Founder Decision- Making Considerations
Although co-founders can negotiate and execute the terms of stockholders’ agreements that provide for specific decisionmaking and governance matters, it’s almost never worth the time or legal cost to try to legislate for every eventuality in running the company from day one. Instead, most companies rely on a few things to keep co-founders aligned and collaborative during the early days of a start-up:
Founder Vesting:
Any shares granted to founders should be subject to vesting, which means that a portion of the founder’s equity will be subject to repurchase by the company for a nominal value if the founder ceases to provide services at any time during a pre-agreed period.
The classic venture vesting schedule is 4 years with a 1-year cliff – this means that 25% of a founder’s shares vest all at once on the 1-year anniversary of grant, and the remainder vests monthly over the next 3 years, until everything is fully-vested after 4 years.
Vesting ensures that all founders remain incentivized to “stay the course” and continue working for the company during its early years, else they risk forfeiting some portion of their equity.
IP Ownership:
Any good start-up’s organizational documents should include two documents signed by each founder, which together ensure that the company (as an independent legal entity) is the valid owner of all intellectual property related to its business.
A Technology Assignment Agreement typically covers IP created before any formation paperwork was signed or filed – it documents the assignment of pre-existing IP from each founder to the Company.
A Confidential Information and Invention Assignment Agreement or Proprietary Invention Assignment Agreement provides that any IP created by each founder in the future as part of their role or otherwise related to the company’s business will be owned by / assigned to the company at the moment of creation.
The net effect of these agreements is to ensure that the company itself remains the owner of all IP necessary to run the business and manage the venture on an ongoing basis.
Fiduciary Duties:
Finally, as members of the company’s board of directors, co-founders owe fiduciary duties to the company and its stockholders (including each other) as they make decisions and navigate disagreements.
Remember: if you feel like you need to capture pages and pages of operational and governance matters in an agreement early on, there may be a threshold question as to whether there is enough baseline trust in the relationship for it to be a successful partnership over the long run.
Disclaimer: All of the information included in this website is provided for informational purposes only and should not be construed as legal advice. Please contact us for more information.