As a start-up founder or innovator, you may want to know if having a founders’ agreements is a matter of law or commercial expediency. This is why this article will clarify whether start-ups need founders’ agreement.
In our earlier article, we carefully outlined the contents of a standard founders’ agreement as well as the importance in varying respects that accompany having one.
There is no law or regulation that mandates founders of start-ups to draft a founder’s agreement and so having a founders’ agreement in your start-up operations is not a matter of legal necessity.
However, due to the nature of founders’ agreements which allows founders of start-ups and even investors to deliberate and define key terms, conditions, rights and liability, it is indisputably important for a start-up to have one.
Can A Start-up Do without a Founder’s Agreement?
Founders’ agreement is mostly drafted where a startup has more than one founder. The equity battle among founders may cause frictions in startup operations. This is why it is quite important to define the stakes, liability and responsibility of each founder. To do this, you need to have a founders’ agreement.
The question as to whether a startup can do without a founders’ agreement depends entirely on whether you want the benefits that come with having one. Founders’ agreement may not be as important to a startup with a sole founder as it is with startups with multiple founders.
Regardless, one may argue that having a founders’ agreement in place is way better than not having it. This could come in handy in fprestalling future adverse possibilities that many startups encounter.
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References
1 https://ramp.com/blog/what-is-in-a-startup-founder-agreement accessed on March 6 2023
2 https://www.law.upenn.edu/clinic/entrepreneurship/startupkit/founders-agreement.pdf accessed on March 6 2023
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