TL;DR: A co-founder agreement covers equity splits, vesting, roles, decision-making, and what happens when someone leaves — skipping it is one of the costliest mistakes a founding team can make.
More startups fail because of co-founder conflict than because of product failure or market issues. The terms you agree on at the beginning — equity ownership, decision-making authority, what happens if someone leaves, how intellectual property is handled — determine whether your founding team can survive the inevitable stresses of building a business.
A co-founder agreement (often called a founders' agreement or shareholders' agreement at the company level) is the document that captures these terms. It is separate from the company's articles of association and covers the specific arrangements between founders that the articles do not address.
This guide covers the essential elements of a co-founder agreement, explains why each one matters, and provides country-specific context for the UK, France, Sweden, Australia, New Zealand, Canada, and the United States.
Founding teams often skip the co-founder agreement because the relationship feels solid and the terms seem obvious. This is precisely the moment when disputes are least likely — and when the agreement is easiest to reach. Trying to negotiate these terms after a conflict has emerged, when one founder wants to leave, or when an investor is waiting for clean documentation is far more difficult and expensive.
The most common co-founder disputes involve:
A well-drafted agreement prevents most of these disputes from becoming destructive.
The equity split — who owns what percentage of the company — is the most consequential provision. Common approaches:
Equal split: If all founders contribute equally (time, skills, capital), equal splits are simple and fair. They require unanimous or supermajority agreement on major decisions, which can be positive (no founder can override others) or negative (decision-making is slow).
Contribution-based split: Unequal splits reflect unequal contributions — whether in terms of the original idea, initial investment, industry connections, or technical expertise.
Dynamic equity: A formula that allocates equity based on ongoing contribution rather than a fixed split at founding. Complex to administer but arguably fairer over time.
The equity split should be discussed openly, with each founder articulating what they bring and what they expect. Equity is a long-term commitment; get it right.
Vesting is the mechanism by which founders earn their equity over time, rather than owning it outright from day one.
A standard vesting schedule might be: 4-year vesting with a 1-year cliff. This means:
If a founder leaves within the first year, they receive no equity. If they leave after two years, they keep 50% of their allocated shares. This protects the company and the remaining founders from a co-founder who contributes little and then walks away with a significant ownership stake.
Vesting is standard practice in venture-backed startups and is increasingly common in bootstrapped companies. It should be set up at incorporation, when everyone is aligned and before any departure risk is present.
Define the initial roles and responsibilities of each founder: CEO, CTO, CFO, Head of Sales, etc. Include:
This prevents ambiguity and reduces the risk of founders stepping on each other's authority.
Not all decisions should require consensus. A decision-making framework sets out:
This is perhaps the most important provision in any co-founder agreement. Define:
Good leaver vs. bad leaver: Most agreements distinguish between a "good leaver" (who leaves for reasons beyond their control — illness, death, mutual agreement) and a "bad leaver" (who resigns, is dismissed for cause). Good leavers typically keep their vested shares; bad leavers may be required to sell them back at a reduced price.
Forced transfer provisions: If a founder leaves, do remaining founders or the company have the right to buy their shares? At what price?
Non-compete and non-solicitation: Can a departing founder immediately start a competing business or recruit your employees? The enforceability of these clauses varies significantly by jurisdiction — consult a qualified solicitor.
All intellectual property created by founders in connection with the business must be assigned to the company. This includes code, designs, written materials, patents, and trade secrets. Without an IP assignment, founders who leave may be able to claim personal ownership of critical company assets.
IP assignment should happen at incorporation or as close to it as possible.
Founders have access to sensitive business information — finances, client lists, trade secrets, product plans. The agreement should include mutual confidentiality obligations that survive the end of the relationship.
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Try it free →| Issue | UK | France | Sweden | Australia | NZ | Canada | USA |
|---|---|---|---|---|---|---|---|
| Non-compete enforceability | Limited | Very limited | Limited | Limited | Limited | Varies by province | Varies by state |
| IP ownership default | Employer/company | Employer/company | Employee | Employee | Employer/company | Employer/company | Employer/company |
| Vesting — tax implications | EMI options available | Complex rules | Complex rules | Specific tax treatment | Consult accountant | CCPC rules | 83(b) election important |
Government resources for founders:
Important note on non-compete clauses: Non-compete clauses have very limited enforceability in France, and are difficult to enforce in Australia, New Zealand, and many US states. In the UK, they must be reasonable in scope, geography, and duration to be enforced. Always consult a qualified solicitor for your jurisdiction before relying on non-compete provisions.
MmowW Scrib🐮 helps you prepare the formation documents that support a clean corporate structure — including the company incorporation documents into which your co-founder agreement will fit.
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MmowW Scrib🐮 is a document preparation service, not a law firm. We do not provide legal advice. Co-founder agreements involve complex legal and tax issues — always consult a qualified solicitor or attorney.
Q: Does a co-founder agreement need to be notarised?
In most common law countries (UK, Australia, NZ, Canada, USA), a co-founder agreement does not need to be notarised to be legally binding. In France, some documents benefit from notarisation. However, the agreement must be signed by all parties and may need to be witnessed depending on its specific provisions. A solicitor can advise on execution requirements.
Q: What if we cannot agree on the equity split?
If founders cannot agree on equity, it is a warning sign about the viability of the founding relationship. Rather than rushing to a number everyone is uncomfortable with, take time to understand each founder's concerns. Some founders use structured negotiation frameworks or engage a third-party mediator. If agreement is genuinely impossible, that may be important information about whether the partnership will work.
Q: Can we change the co-founder agreement later?
Yes. Like any contract, a co-founder agreement can be amended by mutual agreement of all parties. Common reasons to revisit include: a new co-founder joining, an existing co-founder changing their role, or the business changing direction. Amendments should be documented in writing and signed by all parties.
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