Recommended startup contract template
| Jelle Hoekstra |
Startups play an important role in our increasingly digital world. There are many succes stories, studies show that most new businesses fail in their first years. One of the top reasons for this failure is conflict in startup teams. It is especially devastating for a startup company when the founders are involved. In order to prevent such startup conflicts, it is wise to have an agreement the founding partners. In this blog we provide you a free startup contract template from the University of Pennsylvania Law School.
Startup contract for founders
Before, we already wrote that a good IT contract before any collaboration can prevent many problems and that it is therefore wise to conduct an IT-contract review. Having a good contract is also important when you start company with someone else. As founders it is important to see what you agree on, and wise to put this into writing. The free template for a ‘founders agreement’ from the University of Pennsylvania Law School is a useful tool to get started with this, and can be found here.
The template is divided into two parts; a ‘conversation guide’ and a ‘model founders agreement’. The conversation guide lists several topics to discuss before starting a business with a partner. The main topics are:
- ownership structure; and
The founders agreement covers model clauses on:
- transfer of ownership;
- ownership structure;
- decision-making and dispute resolution;
- representations and warranties; and
- choice of law.
Another topic to discuss when starting a business is Intellectual Property (IP). It is a quite common situation that a commercial entrepreneur partners with a programmer, who will be responsible for development of a software product as CTO. If the CTO wants to leave at some point with the developed software, this could lead to a difficult break up. In this situation, it helps if you explicitly agreed on the transfer of IP-rights to the company, the exit conditions and the distribution of company shares.
In the same situation it is also possible that there will be much more future work for the sales director / entrepreneur in selling the product than there will be in maintaining the product (for the developer). The type of work of the founding partner is very different, so a fair distribution of shares is difficult. This can be compensated by also putting in some employment fees. With salary, you can compensate for the amount of effort put in. This is in contrast with shares, because shares only relate to the result of the company.
Research on startup failures
United States Department of Labor (2016), “Business employment dynamics”, Bureau of Labor Statistics.
Gage, D. (2012), “The venture capital secret: 3 out of 4 startups fail”, The Wall Street Journal, 20 September 2012.
Capital Waters – free templates for startups (preferred shares deals) with references to Dutch law.
Startuptools.org – free templates adapted to the laws of Sweden, Denmarc, Norway, Iceland.
Startup kit – other templates from the University of Pennsylvania Law School on several topics.
Image credit: @cytonn_photography via Unsplash.com
Jelle Hoekstra LLM is consultant and mediator at ICT Institute. He is a certified privacy professional (CIPP/E & CIPM), security consultant (ISO27001 Lead Auditor) and IMI Qualified Mediator. Before he worked at several organisations as legal advisor and Privacy & Security Officer. Jelle is member of the International Association for Privacy Professionals (IAPP), the Dutch association for Data Protection Officers (NGFG, Nederlands Genootschap voor Functionarissen van Gegevensbescherming) and member at the International Mediation Institute (IMI).