Starting a business is often like getting married.

Starting a business is often like getting married.

Everyone starts with the highest of hopes and best of intentions. It does not always end well. I have seen families and friendships torn asunder when they part ways. 

Just like getting a prenup, ensure that your deal with your co-founders is clear.

What should you discuss before getting into bed with a co-founder? Here are some thoughts:

1. The proportion of ownership of the shares.
2. Capital Contribution or Sweat Equity? How do you value Sweat Equity?
3. Are parties expected to work full-time at the company?
4. What if someone decides to walk away? Does his/her shareholding take a hit?
5. Define the responsibilities of each founder. Keep it distinct if possible.
6. Will there be a monthly salary?
7. If a founder leaves the company, must he/she offer his/her shares to the company? To the other founders? At what price?
8. What will happen if everyone agrees to cease the business?
9. What will happen if one founder wants to retain his/her shares but also wants to start another business or quit the company altogether?
10. What is the company vision? What is the target? IPO?
11. Who will be the Company Secretary? Lawyer? Accountant?
12. Who will oversee hiring?
13. Who can sign the cheques?
14. How are matters voted on? Simple majority/Supermajority? Unanimous?

There are dozens of other decisions to be made. In my experience, founders should spend some time thinking about the above, at the very least. These should be captured in a shareholder’s/founder’s agreement. The company constitution/articles should also be reflective of the founder’s discussions but that is a discussion for another day.

Critically, founders should commit to discussing/updating their agreement at regular intervals of perhaps a year. Keep updated, keep each other informed, keep the lines of communication open.

Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact us at: 

walter@silvesterlegal.com or info@silvesterlegal.com.

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