A founder agreement puts the deal between co-founders in writing. It's easiest to negotiate at the beginning, when everyone is aligned and the company isn't worth much yet.
Ownership and how it's issued
The agreement should state who owns what percentage and how the equity is issued — for a corporation, usually through founder stock purchase agreements; for an LLC, through the operating agreement. Issuing equity is a securities transaction, and federal and California law provide exemptions that may come with notice-filing requirements.
Vesting
Vesting means founders earn their equity over time. If a founder leaves early, the company can repurchase the unvested portion, so the remaining founders aren't carrying someone who no longer contributes. A common structure is four years of vesting with a one-year "cliff," but the right schedule depends on the company. Agreements may also address acceleration — whether vesting speeds up on a sale of the company or a termination.
The 83(b) election
When founders receive stock subject to vesting, a Section 83(b) election can let them recognize income on the stock's value at grant — often very low — rather than as it vests. The deadline is strict: 30 days after the stock is transferred. See our 83(b) election basics.
IP assignment
Founders often build product, code, or brand before the company exists. The agreement should assign that work to the company so the company — not an individual founder — owns it. Investors and buyers check this in diligence. If a founder is also an employee, California Labor Code § 2870 limits assignment of certain inventions made entirely on the employee's own time without company equipment or information, and agreements should account for it.
Roles, time, and decisions
- Titles and responsibilities
- Expected time commitment
- Which decisions need everyone's approval
- How deadlocks get resolved
When a founder leaves
Spell out what happens to vested and unvested equity, at what price the company can repurchase shares, and any restrictions on transferring equity to outsiders. These terms are much harder to agree on after a disagreement starts.
A short checklist
- Equity split and issuance documents
- Vesting schedule and any acceleration
- 83(b) elections filed on time, with proof kept
- IP assignment from every founder
- Decision-making and transfer restrictions
- Departure and repurchase terms