The Basics of a Co-Founders' Agreement

Updated: Aug 28, 2020

What is a co-founders’ agreement?

A co-founders’ agreement is an agreement executed amongst co-founders of the company. It is much like a shareholders’ agreement, but since it is executed at a very early stage when the co-founders are the only shareholders, it is referred to as a co-founders’ agreement.

Before we dive into what the terms of a co-founders’ agreement should be or what needs to be incorporated in a co-founders’ agreement, let us first answer the daunting question - who can be termed as a co-founder? Is a co-founder different from a promoter? Or a founder?

Legally-speaking, the terms are different. The term “promoter” finds mention in any and all statutes, but the terms “founder” and “co-founder” are not to be found in statutes. A “promoter”, as defined under most statutes, is the person who is supposed to be in charge of the day-to-day operations and management of the startup, and has to act in line with the decisions of the Board of the company.

In the VC / startup world, the words “promoter” and “founder” are used interchangeably. The terms refer to a person who has either set up the startup or has joined a startup but in the role of running it as its “owner”. The term “co-founder” is used when there are multiple founders!

Co-founders often undermine the importance of a co-founders’ agreement, majorly on account of being friends. Having worked together previously, they don’t feel the need to pen down their relationship in the form of a contract. Involving lawyers seems unwarranted at that point in time.

While it might be deemed to be a waste of time and resources then, co-founders must nevertheless execute a co-founders’ agreement. A co-founders’ agreement, in addition to helping promoters navigate day-to-day operations, sets out the rights and liabilities of the persons involved and comes to your aid when things don’t turn out as planned.

A co-founders’ agreement must form the foundation document for any entrepreneurial venture and must be drafted considering the interests of all parties involved.

Through our new LexGyaan series on Co-founders’ Agreements, we aim at throwing light on the various facets of a co-founders’ agreement, how to structure co-founders’ agreements, what clauses must be incorporated in such agreements, among others.

Next up in the series: “Any concern if I term my CTO as a co-founder?

195 views0 comments

Recent Posts

See All

Urgent reminder for filing of Form DIR 3 – KYC

The Ministry of Corporate Affairs (MCA) of the Government of India conducts a KYC check of all directors of all companies registered in India on an annual basis. As per the Ministry of Corporate Affai

Starting Up

When starting your own business, there are so many things to consider, whether it’s the kind of entity you want to create or the legalities that it entails. If you have this idea while you’re still wo


‘A good business idea would kick start a good business’. This basic premise has fueled thousands of generations of aspiring entrepreneurs, promising that all it takes is one brilliant idea and a lot o