Founder agreement: what to settle before you start

A founder agreement is the written deal between people who start a company together. It settles shares, roles, time, decisions, money, intellectual property and what happens when someone leaves. This guide shows what belongs in it, why it matters before incorporation, and how it moves into the company's documents in Germany and Austria.

What is a founder agreement, and why write one so early?

A founder agreement is a contract between co-founders, usually signed before the company exists. Some call it a pre-incorporation agreement or a founders' term sheet. It is short and written in plain language. Its job is to put on paper what the team agreed in conversation, while everyone still agrees.

The legal reason to write it early is easy to miss. Once two or more people work together towards a company, they often already form a partnership under civil law without signing anything: a GbR in Germany, a GesbR in Austria (formerly often called GesnbR). In Austria, the Chamber of Commerce notes that it often arises from tacit cooperation alone, and that the partners are liable in person, without limit and jointly. Kanzlei Herfurtner describes the same pre-founding company for Germany: contracts, domains and code stay with whoever signed or made them. So the question is not whether your team has a contract. It is whether anyone wrote it down.

The practical reason is timing. Hellmann and Wasserman found that 73 percent of founding teams split their equity within the first month, often before they knew what each person would contribute. A founder agreement is where that early split gets the safeguards it needs: vesting, roles and a way out.

What belongs in a founder agreement?

Most founder agreements cover the same eight topics. You can settle each in a few sentences. What matters is that you discussed them, not that the wording sounds like a lawyer's.

Shares and vesting

Write down who holds which share of the future company, and under which vesting. The standard is four years with a one-year cliff, for every founder. Our guides on how to split equity between co-founders and on vesting for co-founders explain both in detail.

Roles and time

Name who does what: product, sales, finance, and who leads as managing director. Say how much time each founder gives, from when, and what else they may do alongside. A founder who starts part-time should know when full-time is expected, and what happens if it does not come.

Decisions and deadlocks

Decide which questions need everyone's consent, such as money from investors, hiring or a sale of the company. Everything else is decided by the person responsible or by majority. Two founders with a 50/50 split need a deadlock rule: a cooling-off period, a mediator, or a casting vote on defined topics.

Money

Record who pays what into the company, and on which terms: share capital, loans, or expenses to be repaid. Agree a spending limit that needs no discussion, and when founders start to draw a salary. Money paid in is best kept apart from the shares earned by work: as a shareholder loan the company repays, or as extra shares the founder buys at the price an investor would pay. A founder who leaves early then loses the shares not yet earned, not the money.

Intellectual property

Until the company receives the rights, a work result stays with the person who made it. That includes code, designs, texts, the brand name and the domain. The agreement should give the company the rights to all work results for the project once it exists, and list what a founder brings in from before.

Confidentiality and competition

Agree to keep the project's information confidential, and not to build a competing business while you are part of the team. Restrictions after someone leaves have legal limits in Germany and Austria, so keep them short and narrow.

Leaving, and the end before the start

Say what happens when a founder leaves: which shares they keep, at what price the rest is bought back, and what happens to their work. Also agree what applies if the company is never founded. Who keeps the idea, the code and the domain then is best answered while you still get along.

Disputes

Agree on a first step before anyone goes to court: a talk with a mentor you both trust, then mediation. It takes minutes to write down and keeps a disagreement from turning into a lawsuit.

How does it fit with the articles and the shareholders' agreement?

At incorporation, the deal moves into two documents. The articles of association are the company's constitution: name, purpose, share capital, shares and the basic rules. They are filed with the commercial register, the Firmenbuch in Austria or the Handelsregister in Germany, where anyone can read them.

The shareholders' agreement, in Austria often called a syndicate agreement, is a private contract between the shareholders. It holds what the team does not want to publish: vesting and leaver clauses, pre-emption rights, drag-along and tag-along, often the roles too. It only binds the people who signed it, so new shareholders have to join it.

Form matters here. The articles of a GmbH need a notary. So does any clause that obliges a shareholder to transfer shares, such as a vesting buy-back or a drag-along: in Germany under § 15 GmbHG, as CMS explains, and in Austria under § 76 GmbHG. For the Austrian FlexCo, a deed drawn up by a notary or a lawyer is enough, as Brandauer Rechtsanwälte describe.

That is why the founder agreement before incorporation is usually a statement of what you will sign, not the share transfer itself. It says which terms the articles and the shareholders' agreement will contain, and that every founder will sign them. At incorporation, a lawyer turns it into the binding documents.

When should you sign it?

As soon as the work turns serious: before the first money is spent, the first code for the project is written or the first customer signs. At the latest before you talk to investors, because they will ask how the team is set up. Sign while everyone is on good terms. An agreement written after the first conflict is a negotiation, not a plan.

Update it at two moments. At incorporation, when it moves into the articles and the shareholders' agreement. And at the first financing round, when investors bring their own shareholders' agreement and often new vesting terms.

Which mistakes should you avoid?

• A handshake instead of a text. You already have a partnership; without a text, the law fills the gaps.
• Only the split. Shares without vesting, roles and an exit settle the easy part and leave the hard ones open.
• A US template. American templates assume shares that vest under a stock agreement, which does not fit a GmbH or FlexCo. Use templates as a checklist, not as the contract.
• Work results left with individuals. Investors check that the company owns its code and its brand. Fix it before they ask.
• No plan for the end before the start. If the company is never founded, the idea and the work still need an owner.
• Harsh clauses. A rule that takes everything from a founder for a small breach is the kind that fails in court and in the team.

A founder agreement turns the questions to ask a potential co-founder into commitments, and it prevents many of the fights in our guide on co-founder conflict. If you are still looking for the person to sign it with, the open roles on Cofoundista show who is building what.