Co-Founder Agreement: The 10 Clauses Every Founding Team Needs
What a co-founder agreement must cover, a clause-by-clause template structure you can draft from, and where founders get burned by skipping the paperwork.
The short answer
A co-founder agreement is a written contract covering equity with vesting, roles, decision-making, IP assignment, and what happens when someone leaves. Draft it before or immediately after incorporation — the ten clauses below cover everything a standard agreement needs. You can prepare the whole document yourselves, but have a startup lawyer review the final version: the leaver and IP clauses are where DIY drafts fail.
Why "we trust each other" is not a plan
Every co-founder dispute starts between people who trusted each other — that's what made them co-founders. The agreement isn't for the relationship you have today; it's for the version of you two that exists after eighteen months of stress, a failed launch, or an acquisition offer that one of you wants to take and the other doesn't.
The most expensive startup document is the one you didn't write: a departed co-founder holding 30% of a company they left in month five kills fundraising rounds and acquisition deals years later. Investors call it a broken cap table, and it is among the most common reasons early deals fall apart. If a potential partner resists putting things in writing, treat it as a serious red flag.
The 10 clauses of a co-founder agreement
1. Equity split and vesting
State each founder's percentage and put every share on a vesting schedule — the standard is 4 years with a 1-year cliff: leave before month twelve and you keep nothing; after that, shares vest monthly. How you arrive at the percentages is its own decision — our equity split guide covers equal vs. weighted splits and the frameworks behind them.
2. Roles and responsibilities
Who is CEO, who owns product, who owns the money. This isn't about job descriptions — it's about ending the daily "who decides this?" friction. Include the expected time commitment: full-time from day one, or the milestone that triggers it.
3. Decision-making and deadlock
Define which decisions need unanimity (raising money, selling the company, hiring executives, taking on debt) and who breaks ties on everything else. Two founders at 50/50 need a deadlock mechanism — a designated tie-breaking domain each, or a trusted third party — because "we'll work it out" is precisely what fails.
4. IP assignment
Every founder assigns all relevant intellectual property — code, designs, the idea itself, work done before incorporation — to the company. Without this clause, a departing founder can plausibly claim they own the codebase they wrote. This is the clause investors' lawyers check first.
5. What happens when someone leaves
The most important clause in the document. Cover voluntary departure, firing for cause, and death or incapacity: what happens to unvested shares (they lapse), vested shares (company right to repurchase, and at what valuation), and board or signing rights. Founders call this the "bad breakup" clause because that is exactly when it gets read.
6. Salary and expenses
What each founder is paid now, what changes it (funding round, revenue threshold), and how out-of-pocket expenses and any founder loans to the company are treated. Unspoken salary expectations are a slow-burning conflict — one founder with savings and one with rent due have very different runways.
7. Confidentiality and non-compete
Founders keep company information confidential and don't launch a competing venture while involved and for a defined period after leaving. Keep the scope reasonable — overly broad non-competes are unenforceable in many jurisdictions and signal distrust without adding protection.
8. Share transfer restrictions
No founder sells or transfers shares without offering them to the company or other founders first (right of first refusal), plus tag-along/drag-along provisions so a majority sale can't be blocked by — or hidden from — a minority holder.
9. Dispute resolution
Agree now on how you'll disagree later: structured internal escalation first, then mediation, then arbitration or a named jurisdiction's courts. The goal is to make the worst-case scenario a process instead of a public, company-killing fight.
10. Amendment and governing law
How the agreement itself can be changed (written consent of all founders, or a defined majority) and which country's or state's law governs it. Revisit the document at every funding round — shareholder agreements with investors will supersede parts of it.
Template structure you can draft from
A standard co-founder agreement runs 5–10 pages in this order:
- Parties and recitals — who is signing, company name, date
- Definitions — "Shares", "Cause", "Good Leaver / Bad Leaver"
- Equity & vesting — clause 1 above, with a cap table as an annex
- Roles, commitment & compensation — clauses 2 and 6
- Governance — decision-making and deadlock (clause 3)
- IP assignment — clause 4, listing pre-existing IP explicitly
- Leaver provisions — clause 5, the longest section
- Restrictive covenants — confidentiality, non-compete, transfer restrictions (7–8)
- Boilerplate — disputes, amendments, governing law, signatures (9–10)
Draft the content yourselves — the conversations the drafting forces are half the value — then pay for one or two hours of a startup lawyer's review. Jurisdiction matters: a Delaware C-Corp, a UK Ltd and a German GmbH each handle vesting and share repurchases differently, and a template written for one can be silently invalid in another.
An agreement needs a second signature
Still looking for the co-founder to sign it with? Meet founders who are ready to build — free.
Find a Co-Founder4 mistakes founders make with agreements
- Signing without vesting. A signed agreement that grants equity outright is worse than none — it documents the departed founder's claim instead of protecting against it.
- Copying a template from another jurisdiction. US-style share repurchase mechanics don't translate to a GmbH; UK good-leaver/bad-leaver terms mean nothing in Delaware. Match the template to where you incorporate.
- Treating it as one-and-done. The agreement should be revisited at incorporation (if drafted before), at the first hire, and at every funding round.
- Waiting for the "right moment". The right moment is before real value exists — the day after your first big customer or funding conversation, every clause becomes a negotiation.
Frequently asked questions
Do we need a co-founder agreement before incorporating?
Have the conversations and write down the outcomes before incorporating; formalize the full agreement at incorporation. A one-page signed memo covering equity, vesting and IP beats a perfect document that doesn't exist yet.
Can we write a co-founder agreement without a lawyer?
You can and should draft it yourselves — the forced conversations are the point. But budget for a lawyer's review of the final version, especially the leaver and IP clauses. One or two billable hours now is orders of magnitude cheaper than a dispute later.
What is the difference between a co-founder agreement and a shareholders' agreement?
A co-founder agreement governs the founders' relationship — roles, commitment, vesting, leaving. A shareholders' agreement governs all shareholders (later including investors) and the company's shares. Early on they overlap heavily; after a funding round, the investor-led shareholders' agreement typically supersedes parts of the founder document.
What vesting schedule should we use?
Four years with a one-year cliff, vesting monthly after the cliff, is the global default and what investors expect to see. Deviate only with a reason you could explain to a future investor — for example, credit for a year of pre-incorporation work.
What happens if we never signed anything and my co-founder left?
Their shares are theirs, including any IP they never formally assigned. Your options are negotiating a buyback, offering something for a retroactive IP assignment, or living with a broken cap table. Get advice early — this exact situation is why the agreement exists.
Should the agreement cover what happens if we shut down?
Yes, briefly: who winds down operations, how remaining assets and IP are distributed, and whether founders can continue the idea independently afterwards. It's two paragraphs that prevent a surprisingly common end-stage fight.
Keep reading
- Co-Founder Equity Split: How to Divide Startup Equity Fairly — how to arrive at the percentages this agreement writes down.
- 40 Questions to Ask a Potential Co-Founder — the conversations to have before anyone signs anything.
- Co-Founder Red Flags: 15 Warning Signs — including the ones that show up at the paperwork stage.
- How to Find a Co-Founder (The Complete Guide) — the search that comes before the signature.
First the partner, then the paperwork
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