Founders' Agreement

This Founders' Agreement template is designed for a UK private limited company, providing a comprehensive legal framework to outline the rights, responsibilities, and obligations of each founder.  It ensures clarity on key aspects such as equity allocation, roles and responsibilities, and decision-making processes. The agreement includes provisions to protect the company's interests, such as non-compete and non-solicitation clauses, and mechanisms for resolving disputes, including mediation and arbitration.  Key sections cover shareholdings and financing, business activities, director appointments, warranties, accounting and information rights, and confidentiality. The agreement also addresses termination conditions and restrictive covenants to safeguard the company's goodwill.  By establishing a clear understanding among founders and providing a structured approach to potential challenges, this template aims to facilitate smooth business operations and prevent disputes.  It is essential for any new business to ensure all founders are aligned and the company's interests are protected. 

This template includes the following key provisions:

1. Definitions and Interpretation: Provides definitions for key terms used throughout the agreement and rules for interpreting the document.
2. Shareholdings and Financing: Details the initial shareholdings and financing provided by the original founders and outlines the process for obtaining additional working capital.
3. The Business: Specifies the business activities of the company and the founders' commitment to act in good faith and promote the business.
4. Directors: Sets the maximum number of directors, the process for appointing and removing directors, and details on director remuneration.
5. Warranties: Each founder warrants their authority to enter into and perform the agreement, and that the agreement is legal and binding.
6. Accounts and Information Rights: Obligates the company to maintain proper books of account and provide financial statements and other information to founders.
7. Company Covenants: Lists positive and negative covenants the company must adhere to, including promoting the business, holding board meetings, and protecting intellectual property.
8. Founders’ Covenants: Founders must ensure the company does not undertake certain actions without unanimous consent, such as amending the articles or declaring dividends.
9. Transfers and Allotments of Shares: Restricts founders from transferring or encumbering shares without prior consent and requires new founders to sign a deed of adherence.
10. Observance of Articles and Conflict: Ensures compliance with the articles of association and states that the agreement prevails in case of conflict.
11. Restrictive Covenants and Protection of Goodwill: Imposes non-compete, non-solicitation, and confidentiality obligations on founders during and after their shareholding period.
12. Confidentiality and Announcements: Requires parties to keep confidential information secret and restricts public announcements without consent.
13. Termination: Specifies that the agreement ceases for a party when they no longer hold shares, with certain clauses remaining in effect.
14. Miscellaneous: Includes provisions on variation, severability, waiver, rights of third parties, assignment, entire agreement, succession, time of the essence, counterparts, costs, and power of attorney.
15. Notices: Details the methods and addresses for serving notices under the agreement.
16. Governing Law and Jurisdiction: States that the agreement is governed by the laws of England and Wales and specifies the jurisdiction for disputes.
17. Schedule 1 - The Company: Provides details about the company, including its name, incorporation date, registered number, office, share capital, directors, secretary, and accounting reference date.
18. Schedule 2 - The Founders: Lists the original founders, their addresses, and the number of shares and loan notes they hold.
19. Schedule 3 - Deed of Adherence: A template deed for new founders to adhere to the terms of the Founders' Agreement. 

Publisher’s Notice:

Note: This publication does not necessarily deal with every important topic, nor cover every aspect of the topics with which it deals. Templates do not include or provide legal or other advice to users. They are designed to provide a head-start to the development of a commercial agreement and are not the finished article. They require careful reading, analysis and customisation in order to meet the particular needs of the parties to the document. 

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