Co-Founder Agreements: What to Put in Writing
Starting a company with a friend or former colleague feels like the easy part. The hard part comes later, when one of you wants to raise money, hire, slow down or walk away, and you discover you each remembered the original handshake differently. A co-founder agreement captures those early promises while everyone still gets along, so the business can survive the conversations that are coming anyway.
Key takeaways
- A co-founder agreement records who owns what, who does what, how decisions get made and what happens if someone leaves.
- Write it before you raise money, hire or sign big contracts, while everyone is still optimistic and cooperative.
- Founder vesting, intellectual property assignment and a leaver process are the clauses that protect the company most.
- Draft the business terms together in plain language, then ask a startup lawyer to turn them into a binding document.
Most co-founder breakups are not dramatic. Someone takes a full-time job, a partner has a baby, two people discover they want very different companies, or one founder quietly stops pulling their weight. None of that is a scandal. It only becomes a crisis when nobody wrote down what happens next, and the company's ownership is stuck with a person who is no longer building it.
The good news is that a solid co-founder agreement does not need to be long or adversarial. It is really a structured conversation, captured on paper. This guide walks you through what to cover, how to have the conversation, and a simple template you can use to prepare before you talk to a lawyer.
A quick note before we start: this article is general information about founder arrangements, not legal or tax advice. Company law and tax treatment vary by country and by structure, so have a qualified startup lawyer review your final agreement.
Why a handshake is not enough
When you start a company with someone you trust, writing things down can feel a bit unfriendly, as if you are planning for failure. In practice, the opposite is true. A written agreement protects the friendship because it removes guesswork. Nobody has to argue about what was "obviously" meant two years ago.
Here is what usually goes wrong without one:
- Memories drift. One founder remembers a 50/50 split, the other remembers "we'll revisit it once we see who does what."
- Departures freeze the cap table. A founder who leaves after a few months may still own a large stake, which can make the company much harder to fund.
- Ownership of the work is unclear. If code, designs or a brand were created before the company existed, the company may not legally own them.
- Decisions stall. With two equal founders and no tie-break rule, a single disagreement can stop everything.
Investors notice these gaps too. During due diligence they typically ask for founder agreements and intellectual property assignments, and missing paperwork can slow a round or force a rushed fix at the worst possible time.
The core clauses to put in writing
Every company is different, but most co-founder agreements cover the same building blocks. Use the sections below as your discussion agenda.
Roles and responsibilities
Write down what each founder owns day to day: product, engineering, sales, operations, fundraising. Add job titles if you like, but focus on decisions. Who has the final say on product priorities? Who signs off on hiring? Be clear about expected time commitment too. If one founder is full time and another is part time for the first six months, say so, and say when that is expected to change.
Equity split and how it vests
Record each founder's percentage and the reasoning behind it, such as who came up with the idea, who brings capital, who brings key skills and who is committing full time. Then add vesting, which means founders earn their shares over time instead of receiving them all on day one. A common pattern is four years with a one-year cliff, though that is a rule of thumb rather than a legal requirement. Vesting is so important that it deserves its own conversation, so treat it as a separate agenda item.
Intellectual property assignment
This clause says that anything founders create for the business belongs to the company, including work done before the company was formed. It is one of the first documents investors look for, and it is much easier to sign now than to chase later.
Decision-making and deadlocks
Decide which choices need everyone's agreement and which can be made by the responsible founder alone. Typical "everyone agrees" items include raising money, taking on debt, issuing new shares, selling the company and bringing in a new founder. Then agree how you will break a tie: a trusted advisor, a board vote, a cooling-off period or mediation.
Money, salaries and expenses
Agree when founders will start paying themselves, how decisions on pay are made and how personal money put into the business is treated. Is it a loan, an investment or a gift? Write it down, with the amount, so nobody is surprised later.
What happens when someone leaves
This is the clause people avoid and later wish they had written. Cover voluntary departure, being asked to leave, long-term illness and death. Many agreements separate a "good leaver," who departs for reasons such as health, from a "bad leaver," who breaches the agreement, with different outcomes for unvested and sometimes vested shares. Your lawyer can explain which approaches are common where you are.
Confidentiality and outside work
Agree what founders may do on the side. Can someone keep consulting? Can they advise another startup? Add a confidentiality clause so business information stays inside the company, and ask a lawyer whether any non-compete or non-solicitation terms are appropriate and enforceable in your country.
Pro tip
Before you meet, ask each founder to answer the same ten questions separately: how many hours a week, desired role, salary expectations, five-year goal, and what would make them want to leave. Comparing the answers side by side reveals mismatches in minutes.
How to have the conversation
The agreement itself is mostly a record of a good conversation. Here is a calm way to run it.
- Book a dedicated session. Set aside two or three hours away from daily work. December is a natural moment, since many teams slow down before the holidays and are already thinking about next year.
- Share the template in advance. Give everyone time to think about each clause on their own before the meeting.
- Start with goals, not percentages. Talk about what each person wants from the company and from their life over the next few years. Equity is easier to discuss once goals are clear.
- Work through each clause. Agree on the principle first, then the details. Mark anything unresolved and move on.
- Write a plain-language summary. One or two pages in your own words, signed or initialed by every founder, captures the intent while you wait for the formal version.
- Take it to a lawyer. Ask a startup lawyer to turn the summary into proper documents that fit your company structure and country.
- Schedule a review. Put a date in the calendar, such as each funding round or every year, to check that the agreement still fits.
Common mistake
Defaulting to an equal split to avoid an awkward talk. Equal can be perfectly fair, but only if it reflects real, similar commitment. If one founder is full time and another plans to join "once we raise," an automatic 50/50 split often breeds resentment. Discuss it openly and make vesting do some of the work.
A co-founder agreement template to prepare with
Copy this table into a shared document and fill in one row per topic. It is a preparation tool, not a legal contract, and the details below are made up for illustration only.
| Topic | What we agreed (example) | Open questions | Owner |
|---|---|---|---|
| Equity split | Founder A 55%, Founder B 45%, based on A working full time from day one | Revisit if B joins full time early? | Both |
| Vesting | Four years with a one-year cliff for both founders | Should vesting speed up if the company is sold? | Lawyer to advise |
| Founder loan | Founder B lends an example amount of $8,000 for equipment, repaid after first funding | Interest or no interest? | Founder B |
| Deadlock | Ask our mentor to mediate, then a 14-day cooling-off period | Who replaces the mentor if unavailable? | Both |
Add rows for roles, decision rights, intellectual property, salaries, outside work, confidentiality and leaver terms. The "Open questions" column is the most useful part, because it becomes the agenda for your lawyer.
Hypothetical example
Imagine Sam and Lucia launch a booking app for dog walkers. Sam writes the code full time; Lucia keeps her job and handles sales on weekends. They agree a 60/40 split with four-year vesting and a one-year cliff, and Lucia's share increases if she goes full time within a year. Eight months later Lucia decides to stay in her job. Because her shares had not passed the cliff, the agreement gives a clear outcome: she leaves on friendly terms, Sam keeps building, and a future co-founder can be offered meaningful equity. Without the agreement, the same situation could have ended the friendship and the company.
Matching the agreement to your structure and country
The same principles apply everywhere, but the documents that carry them differ. Where your company is set up changes which paperwork does the job.
- US corporations. Founder terms often sit across a restricted stock purchase agreement, an IP assignment, the bylaws and sometimes a stockholders' agreement. If founders receive restricted stock that vests, they may want to consider an 83(b) election, which must be filed within 30 days of receiving the stock. Ask your lawyer or tax professional whether it applies to you.
- US LLCs. The operating agreement is usually where ownership, voting and departure terms live.
- UK limited companies. A shareholders' agreement alongside the articles of association usually covers decision rights, leaver terms and share transfers.
- Elsewhere in Europe. Local corporate law shapes what can go in the articles and what must sit in a separate agreement, so local advice matters even more.
If you plan to raise venture capital, mention it to your lawyer at the start. Investors often expect particular structures and terms, and it is cheaper to set them up now than to restructure later.
Common mistake
Downloading a generic template, signing it and never looking at it again. A template from another country or company type may not match your structure and may not be enforceable. Use templates to prepare your thinking, then get advice before you sign.
Keeping the agreement alive
A co-founder agreement is not a one-time box to tick. Companies change quickly, and the agreement should keep up. Review it whenever something significant happens: a new co-founder joins, someone changes their time commitment, you raise money or you change structure. A short yearly check-in, perhaps as part of your planning for the new year, is a good habit even when nothing major has changed.
Store the signed documents somewhere safe and shared, with a clear file name and date. When investors ask for them, you will be glad they are in one folder rather than scattered across inboxes.
Your co-founder agreement checklist
- Ask each founder to answer the same goal and commitment questions separately
- Book a focused session to discuss every clause
- Agree roles, decision rights and time commitment
- Agree the equity split and founder vesting schedule
- Confirm intellectual property is assigned to the company
- Agree a deadlock process and leaver terms
- Record founder loans, salaries and outside work rules
- Write a plain-language summary and have every founder initial it
- Ask a startup lawyer to prepare the binding documents
- Set a date to review the agreement
Frequently asked questions
When should co-founders sign an agreement?
As early as possible, ideally when you form the company or soon after, and certainly before you raise money, hire employees or sign major contracts. The earlier you write it, the less there is to argue about.
Do we really need a lawyer?
You can do most of the thinking yourselves, and the template above helps. A lawyer is still worth it for the final documents, because enforceability, tax treatment and company law vary by country and structure. Coming prepared also keeps the work focused.
What if we cannot agree on the equity split?
Step back to goals and commitment, then look at contribution over time rather than a single number today. Vesting, a review point or a mentor's outside view can help. If you truly cannot agree, that is valuable information to have before you build together.
Can we change the agreement later?
Yes. Most agreements can be amended if the required parties agree in writing. Many founders revisit terms at each funding round or when someone's role changes.
Related reading
The bottom line
A co-founder agreement is a short investment that protects your company, your ownership and your friendship. Cover roles, equity, vesting, intellectual property, decisions, money and departures, write it all down in plain language, and then let a lawyer make it binding.
If you started your company on a handshake, use the quiet weeks around the holidays to have the conversation. It may feel awkward for an afternoon, and it can save you years of uncertainty.
