Co-founder Agreement (MOU) Template

Co-founder Agreement (MOU) Template

A co-founder agreement is the most important document you will sign before incorporating your startup. It prevents disputes, sets clear expectations, and protects everyone involved.

Why You Need a Co-founder Agreement

According to research, 65% of startups fail due to co-founder conflicts. A written agreement forces you to have difficult conversations early and creates a reference point for future disagreements.

Key Clauses to Include

#### 1. Parties and Roles

Clearly define each co-founder's:

Full legal name and contact details

Designated role and title (CEO, CTO, COO, etc.)

Primary responsibilities and KPIs

Time commitment (full-time, part-time, transition period)

Example:

Founder A: CEO, responsible for business development, fundraising, and overall strategy. Full-time commitment from Day 1.

Founder B: CTO, responsible for product development, technology architecture, and engineering team. Full-time from Month 3 (currently transitioning from employment).

#### 2. Equity Split

This is the most critical and sensitive section.

Common approaches:

Equal split: Simple but may not reflect actual contributions

Dynamic split: Based on contributions, time, capital, IP brought in

Role-based: CEO typically gets slightly more in single-founder-led companies

Recommended framework for deciding equity split:

Consider these factors and assign weights:

Idea origination: 5-10% weight

Business plan and strategy: 10-15%

Domain expertise: 10-15%

Time commitment and sacrifice: 20-25%

Capital contribution: 10-20%

Network and connections: 5-10%

Technical skills / IP: 15-25%

Important: All founder equity should be subject to vesting. A standard 4-year vesting with 1-year cliff protects the company if a co-founder leaves early.

#### 3. Vesting Schedule

Cliff period: 1 year (no equity vests before this)

Vesting period: 4 years total

Vesting frequency: Monthly after cliff

Acceleration: Define if vesting accelerates on acquisition or termination without cause

Example: Founder A holds 50% equity with 4-year vesting and 1-year cliff.

Months 0-11: 0% vested

Month 12: 12.5% vests (25% of 50%)

Months 13-48: ~1.04% vests each month

Month 48: Fully vested at 50%

#### 4. Capital Contribution

How much each founder is contributing initially

Whether contributions are loans or equity purchases

Future capital call provisions

What happens if one founder cannot contribute their share

#### 5. Intellectual Property

All IP created for the startup belongs to the company

Pre-existing IP must be listed and assigned (or licensed) to the company

Each founder warrants they are not violating any third-party IP

#### 6. Decision Making

Day-to-day decisions: Each founder within their domain

Major decisions requiring unanimous consent:

- Raising funding

- Spending above a threshold (e.g., INR 5 lakh)

- Hiring senior executives

- Pivoting the business model

- Taking on debt

Deadlock resolution: Mediator, advisory board vote, or defined process

#### 7. Compensation

Initial salary (often zero or minimal in early stages)

When salaries will start (e.g., after raising seed round)

Expense reimbursement policy

Future compensation review process

#### 8. Non-Compete and Non-Solicitation

During the startup: Full-time commitment, no competing activities

After departure: Non-compete for 1-2 years within the same industry/geography

Non-solicitation of employees and customers for 1-2 years

#### 9. Exit Clauses

Voluntary departure:

Unvested shares are forfeited

Vested shares may be subject to company buy-back at fair value

Notice period (typically 3-6 months for co-founders)

Transition responsibilities

Termination for cause:

Define what constitutes "cause" (fraud, breach of fiduciary duty, criminal conviction)

All unvested shares forfeited

Company may have right to repurchase vested shares at a discount

Death or disability:

Vesting may accelerate partially or fully

Company or remaining founders get right of first refusal on shares

Key person insurance recommendation

#### 10. Confidentiality

All business information is confidential

Survives termination of the agreement

Covers customer data, financial information, product plans, and trade secrets

Template Structure

A complete co-founder MOU should follow this structure:

Date and parties

Recitals (background and purpose)

Business description and objectives

Roles and responsibilities

Equity allocation and vesting

Capital contributions

Decision-making framework

Compensation and expenses

IP assignment

Non-compete and confidentiality

Departure and exit terms

Dispute resolution

Governing law

Signatures

When to Sign

Sign this agreement BEFORE:

Writing any code or building any product

Spending any money on the business

Incorporating the company

Bringing on employees or contractors

Approaching investors

Legal Validity

While an MOU is typically non-binding, it carries significant legal weight as evidence of the founders' intentions. For full legal protection, incorporate these terms into:

The company's Articles of Association

A formal Shareholders Agreement post-incorporation

Board resolutions confirming equity allocations