Important Clauses of Co-founders Agreement

Last Updated at: Dec 03, 2020
Important Clauses of Co-founders Agreement
Mobile Premier League (MPL), the two-year-old Bangalore-based esports and mobile gaming platform has recently raised $90 million in a new financing round. The Co-founder, and Chief Executive of MPL, told in a recent  interview that esports is beginning to play a major part in the evolving  e-commerce market.


The startup is the new-age reality which is gaining pace with the passage of time. Often it is supported by the ideologies and investment of young enthusiasts. Therefore, there are instances where the ideologies crash and spice up their business plan. Thus one must be extremely careful to be deciding upon the clauses of the agreement between the co-founders right at the inception. It does not only help in clearing the air surrounding the business or start-up but also helps in meeting the minds of the founders and bringing them on the same page. A carefully drafted co-founder’s agreement is always seen to be handy when it comes to avoiding potential interest-conflicts in the future. Here are few clauses which are an absolute must-have when it comes to a co-founder’s agreement.

  • Clause pertaining to ownership and other rights arising therein

Each founder jointly stands in the position of an owner of the business. However, it is not always necessary that their interests and rights in the functioning of the business are always at par with one another. Therefore, an agreement pertaining to the ownership and other rights is always a must-have. Ownership clause mainly extends over the percentage of shares held by the co-founders and the entire scheme of ownership as divided amongst them. However, on a more expansive basis, it shall be including the voting rights clause, veto power clause, equity split-up and a clause pertaining to the division of profits. Moreover, clauses should also cover the financial aspects like salaries drawn, expenses, debt repayment, etc.

  • Duties, both jointly as well as severally: As with the rights over the business, there also arises a string of duties which is attributed to the co-founders. Some duties are of such nature that it is attributed to all the owners equally while some are peculiar to the owner as against his rights over the business, as defined earlier. Therefore, in order to avoid a clash of interests and to clearly divide tasks, it is impertinent that duties be divided amongst them in a clear and unambiguous manner.
  • Dispute Resolution Clause: Despite the clarity upon the rights, duties and interests of the co-founders in a given business startup, it is not feasible to imagine a situation where no conflict arises per se. In order to swiftly get through the disputes, it is always advisable to bind all the co-founders on a mutually agreed upon method of resolving a dispute that might be arising between them anytime during the continuance of the business. This results in swift as well as an efficient manner of resolution of the dispute, avoiding any further complications therein.
    • Clause pertaining to termination of a co-founder or winding up of the business: Starting up a business is not all roses, there might arise situations where it becomes difficult to co-function or any of the partners have to take the exit door. It is always prudent to foresee such situations and plan for a way out.  Clauses pertaining to the termination or removal of the co-founders is an absolute must. Moreover, if the business is hit by any unfortunate circumstances that it has to be wound-up then, the clause of winding up clearly lays down the share of liabilities, division of profit and matters arising thereafter.

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  • Confidentiality Clause: Business idea and information forms the very base of successful functioning and continuance, therefore it is prudent to bind all current and even former partners by the clause of confidentiality. Confidentiality should mean in respect of the business idea as well as the information obtained during its operation, giving it an edge of competition. For that matter, the former founders must also be bound by the clause of non-competence, to keep free from unhealthy competition. Else there is ample possibility that the business idea will be out in open giving rise to cut-throat competition.

Ensuring the presence of all these clauses will give you a hassle-free experience at a startup business. While there are so many things to be taken care of, make sure there are no conflicts between the co-founders at any stage of the business. Clear, unambiguous and specific legal clauses are the way to go!

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