founders, it’s probably better to take a look at the shareholders’ agreements with investors instead.
Standard Shareholders’ Agreement Without Investors Terms
This is a very brief summary of some of the key terms in the complete shareholders’ agreement that you can download below.
|Participation Right:||The shareholders will have the right, but not the obligation, to participate in subsequent issuances of any equity securities on a pro rata basis.|
|Protective Provisions:||A qualified founder majority is required to
|Board of Directors:||Each founder shall elect one director.|
|Right of First Refusal:||Transfer of shares in the company is subject to other shareholders’ right of first refusal.|
|Drag-Along:||In the event a qualified shareholder majority accepts an offer to sell or otherwise transfer their shares to an independent bona fide third party, all other shareholders consent to sell or otherwise transfer their shares on the same terms and conditions as the majority shareholders who have accepted the offer.|
|Tag-Along:||The shareholders shall have the right to participate in any sale or other transfer of shares in the same proportion and on the same terms and conditions as offered to the selling shareholder.|
|Vesting:||Shares held by the Founders and other key persons will vest over 4 years (the “Vesting Period”) as follows: 25% to vest one year after closing and the remaining 75% to vest in equal monthly installments under the following 36 months. If a Founder (or other key person) leaves the Company during the Vesting Period his/her shares may be purchased by the Company primarily and the other shareholders secondarily pro rata as set forth below.
|Non-Compete and Non-Solicitation:||Each founder is required to sign a non-competition and a non-solicitation commitment, valid until one year from the date he/she ceases to be an employee or a director of or a consultant to the company, whichever is the latest.|
|Intellectual Property:||The founders shall assign all relevant intellectual property to the company.|
For the complete version of the shareholders’ agreement, please download the document below.