A co-founder agreement template needs six decisions

A co-founder agreement should expose disagreement before the company has customers, code, or a cap table worth fighting over. The useful work happens in the conversation: what each founder will contribute, who owns what, who decides, and what the company can recover if the relationship ends. The signed documents record those answers.

A downloaded form cannot tell you whether a 50/50 split fits two unequal commitments, whether one founder's university can claim her research, or whether a deadlocked board can still pay payroll. Treat the co-founder agreement template below as a decision memo for a US startup, then have startup counsel convert it into the right documents for your entity and state. It is practical preparation, not legal or tax advice.

A template records decisions but does not create the company

A founder memo is useful only when its terms appear in the company's operative documents. In a Delaware corporation, those documents usually include the certificate of incorporation, bylaws, board and stockholder consents, restricted stock purchase agreements, and confidential information and invention assignment agreements. An LLC uses an operating agreement and different equity mechanics. Calling one file a "founders agreement" does not make it control all of those instruments.

This distinction matters when two documents disagree. Your memo might say both founders must approve a sale, while the charter, bylaws, voting agreement, or Delaware law gives that power to a board or a defined stockholder vote. Your memo might promise shares, while the board never authorizes an issuance and nobody pays the purchase price. A promise about ownership and an actual stock issuance are different events.

Delaware General Corporation Law section 141 says that a corporation's business and affairs are managed by or under the direction of its board, unless the statute or certificate provides otherwise. That is why the founders' private understanding cannot substitute for board structure and formal approvals. Section 152 separately lets the board determine the consideration and terms for issuing stock. The practical lesson is plain: put the business deal in a short memo, then make every corporate action match it.

Use a six-part decision record before counsel drafts. For founder commitment and money, state the start date, hours, outside work, cash, expenses, salary, and the condition for going full time. For the equity split, give each founder's percentage on an agreed denominator and explain how prior work and cash are treated. For vesting, state the schedule, cliff, vesting start date, repurchase terms, and any acceleration.

For roles and authority, record operating domains, legal offices, board seats, reserved decisions, and the deadlock path. The intellectual-property entry covers prior IP, new work, assignments, third-party restrictions, accounts, data, and contractor work. The departure entry covers voluntary exit, termination, death or disability, vested and unvested shares, transition duties, and continuing obligations.

Write a named owner and a date beside every unresolved point. "We will decide later" is acceptable for a low-stakes detail only when you also state who decides later and by what process.

Decision one fixes the commitment before the percentages

Define the work bargain before discussing equity, because a percentage has no meaning without the future commitment it buys. Two founders can both be serious while making different promises. One may start full time next Monday; the other may keep a job until the company closes financing or reaches a revenue threshold. That difference belongs in writing rather than inside an optimistic assumption.

Record each founder's expected start date, minimum working commitment, location or travel constraints, and permitted outside activities. Avoid vague phrases such as "as needed" and "substantial time." Use terms you could verify without reading anyone's mind: "full time beginning July 1" or "at least three days per week until the company raises $500,000, then full time within 30 days." Counsel can refine language that creates employment or tax concerns.

Money needs the same treatment. List cash already contributed, equipment purchased, expenses awaiting reimbursement, loans, and any salary deferral. Decide whether founder cash buys stock, becomes a documented loan, or counts as an expense. Do not leave a transfer sitting in the company account with three competing stories attached to it. Also state who may approve founder reimbursements and whether the other founder must approve them.

Separate compensation from ownership. Salary pays for current labor when the company can afford it; equity reflects long-term ownership and risk. If one founder takes a temporary salary and another does not, you can document deferred salary or adjust another term, but silently treating every unpaid hour as a changing equity claim makes the cap table impossible to trust. Freeze the split at a defined approval date unless both founders sign a change through the proper company process.

Outside work deserves an uncomfortable, specific conversation. Ask whether either founder advises a competitor, uses a former employer's laptop, remains subject to an invention assignment, or expects to build another product on weekends. A clause banning every outside activity can be unrealistic and may collide with state law. A clause that says nothing invites a dispute over which ideas and relationships belong to this company. Identify allowed work, prohibited conflicts, disclosure duties, and the approval process.

Decision two makes the equity split explainable

Choose the equity split by comparing future contribution, risk, and commitment, then write down the reasoning in one paragraph. The idea alone rarely deserves a permanent premium. A startup's hard work usually lies ahead, and a large early imbalance can turn a supposed co-founder into an underpaid early employee with a grander title.

Y Combinator's Michael Seibel argues for equal or close-to-equal splits because founders often overweight a few months of early work and underweight the years still ahead. I agree with the diagnosis, but "always split equally" is too blunt. Equal is a strong default when founders join at roughly the same stage, make comparable commitments, and carry comparable responsibility. It becomes a fiction when one founder stays part time indefinitely, contributes licensed IP instead of assigning it, or joins after the other has built a funded operating company.

Use a shared worksheet with four rows, not a points calculator that produces a false scientific answer:

• Expected time commitment over the next 24 months
• Cash invested and whether it is stock, debt, or reimbursable expense
• Responsibility and replacement difficulty
• Prior assets the company will actually own, not merely use

Discuss each row, then pick the split you can defend to each other, a future hire, and an investor. Record the capitalization basis as well. "Fifty percent each" can mean half of currently issued founder shares, half of all fully diluted shares after reserving an employee pool, or half before a promised advisor grant. Attach a simple capitalization table showing authorized shares, issued shares, each holder, the option pool if approved, and the fully diluted percentage. Percentages without the denominator cause avoidable fights.

Do not use voting control as a consolation prize inside the economic split. Giving someone 51% solely to break ties mixes two different questions: who receives economic upside and who has authority. A one-point ownership edge may not resolve a board deadlock, and it creates resentment without a sound economic explanation. Design governance directly in decision four.

If contributions change materially before incorporation, reopen the discussion once, document the new facts, and agree on a final split. After stock has been issued, changes can trigger approvals, tax consequences, securities questions, and transfer restrictions. Do not casually "move ten percent" in a spreadsheet. Ask counsel to structure the change.

Decision three makes every founder earn the long term

Put every founder's shares on vesting, including the founder who had the idea and incorporated first. Vesting protects the company when a founder leaves early with a large stake that the team needs for a replacement, employees, or financing. It is a company protection, not a prediction that someone will fail.

A common Silicon Valley schedule runs four years with a one-year cliff, followed by monthly vesting. Under a simple 48-month schedule, 25% vests at the first anniversary and 1/48 of the total grant vests each month after that. This is market practice, not a law. A team can choose another schedule, but it should model what happens at month 6, month 12, month 18, and month 30 before signing.

Founder stock often uses reverse vesting. The founder buys or receives the shares at the start, and the company retains a right to repurchase the unvested portion, commonly at the original purchase price, when service ends. That differs from an employee option that becomes exercisable as it vests. Your documents must say who can exercise the repurchase right, by what deadline, at what price, and what happens if the company does nothing.

Set the vesting commencement date deliberately. Credit for genuine work before incorporation can be reasonable, especially when both founders recognize it. Backdating documents is not. State the agreed vesting start date and let counsel reflect it accurately in approvals and purchase agreements. If one founder gets six months of credit, say why.

Acceleration needs precision. Single-trigger acceleration vests shares when one event occurs, often a sale. Double-trigger acceleration generally requires a sale plus a qualifying termination or resignation for defined good reason. Full acceleration on a sale may make a founder expensive for an acquirer to retain; no protection can leave a founder exposed to losing unvested equity soon after a transaction. Define the percentage accelerated, the triggering transaction, the protection period, and the meanings of cause and good reason.

Restricted stock also creates a tax deadline that founders miss because nobody owns the calendar. Treasury Regulation section 1.83-2 gives a taxpayer no later than 30 days after the property transfer to file a section 83(b) election. The IRS now provides voluntary Form 15620. An election generally includes the difference between the stock's fair market value at transfer and the amount paid in current income rather than waiting for vesting, but the right choice depends on the facts. Each founder should ask a tax adviser immediately, file correctly if advised, send required copies, and keep proof. Put the transfer date and day-30 deadline in the closing checklist; neither the company nor the other founder can repair a missed personal filing with a reassuring email.

Decision four separates a job title from legal authority

Assign operating ownership and legal authority separately, because "CEO" or "CTO" does not answer every decision. Operating ownership tells the team who leads a domain day to day. Legal authority comes from the charter, bylaws, board resolutions, delegations, bank mandates, and applicable law. The co-founder memo should connect those layers without pretending it can replace them.

For each recurring domain, name one lead and the decisions that lead may make within an approved budget. Product, engineering, sales, hiring, fundraising, finance, security, and public communications may need different owners. Consultation is useful; permanent co-approval for routine work is paralysis. The domain lead should inform the other founder and seek input on consequential choices, while retaining authority inside the agreed boundary.

Create a short reserved-matters list for decisions that require board approval, stockholder approval, both founders' consent if legally effective, or another stated threshold. Typical candidates include issuing equity, taking debt above a threshold, changing founder compensation, selling material company assets, approving an annual budget, hiring or firing an executive, entering a related-party transaction, and changing the company's principal business. Counsel must fit that list to the entity's governing documents and cannot contract around approvals the law requires.

Then draw the board. Write the initial directors, who can appoint or remove them, quorum, voting threshold, and what changes after financing. A 50/50 stock split does not require a two-seat board, and a two-seat board creates an obvious 1-1 failure. Adding a third director solves that only if both founders can select a capable independent person before conflict starts. Do not name a ceremonial tie-breaker who lacks information, time, or willingness to vote.

Use a conflict ladder with dates:

1. The domain owner writes the decision, evidence, cost, and deadline.
2. Both founders meet within two business days and record the points of agreement and dispute.
3. A mutually selected adviser or mediator joins within five business days.
4. If the issue remains unresolved, the governing board or other legally authorized body votes.
5. If no body can act, the founders use a counsel-drafted buyout, sale, or dissolution process instead of improvising one under pressure.

Avoid generic "shotgun" clauses copied from mature-company shareholder agreements. A forced buy-sell process lets one founder name a price and the other choose whether to buy or sell at that price. It sounds fair, but the founder with more cash or easier financing can exploit the imbalance. If you need a buy-sell mechanism, counsel should address funding, valuation, notice, minority protections, and what happens when neither founder can buy.

Decision five puts the IP inside the company

Make the company own the work it needs before a repository, patent filing, brand account, or customer deliverable becomes important. Founders often say "our IP" when the legal owner may be an individual, a former employer, a university, or an unpaid contractor. Access to a file and ownership of the rights are different things.

Start with a schedule of background IP. Each founder lists code, designs, research, datasets, domain names, trademarks, inventions, documents, and other material created before the company. Mark each item as excluded, assigned to the company, or licensed on stated terms. If the product depends on excluded material, document the license scope, duration, sublicensing rights, termination rules, and whether an acquirer can keep using it. "Founder permits company use" is not enough for diligence.

The U.S. Copyright Office explains that copyright initially belongs to the author, subject to rules such as work made for hire. Its guidance also makes clear that commissioned contractor work qualifies as work made for hire only in limited statutory categories and with a signed writing. A contractor invoice saying "website build" does not automatically transfer all copyright. Use a written present assignment of applicable rights, plus further-assurances language that counsel has reviewed.

Patent rights need their own attention. Title 35, United States Code, section 261 says patent applications, patents, and interests in them are assignable by a written instrument. Do not assume a broad confidentiality promise transfers an invention. Have counsel cover inventions, patent rights, copyright, mask-work rights where relevant, know-how, and other rights the company needs, while respecting state limits on employee invention assignment.

Run a provenance review before signing:

• Identify every person who has contributed to product, brand, research, or customer materials.
• Match each contribution to a signed assignment or a documented ownership basis.
• Review former employer, consulting, university, grant, and open-source obligations.
• Move company domains, repositories, cloud accounts, design files, and social accounts into company-controlled accounts.
• Record approved open-source and third-party materials with their licenses and notices.

Do not copy old work into a new company repository until counsel has reviewed a plausible prior claim. Rewriting disputed code may not solve a claim involving confidential information or an invention obligation. International founders should flag where work was created and which agreements governed it; US incorporation does not erase rights or labor rules created elsewhere.

Decision six makes departure a process instead of a verdict

Define the mechanics of leaving without trying to predict who will be the villain. A founder can resign, become unable to work, die, breach an agreement, lose a required visa status, or be removed from an officer or employee role. Those events do not all have the same legal effect, and losing a job title does not automatically cancel vested stock.

Start with the service relationship. Define notice, final pay and expenses, return of property, access cutoff, transition help, public communication, and any continuing confidentiality or cooperation duties. Employment rules vary by state, so counsel should keep corporate, employment, and equity documents consistent. If a founder's right to work in the United States depends on immigration status, use immigration counsel early; the other founder should not improvise an employment solution.

For equity, state what happens to unvested shares under the company repurchase right and what the founder keeps after vesting. Define the repurchase price and exercise window. Identify any right of first refusal, transfer restriction, company buyback option, or voting arrangement that applies to vested shares. A clause saying the company may buy vested stock at "fair value" needs a valuation date, method, decision-maker, payment terms, and a way to challenge obvious error.

Be cautious with good-leaver and bad-leaver labels. The labels hide the hard drafting inside definitions. If "bad leaver" includes any policy breach, a minor dispute can threaten years of earned ownership. If cause matters, define a narrow set of events, required findings, notice, any cure period, and who decides when the board members have conflicts. Ask counsel whether repurchasing vested shares at a discount is enforceable and sensible under the governing law.

Death and long-term incapacity require procedure rather than euphemism. Decide how the board determines incapacity, whether vesting pauses or accelerates, whether the estate keeps vested shares, whether the company has an option to purchase them, and how life insurance, if any, relates to the purchase. Do not promise insurance proceeds unless a policy exists and the economics work.

Walk through one failure before approving the clause. Suppose a founder leaves at month 18 after a four-year schedule with a one-year cliff. Calculate vested shares, unvested shares, the company's repurchase payment, deadlines, board approvals, account handoff, and any continuing vote. Then repeat the exercise for a termination at month 11 and a company sale followed by termination at month 30. If the documents produce a result neither founder expected, fix them before issuance.

Have the conversation while disagreement is still cheap

Raise these subjects in two scheduled sessions, not at the end of a product meeting when everyone is tired. Send the six-decision memo in advance. Each founder should fill it out alone first, including ranges where she is uncertain. Comparing two written answers reveals assumptions that a friendly verbal conversation tends to hide.

In the first session, discuss commitment, money, equity, and vesting. Say the difficult sentences plainly: "I cannot go full time until we have financing," "I think the six months I already worked deserves vesting credit," or "I will not assign the research I use in my consulting practice." A clean disagreement now may mean a different deal or no deal. Both outcomes cost less than discovering the same conflict after fundraising.

Use the second session for roles, decision rights, IP, and departure. Do not negotiate by editing dense legal prose on a shared screen. Write the business answer in ordinary language, record open questions, and mark which ones need corporate, tax, employment, IP, or immigration advice. One founder should not act as the other's lawyer, even if she is a lawyer. Separate counsel may be appropriate when interests diverge.

Pay attention to avoidance. If a prospective co-founder refuses to discuss vesting, will not disclose outside obligations, or treats a departure clause as disloyal, the missing conversation is information about the partnership. Do not award stock to make the discomfort disappear. Slow the process and resolve the fact behind it.

Sisters members can use the community to ask women who have handled founder negotiations how a proposed term worked in practice, then take the specific legal questions to counsel. Peer experience is good at exposing blind spots; it cannot give an individualized legal opinion.

End each session with a decision log. For every topic, record the agreed term, the reason, any condition, the owner of the follow-up, and a deadline. Both founders should confirm the log before a lawyer drafts. This reduces drafting rounds and makes it harder for either person to rewrite the history of the conversation.

Convert the memo into signed and approved documents

Finish the legal implementation before substantial work or fundraising, because signatures after a dispute do not cure the period when ownership was unclear. Send counsel the memo, cap table, background-IP schedules, prior agreements, incorporation records, and the names and locations of everyone who created anything for the venture. Disclose uncertainty instead of cleaning up the story for presentation.

Ask counsel to map each business term to its controlling document. The equity issuance and vesting may sit in board approvals and restricted stock purchase agreements. Governance may require bylaws, voting agreements, or charter provisions. IP obligations usually need separate assignment agreements. Employment, consulting, confidentiality, and separation terms may require more documents. Your job is to test whether the set produces the deal you intended.

Use this closing check, with a responsible person and completion date beside each item:

• The entity exists, and its legal name matches every document.
• The board approved each issuance, the founder paid any purchase price, and the cap table matches the approvals.
• Every founder signed the stock and IP documents, and the company stored complete copies.
• Each founder received individual tax advice and tracked any 83(b) deadline from the actual transfer date.
• Company accounts and core assets sit under company control with documented access.

Read the departure examples again against the final documents. Check the definitions of cause, good reason, change of control, disability, and fair market value across every agreement. Check notice addresses and signature blocks. Confirm that side letters and email promises have either been incorporated or expressly superseded.

A template has done its job when it forces six candid decisions and then disappears into accurate corporate records. If you are still debating who owns the existing code or who can authorize a financing, do not write the next line of product code. Resolve the ownership and authority first, while both founders still have the freedom to walk away cleanly.