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Founder Stock Agreement
What is a Founder Stock Agreement in Startups?
A Founder Stock Agreement is a legal contract between the founders of a startup that outlines the ownership and rights related to the shares of stock they receive in the company. It specifies how much stock each founder owns, the terms of stock issuance, and any conditions like vesting schedules or restrictions on selling shares.
Synonyms: Founder Equity Agreement, Founders Stock Contract, Startup Founder Stock Agreement, Founder Share Agreement
Why a Founder Stock Agreement Matters
A Founder Stock Agreement sets clear expectations among founders about who owns what portion of the company. This clarity helps prevent disputes later on and ensures that each founder's contribution is recognized through their equity stake.
How a Founder Stock Agreement Works
Typically, the agreement details the number of shares allocated to each founder and any vesting terms that require founders to stay with the company for a certain period before fully owning their shares. It may also include clauses about what happens if a founder leaves early or if the company is sold.
Examples of Founder Stock Agreement Terms
- Vesting Schedule: Founders earn their shares over time, often four years with a one-year cliff.
- Restrictions on Transfer: Founders may need approval before selling shares.
- Buyback Rights: The company can buy back shares if a founder leaves.
Frequently Asked Questions
- What is the purpose of a Founder Stock Agreement? It defines ownership and protects the company and founders by setting clear rules for stock ownership.
- Can founders change the agreement later? Yes, but changes usually require agreement from all founders.
- Is a Founder Stock Agreement legally binding? Yes, it is a legal contract enforceable in court.
- Do all startups need one? While not legally required, it is highly recommended to avoid future conflicts.
