Since things get really complicated in real-life situations, you need to categorize a co-founder`s exit into one of four categories. The most commonly used exercise plan is over a period of 48 months, during which 1/48 of the shares are acquired each month. To ensure that the founders stay in the startup for at least a year, no shares are acquired in the first twelve months. Instead, they are accumulated at the end of the first year and made acquired. This initial period of provision is called the “cliff”. You`ve just come up with a brilliant billion-dollar startup idea; You have defined the perfect value proposition for your business; and you`ve just met the perfect co-founder (or co-founder) to help you get your idea off the ground. Example: A company has two founders, each with a 40% stake and an investor with a 20% stake, and all are parties to the co-sale agreement. If one founder finds a buyer for every 10,000 shares, the right to co-sell would allow the other founder to sell 4,000 shares and sell 2,000 shares to the investor, so the first founder could only sell 4,000 shares. Almost. If you`re thinking about starting a business with others, it`s imperative that you all take the time to discuss and strike a co-founder deal.

You can get along wonderfully with each other at first, but as your business grows and grows, you may find that you have differences in terms of your startup`s future or mission. And if these differences occur while the company is operating, it will only exacerbate the problems. Acquisition clauses usually set either a date or a specific event that triggers the termination of the company`s right to buy back, which means that the founder in question subsequently owns all of his shares. Most founders who set out to start tech companies have little or no legal experience, which can lead to problems on the road, especially when investors and lawyers get involved. While entrepreneurs are not required to become legal experts to start businesses, it can only be beneficial for the business to take the time to engage in basic legal practices. To help you get started, here are some basic legal questions you and your co-founder should answer, taken from the Forbes article “10 Big Legal Mistakes Made By Startups” by Richard Harroch. Is the percentage of participation subject to acquisition on the basis of a continuous stake in the company? Founder acquisition is a process in which you “earn” your shares over a period of time, based on your performance and commitment to the startup. The company receives the right to buy back the shares if one or more of the co-founders leave. Creating an acquisition schedule can also be useful in negotiations with investors.

Investors may be put off by large portions of acquired shares and insist on an acquisition schedule before providing funds. You can avoid this problem on the way by having a proper acquisition schedule before courting investors. However, the exercise provisions often include guarantees in the event of termination without giving reasons after the sale of the company, as explained below. In most transactions, we find that approximately 50% to 80% of project promoters` shares are acquired. Investors` view on the acquisition is to take a forward-looking approach to ensure that the team they are betting on will remain long-term. The counter-argument on the part of the founders is that they have been strolling for several months (or even years), that they have still won the shares. The following factors are among those taken into account when allocating shares among founders, but they are also useful in determining what the appropriate acquisition schedule should look like and whether it should be the same for each “founder”: in some cases, founders are immediately hired for part of the capital in exchange for preparatory work, that they contributed to the creation of the company, acquired. This percentage is usually 10-25% and is determined by the amount of welding capital, the person`s negotiations and the current progress and status of the company. Startup Inc. issues 4,800 common shares to each co-founder that are acquired in equal shares over a four-year period, with a one-year cliff.

Most often, after a full year of service to the company, 25% of the founder`s equity is taken for granted. Over the next three years, the remaining shares will vest monthly until all interests are vested. If the founder leaves the company during this period, he receives only the acquired percentage of the shares. This four-year structure is the norm, but companies can define a number of structures in their founders` agreements. Bottom line: If you work more, you risk much more if the project fails, which means you are entitled to more if the project succeeds. Also, keep in mind that part-time co-founders are a big drawback for someone considering an investment, so choose your partners wisely. The transfer of start-up shares is one of the most critical and sensitive topics in a startup. If you have a startup that has more than one co-founder, you need to have an acquisition agreement. When raising capital from investors, one of the most important things investors are looking for is the acquisition agreement.

In the most common situation where the co-sale contract only works in favor of the investor, the selling founder could sell 6,667 shares and the investor 3,333 shares. A “lock-in agreement” prevents the sale of inventory for a certain period of time after an IPO. The restriction generally applies for 180 days, although it can be extended up to 18 days in certain circumstances. Approach #1: To keep it simple – When a co-founder leaves, they lose their acquired shares, but the ones that are acquired stay with them. This startup-friendly approach is widely used in the United States. When determining the share allocation and acquisition schedule for a company`s founders, the team will consider the following questions: Why would a founder agree to submit their shares to an acquisition schedule at the beginning of the company? Two possible reasons: In the guest post “8 Questions You Need to Discuss with Your Co-Founder” on CoFoundersLab, David Ehrenberg (CEO of Early Growth Financial Services) outlines several concerns that co-founders need to address before starting a business together. Here are some of the most important organized by topic: Acquiring founders isn`t just about protecting co-founders; It is also a mechanism that investors use to ensure the sustainability of co-founders, which is essential for the growth of the company. The one-year cliff prevents a founder from keeping his shares if the business relationship ends before the company`s first anniversary. In this case, the company can buy back all the shares of the founders at the initial price. For example: “Founder`s Stock” refers to the stake issued to the founders (and perhaps others – see also my article Who is a “founder”?) at the time of the company`s founding or nearby. It is often issued for nominal cash payment (para. B $0.0001 per share, which is the standard value of Cooley GO Docs` incorporation package) and/or assignment of intellectual property.

Often, but not always, the Founder`s Stock is subject to an acquisition schedule that gives the company the right to repurchase acquired shares if a founder leaves the company before the shares are fully acquired. If a founder leaves, does the company or other founder have the right to buy back that founder`s shares? At what price? “I`m one of the founders of this company, and the founders are supposed to control the company; Why should my inventory be acquired? This is a question we often hear from entrepreneurs, especially those starting their first business. Founders have growth, success, and expansion in mind, but they also need to remember that most startups are founded by multiple people and each of them can leave voluntarily or involuntarily. Without an acquisition, an outgoing founder leaves with all his actions, leaving it to the other founders to do all the work and take all the risks to make the company succeed. With Avodocs, you can create and customize legal documents for your startup by asking questions and creating a founding agreement based on your answers. You can get a free template here. This type of agreement reduces the risk for all founders by preventing a person from owning a large part of the business and leaving with their shares after a year. Indeed, the founder acquires the right to keep his shares by binding himself to the company for at least three or four years. The Company`s right to repurchase the shares gradually expires over time. When a business is started, the inventory that founders receive is actually a “payment” for the work they may have already done or will do in the short term, but it is also meant to reward them for all the work done over several years to get the business up and running, funded, and thriving.

If one of the founders doesn`t stay for some reason, he could get away with more than his fair share. A thoughtful decision to require the acquisition allows the founding team to avoid this problem and ensure that each founder can only keep a portion of their shares that have been “earned”. Not all founder departures are the same. If the founders are fired, an acquisition schedule that matches what non-founding employees usually receive would result in the loss of their shares acquired by those founders. This is usually something that founders try to avoid. Founder agreements may provide that if a founder is terminated (as opposed to the moment the founder voluntarily leaves), he or she will receive additional assets (e.g. B three to six months). .