How to add a co-founder in a company? Key things to know

How to add a co-founder in a company? Key things to know

A co-founder is crucial in bringing together complementary skills, expertise, and resources to create a scalable venture. However, specific duties and rights of a co-founder are defined in an agreement called the co-founder’s agreement. The key components in the agreements include:

A co-founder is crucial in bringing together complementary skills, expertise, and resources to create a scalable venture. However, specific duties and rights of a co-founder are defined in an agreement called the co-founder’s agreement. The key components in the agreements include:

Defining the business and its key milestones, elucidating the potential direction of the company and formulating business terms are vital elements to prevent an existing co-founder from using the brand name or engaging in competing business activities

Defining the business and its key milestones, elucidating the potential direction of the company and formulating business terms are vital elements to prevent an existing co-founder from using the brand name or engaging in competing business activities

Ownership structure involving equity and the percentage of shares held by each co-founder. The proprietorship division includes: 

Ownership structure involving equity and the percentage of shares held by each co-founder. The proprietorship division includes: 

A) Rule of N: Equal distribution among co-founders

A) Rule of N: Equal distribution among co-founders

B) Contribution-based: Considering both efforts and capital, the allocation of ownership shares is based on individual contributions

B) Contribution-based: Considering both efforts and capital, the allocation of ownership shares is based on individual contributions

C) Vesting entails the allocation of company shares and the right to repurchase shares. In cases of co-founder dis-ownership or departure, the agreement should explicitly define the departing founder’s rights, without any restrictions on selling shares

C) Vesting entails the allocation of company shares and the right to repurchase shares. In cases of co-founder dis-ownership or departure, the agreement should explicitly define the departing founder’s rights, without any restrictions on selling shares

Conflicts over profit distribution may arise, necessitating clear and detailed provisions in the agreement regarding the allocation of profits among partners

Conflicts over profit distribution may arise, necessitating clear and detailed provisions in the agreement regarding the allocation of profits among partners

The agreement should address the process and circumstances under which a founder may be terminated, a critical issue that can lead to disputes if not clearly stated

The agreement should address the process and circumstances under which a founder may be terminated, a critical issue that can lead to disputes if not clearly stated

To avoid disputes during business development, the co-founder agreement should explicitly specify the decision-making procedures

To avoid disputes during business development, the co-founder agreement should explicitly specify the decision-making procedures

The treatment of loans from founders should be clarified in the agreement, specifying whether the loan is to be repaid with interest or other benefits

The treatment of loans from founders should be clarified in the agreement, specifying whether the loan is to be repaid with interest or other benefits

Conflict resolution mechanisms should be predetermined in the agreement to settle disputes if members cannot resolve disagreements

Conflict resolution mechanisms should be predetermined in the agreement to settle disputes if members cannot resolve disagreements

Including a non-compete clause is essential to ensure that departing founders do not compete with the original business

Including a non-compete clause is essential to ensure that departing founders do not compete with the original business

Provisions for initial compensation, covering profits, revenue, reimbursement, and founder compensation, are crucial and should be clearly outlined in the agreement

Provisions for initial compensation, covering profits, revenue, reimbursement, and founder compensation, are crucial and should be clearly outlined in the agreement

For the addition of new co-founders, the agreement should include a clause specifying the process and defining the extent of their role in the business

For the addition of new co-founders, the agreement should include a clause specifying the process and defining the extent of their role in the business

Image source: Pexels

Image source: Pexels