Most co-founder disputes are not about the percentage. They are about who decides, who is doing enough, what happens to someone’s shares when they want out, and whether a founder can start something else on the side. All of those questions are cheap to answer before there is money or resentment involved, and very expensive afterwards.
A “co-founder agreement” is usually not one document. In a US corporation the binding parts live in the founders’ stock purchase agreements (vesting and repurchase), the IP assignment and confidentiality agreements, the bylaws and board consents (who decides what), and sometimes a separate founders’ agreement or term sheet that records the rest. In the UK and much of Europe, a shareholders’ agreement plays that role. The checklist below is what those documents together should cover. Work through it as a team, then have a startup lawyer put it into the right documents.
1. Equity and vesting
- Each founder’s percentage and the reasoning behind it (see how to split equity).
- Vesting schedule, cliff, start date, any credit for prior work, and acceleration terms (see founder vesting explained).
- What happens to vesting if a founder goes part-time, takes extended leave, or changes role.
- Any special arrangements for part-time, late-joining or cash-contributing founders (see this guide).
2. Roles and titles
- Who is CEO. A specific name, agreed in writing.
- Each founder’s area of ownership (product, engineering, sales, operations) and what “owning” it means day to day.
- Expected time commitment: full-time from when, and what counts as full-time.
- How roles get revisited. Companies outgrow early role definitions; agree that you will review them, say, every six or twelve months.
3. Decision rights
Write down who has the final say on each type of decision. A simple matrix is enough at the start:
| Decision | Who decides | Who must be consulted |
|---|---|---|
| Day-to-day work in an area | The founder who owns that area | — |
| Product roadmap priorities | Product owner | All founders |
| Hiring and firing employees | Area owner, CEO signs off | All founders for the first few hires |
| Spending above an agreed limit | CEO | All founders |
| Raising money, issuing shares, selling the company | Board (and shareholders where the law requires) | All founders |
| Changing a founder’s role or removing a founder | Board | — |
The point is not bureaucracy. It is that when two founders disagree, there is already an answer to “whose call is this?” that both accepted on a calm day.
4. Deadlocks
- With two equal founders, the board is often just the two of you. Agree how a tie is broken: the CEO decides operational questions, and an agreed outside advisor or mediator is brought in for anything bigger.
- With three founders, a simple majority can work for board-level questions, but say so explicitly.
- For true deadlocks over the future of the company, some agreements include buy-sell (“shotgun”) clauses. They are blunt instruments; take legal advice before relying on one.
5. Compensation and expenses
- Whether founders take salaries, when that starts (often after a funding round or a revenue level), and whether salaries are equal.
- How expenses founders pay personally are reimbursed or recorded.
- How cash a founder puts in is treated: investment, loan, or capital contribution.
- If you have agreed to share profits rather than pay salaries (common in bootstrapped businesses), the rule for doing so, and that distributions follow ownership unless otherwise agreed.
6. Intellectual property and confidentiality
- Every founder assigns all company-related IP to the company, including work done before incorporation.
- Any prior inventions a founder is not assigning are listed explicitly.
- Any potential claim from a founder’s current or former employer is disclosed and resolved (see the legal checklist).
7. Side projects and other ventures
“Can a co-founder start another company?” is a common question, especially when the split is unequal and one founder feels less invested. Agree up front:
- Whether founders may work on other businesses at all, and under what limits (time, non-competing areas, disclosure to the other founders).
- That opportunities in the company’s line of business belong to the company first. In US corporations, directors and officers already have fiduciary duties here (the “corporate opportunity” doctrine), but writing it down avoids arguments.
- How a side venture affects vesting if it turns a full-time founder into a part-time one.
8. Underperformance
Removing a co-founder is the hardest conversation in a startup. A process agreed in advance makes it fairer and less personal:
- Written goals for each founder’s area, reviewed regularly (monthly or quarterly).
- A defined step before any change: a frank written conversation about the gap, an agreed plan with specific outcomes and a time frame (often 30–90 days), and a follow-up review. This is effectively a performance improvement plan for founders.
- Who decides the outcome (normally the board), and the options: a changed role, a move to part-time or advisor status, or departure.
- The equity consequence follows the vesting terms. An underperforming founder keeps what has vested; the company can repurchase the unvested part on departure. Trying to cut a founder’s vested equity is rarely possible without their agreement.
9. Departures
- Notice period and transition duties (handover of accounts, code, customer relationships).
- Repurchase of unvested shares: price, window, and how it is paid.
- Whether the company or other founders get a right of first refusal on vested shares the leaver later wants to sell.
- Return of company property and credentials.
- Non-solicitation of employees and customers, and any non-compete — noting that employee non-competes are unenforceable in California and several other US states and restricted in many countries.
- How the departure is communicated to the team, customers, and investors.
10. Resolving disputes and changing the agreement
- A first step that is not a lawyer: a structured conversation, then an agreed mediator.
- Governing law and how formal disputes are handled (courts or arbitration).
- How the agreement itself can be amended: in writing, signed by all founders. Verbal renegotiations are remembered differently within weeks.
How to use this checklist
Block an afternoon. Go through each section together, write the answers in plain language in a shared document, and note anything you cannot agree on — those are the conversations to have now, not after a term sheet arrives. Then take the document to a startup lawyer, who will turn it into stock purchase agreements, IP assignments, bylaws, and board consents. Revisit it every year or whenever someone’s role changes.
Frequently asked questions
What should a co-founder agreement include?
At minimum: equity split and vesting, roles and the CEO, decision rights and how deadlocks are broken, compensation, IP assignment, rules on side projects, a process for underperformance, what happens when a founder leaves, and how disputes are resolved.
Is a co-founder agreement legally binding?
The binding parts usually live in formal documents such as stock purchase agreements, IP assignment agreements, bylaws and board consents, or a shareholders' agreement outside the US. A plain-language founders' agreement is still valuable as the record a lawyer turns into those documents.
Can a co-founder start another business?
Only if the founders have agreed it. Write down whether outside ventures are allowed, which areas are off-limits, how they must be disclosed, and what happens to vesting if a side venture makes a founder part-time. Opportunities in the company's line of business should belong to the company first.
How do you remove an underperforming co-founder?
Follow the process agreed in advance: documented goals, a frank conversation, a time-boxed improvement plan and a review. The board decides the outcome. On departure, vesting stops and the company can usually repurchase unvested shares; vested shares normally stay with the founder.
How should co-founders split decision authority?
Give each founder final say over their own area, make the CEO the tiebreaker on operational questions, and reserve major decisions such as fundraising, issuing shares, removing a founder or selling the company for the board.