Co-founder disputes are a leading startup killer, and nearly all of them are the same dispute: someone left, and the equity did not follow the work. A founders agreement signed in week one, split, vesting, IP, decisions, departures, is the cheapest insurance a startup will ever buy.
This template implements the standard architecture: an explicit split, four-year vesting with a one-year cliff, company ownership of all IP, defined decision thresholds, and repurchase of unvested shares on departure, plus the 83(b) election reminder that saves founders from a famous tax trap.
Vesting is the whole point
Equity without vesting is a bet that no founder ever leaves, and founders leave constantly: the average co-founder relationship faces its first serious strain within two years. The standard cure is time-based vesting, four years with a one-year cliff: leave in month eight and you keep nothing; leave at month 30 and you keep what you earned. The unvested remainder returns to the company, where it can fund the replacement. Investors require founder vesting anyway, so adopting it on day one costs nothing except the illusion of permanence, and founders who have already worked a year can negotiate vesting credit for time served. Double-trigger acceleration protects founders in an acquisition without handing acquirers a reason to discount the deal.
The 83(b) election has a 30-day fuse
Founders receiving restricted (vesting) shares should file an 83(b) election with the IRS within 30 days of the purchase, electing to be taxed on the shares' (tiny) value now instead of their (hopefully large) value as they vest. Missing the window is irreversible and can create enormous phantom tax bills. This agreement obligates each founder to file on time.
The company must own the IP, including the pre-formation weekend code
Startups are IP wrapped in a cap table, and two leaks sink them in diligence. First, pre-formation work: the prototype a founder built before the entity existed belongs to that founder personally until assigned, which is why this agreement's assignment reaches work created before formation. Second, prior employers: moonlighting founders whose employment contracts contain broad invention assignment clauses can unknowingly build a company their employer owns a piece of, and the agreement's representation forces that conversation early. Every future hire and contractor should sign equivalent assignment terms, because an acquirer's diligence will ask for the complete chain, person by person.
How the founders agreement relates to the entity documents
The founders agreement is the deal among the people; the entity has its own paperwork. In a corporation, share mechanics live in restricted stock purchase agreements and, as the company matures, a shareholder agreement; in an LLC, most of these terms migrate into the operating agreement. A partnership agreement serves ventures that will remain unincorporated. The founders agreement remains valuable even after those documents exist, because it captures founder-specific promises, roles, vesting, departures, IP history, that entity boilerplate does not. Keep them consistent: where they conflict, the later, more specific document should say which controls.
Frequently asked questions
Should co-founders split equity equally?
Equal splits are common and defensible when contributions are genuinely comparable; they are corrosive when they paper over a real imbalance to avoid an awkward conversation. The honest inputs are relative commitment, capital contributed, the idea and pre-work, and replaceability. Whatever the split, vesting matters more than the percentages.
What is a vesting cliff and why one year?
The cliff is the period before any equity vests: leave during it and you keep nothing. One year matches the horizon over which a founder's real commitment reveals itself, and it protects everyone from the co-founder who contributes two enthusiastic months and then owns 25 percent forever.
What happens to a founder's shares when they leave?
Vested shares stay theirs (subject to any repurchase rights the share documents add); unvested shares are repurchased by the company at the lower of cost or fair value. This is the mechanism that keeps the cap table proportional to contribution, and it is the clause departing founders most wish they had read earlier.
Do we need this before incorporating?
It works both ways, and the template handles both. Signed pre-formation, it binds the founders personally and obligates the future company to adopt it, which protects the interim period when IP is being created with no entity to own it. Signed post-formation, it complements the corporate documents with the founder-level terms they lack.
Can the agreement force out a non-performing founder?
It provides the levers: the decision threshold can change a founder's role, vesting stops when the relationship ends, and unvested equity returns to the company. What it deliberately does not do is make expulsion casual, removal decisions run through the major-decision process, which protects every founder from the others.
What is an 83(b) election in plain terms?
A one-page IRS filing, due within 30 days of receiving restricted shares, electing to pay tax on their value today (usually near zero) instead of on each vesting date (potentially enormous if the company grows). For founders of new companies it is almost always right, and missing the deadline cannot be fixed.