Assembling Your Core: Navigating Co-Founder Agreements
Takeaway: A co-founder agreement is like a prenuptial agreement for your business; it forces you to have the most difficult conversations upfront when everyone is aligned, preventing catastrophic disputes down the road.
The early days of a startup are exhilarating. You and your co-founders are united by a powerful vision, fueled by late-night lab sessions and a shared belief that your science can change the world. In this "honeymoon phase," it can feel awkward, or even cynical, to talk about what might happen if things go wrong. But this is precisely the moment when you must formalize your relationship with a critical legal document: the co-founder agreement.
Failing to put a co-founder agreement in place is one of the most common and devastating mistakes a founding team can make. It leaves the door open to disputes over equity, roles, intellectual property, and what happens if someone leaves—disagreements that can easily destroy a promising company before it even gets off the ground.
What is a Co-Founder Agreement?
A co-founder agreement is a legal contract between the founders of a company that sets out the initial ownership structure, defines roles and responsibilities, and establishes the rules of engagement for how the founders will work together. It is the foundational document that governs your relationship. While some of its terms will eventually be formalized in corporate documents after you incorporate, the agreement ensures there is a meeting of the minds on the most critical issues from day one. Think of this not as a single, standalone contract (though it can be depending on the circumstances), but as a term sheet for your partnership; the key principles you agree upon will be implemented by your legal counsel into your Founder Stock Purchase Agreements, the Bylaws, and other organizational documents.
Key Conversations to Have (and Clauses to Include)
Drafting a co-founder agreement forces you to have candid conversations about topics that are easy to ignore when you're focused on the science. Here are the essential elements you must discuss and codify:
Equity Ownership and Vesting:
The Split: How will the initial equity be divided among the founders? This decision should not be taken lightly. While an equal split is common, you should have an honest discussion about each founder's expected contributions, both past and future.
Vesting: This is non-negotiable. Vesting means that founders don't own all their stock outright on day one. Instead, they earn it over a period of time (typically four years with a one-year "cliff"). If a founder leaves before they are fully vested, the company has the right to repurchase the unvested shares. This protects the company and the remaining founders from a situation where someone leaves after six months but walks away with a huge chunk of the company.
Roles and Responsibilities:
Who is responsible for what? While titles might seem premature, defining operational roles is crucial. Who will be the CEO, responsible for fundraising and business strategy? Who is the CSO or CTO, leading the scientific and technical development? Clarity here prevents turf wars and ensures all critical business functions are covered.
Intellectual Property (IP) Assignment:
The core value of your synbio startup is its intellectual property. The co-founder agreement must include a clause stating that any IP created by the founders related to the business is automatically assigned to the company itself . This is particularly critical for work done before the company is officially incorporated, ensuring that the company, not an individual founder, owns the foundational technology.
Decision-Making and Control:
How will major decisions be made? Will it require a unanimous vote or a simple majority? What happens if there is a deadlock? Defining the process for making key strategic decisions (e.g., taking on investment, selling the company, making a major pivot) can prevent paralysis and conflict later on.
What Happens When Someone Leaves? (The "4 D's")
This is the toughest but most important part of the discussion. Your agreement needs a clear process for handling the departure of a founder, whether it's due to:
Disagreement: A founder voluntarily resigns.
Death: A plan for the founder's shares.
Disability: How to handle a long-term inability to work.
Discharge: The process for firing a founder for cause (e.g., fraud, gross misconduct) or without cause.
While it's tempting to download a generic template from the internet, a co-founder agreement is too important for a one-size-fits-all solution. Working with experienced legal counsel will help you navigate these sensitive conversations and tailor an agreement that protects all the founders and gives your startup the stable foundation it needs to thrive.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.