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Why You Should Consider a Founders' Agreement

A founders' agreement can help you avoid a messy divorce from your business partner. Here's what you need to know.

Though it can be hard to believe, most feuding cofounders probably got along once upon a time.

"Sometimes things don't work out and you have to get a business divorce," Stephanie Margossian, partner at San Francisco-based law firm Gagnier Margossian, said at a small educational workshop in San Francisco Monday. Gagnier Margossian serves startups and technology companies. 

During the session called "Starting Your Own Business: The Legal Details," Margossian talked about the importance of drafting a founders' agreement almost as soon as two or more people first go into business together. A founders' agreement is generally not legally binding. But it does provide some protection to founders who later find themselves working with an attorney as they sort out their business separation. The agreement is documentation that you were once on the same page as your cofounder. 

"You want to make sure that things in the founders' agreement -- it's understood that they're negotiable. They're a baseline understanding of what you guys think is going to happen as you develop the company," Margossian said.

What's Inside a Founders' Agreement 

In some ways, a founders' agreement is an outline of what's expected to come. It can include: 

  • Expected salaries
  • A statement about the direction of the company
  • A prospective business plan
  • And roles and responsibilities

That last point can be one of the most important things to get in writing. Partner at Gagnier Margossian Christina Gagnier said that the firm has had to referee arguments between cofounders who claim that the other either didn't do their part or overstepped his or her bounds. 

Another way to avoid a communication breakdown is to document everything via email, Gagnier said.

"Follow up phone calls with emails saying, 'We discussed these three details. We're going to do A, B and C next.' Any time you can create a paper trail, it can help you come back later and have evidence of what happened," she said.  

Last updated: Jan 14, 2014

LAURA MONTINI | Staff Writer

Laura Montini is a reporter at Inc. She previously covered health care technology for Health 2.0 News and has served as an associate editor at The Health Care Blog. She lives in San Francisco.

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