Co-Founder Agreement
A co-founder agreement is the most important legal document a startup can produce before raising capital or hiring its first employee.
What is a Co-Founder Agreement?
A co-founder agreement is a legally binding contract between the founding team of a company that defines each co-founder's equity stake, vesting schedule, roles and responsibilities, decision-making rights, and what happens when a founder leaves. It is the foundational governance document for any startup with more than one founder.
Most startup disputes do not happen between founders and investors — they happen between the founders themselves. A co-founder agreement creates a shared framework for navigating disagreements about equity, effort, and direction before those disagreements turn into legal disputes. Investors, including seed funds and venture capital firms, routinely require a co-founder agreement before completing a term sheet.
The right time to sign a co-founder agreement is before the company raises any external funding, before any significant IP is created in the company's name, and before the first employee is hired. The conversations required to draft a co-founder agreement — about equity, roles, and what happens if someone leaves — are exactly the conversations founding teams need to have early.
When do you need a Co-Founder Agreement?
- ✓Before raising a pre-seed or seed round from external investors
- ✓Before hiring your first employee or engaging contractors
- ✓Before creating any significant intellectual property in the company's name
- ✓When adding a new co-founder to an existing company
- ✓When formalising a founding team that has been working together informally
- ✓Before any founder contributes significant capital or IP to the company
Key provisions to include
Equity Allocation
Records each founder's percentage stake, accounting for prior contributions and expected future contributions.
Vesting Schedule
Typically a 4-year vest with a 1-year cliff — equity is earned over time, not granted upfront.
Roles & Responsibilities
Defines each founder's functional area, time commitment, and scope of independent decision-making authority.
Decision-Making Rights
Specifies which decisions require collective approval and which can be made by individual co-founders.
IP Assignment
Transfers all IP created by co-founders (including prior to incorporation) to the company.
Good Leaver / Bad Leaver
Defines what happens to vested and unvested equity depending on the circumstances of a founder's departure.
Restrictive Covenants
Non-compete and non-solicitation obligations applicable during and after the founder relationship.
Dispute Resolution
Process for resolving founder disputes, including mediation before any formal legal action.
Common mistakes to avoid
Agreeing to equity splits verbally without a written agreement — this creates ambiguity that becomes expensive to resolve later
Not including a vesting schedule, allowing a departing founder to walk away with their full equity after six months
Leaving IP assignment provisions vague, creating uncertainty about whether the company owns everything built by the founding team
Failing to define what constitutes a 'good leaver' versus 'bad leaver' departure, making exit provisions unenforceable
Not getting the agreement reviewed by a qualified lawyer before signing — co-founder agreements are complex and worth the investment
Frequently asked questions
Do co-founders need a formal agreement if they trust each other?
Yes. Co-founder agreements are not about distrust — they are about creating clarity. The conversations required to draft the agreement (about equity, roles, and exit) are exactly the conversations all founding teams should have. The agreement is the record of those conversations, and it protects both parties if circumstances change.
What is a standard vesting schedule for co-founders in Australia?
The most common structure is a four-year vesting schedule with a one-year cliff. This means a co-founder earns no equity during the first twelve months, vests 25% on the first anniversary, then vests the remaining 75% monthly over the following three years. Variations exist, including accelerated vesting provisions on exit or change of control.
Can a co-founder agreement cover prior IP contributions?
Yes. If one co-founder has created IP before the company was formally incorporated — code, designs, or other assets — the agreement can assign that prior IP to the company and optionally grant the contributing founder immediate vesting of a portion of their equity to reflect that contribution.
Do I need a lawyer to draft a co-founder agreement?
You should have a qualified lawyer review any co-founder agreement before signing, particularly for provisions around equity, vesting, and IP. Neureson helps you create a professionally structured draft in minutes, which you can then review with a lawyer to finalise the details.
What happens to a co-founder's equity if they leave early?
This depends on the terms of the agreement. Good leaver provisions typically allow the departing founder to retain vested equity. Bad leaver provisions — triggered by resignation without notice, termination for cause, or competitive conduct — often result in forfeiture of unvested equity and sometimes a buyback of vested equity at a discount.
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