Founders’ Agreement

December 3rd, 2015, by Erik Byrenius

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 be save you a lot of arguments and headache down the road. That’s why you should have a founder’s agreement.

A founders’ agreement is very similar to a normal shareholders’ agreement (SHA, Swedish: aktieägaravtal). In fact, it is a SHA in the sense that it’s an agreement between the shareholders. A founders’ agreement is a special kind of SHA for companies without investors or any other major external shareholders. Some of the topics are dedication, vesting, share transfers and decision-making.

Standard Founders’ Agreement Terms

This is a very brief summary of some of the key terms in the complete founders’ 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 (i) amend the articles of association; (ii) issue, redeem or purchase shares or other equity securities; (iii) adversely change rights of the shares; (iv) declare or pay any dividend or make a decision on other asset distributions; (v) guarantee any indebtedness, save for trade accounts of the company, or incur any indebtedness in excess of SEK [amount]; (vi) merge, demerge, liquidate or dissolve the company or a subsidiary; (vii) transfer, lease, license (other than licenses granted in the ordinary course of business on a non-exclusive basis), pledge or encumber assets or rights material to the company; (viii) materially amend the business plan; (ix) hire, fire or amend the terms of the employment contract of the CEO; and (x) enter into any agreement or assignment with a shareholder or its immediate family member or any entity controlled by a shareholder and/or its immediate family member(s).
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 will vest over six years as follows: 16.7% to vest one year after closing and the remaining 83.3% to vest in equal monthly installments under the following 60 months. During the vesting period, the founders may not transfer their shares without the approval of a qualified founder majority.

During the vesting period, any unvested shares of a founder who leaves the company may be purchased by the other shareholders pro rata at (i) quota value if the founder is a ”bad leaver”, or (ii) market value if the founder is a ”good leaver”.

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 founders’ agreement, please download the document below.

/Erik Byrenius

Download Documents

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Posted in: Legal Documents

10 responses to “Founders’ Agreement”

  1. Daniel says:

    Hi, I’m Daniel and my co-founder and I are working to put together some legal groundwork for our start-up. I was wondering if you have any idea if these awesome documents would be applicable in other countries like Canada or USA? Thanks!

  2. Hi Daniel, I’m not sure, but I would guess that the legal frameworks in Canada and USA are too different from the Swedish one. That being said, the general principles of what you want to put in a shareholders’ agreement are probably the same. However, I think there might be too much work adapting them to Canada/US law so perhaps it’s better to find another standard instead. /Erik

  3. Helena Nilsson says:

    Tack Erik för att du delar med dig! Det här är väldigt värdefulla dokument för oss i startgropen.
    //Helena

  4. Niklas says:

    Tusen tack Erik. Väldigt hjälpsamt och högt uppskattat. Du råkar inte sitta på några mallar kring startup docs för letter of intent´s och convertible notes agreements? 🙂

    • Hej Niklas, jag har ingen vettig LOI-mall, det beror ju väldigt mycket på vad det avser. Vad gäller convertibles jobbar jag på att få klart det under våren.

  5. Chantra says:

    It’s good, but hard to apply in my country.

  6. Colin Hughes says:

    Hi Erik. My wife and I are English and about to lend / invest with my son and future wife in their first home near Stockholm. We have agreed to pay the 15% deposit but this will need to be paid back within 5 years and At that point the property will be valued and the 15% paid back as he has 2 brothers who may need help over time. We have discussed that this will be minus improvement costs they pay – such as mains water etc and that the minimum repayment should equal the initial 15%. Can you recommend what format this should take in Sweden to clarify the position and cover as many eventualities such as death or break up etc.
    Many thanks Colin.

  7. Robert Schmitt says:

    Who has the right to amend/terminate the founders agreement? If that is linked to the articles of association, what parts of the articles of association will tell us who has the right to amend the founders agreement? We have another articles of association than the one in your template.

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