Founders' Agreements play an important role at the time of making a company or entity. Whenever two or more persons are ready to establish a company or corporation, make an agreement. They reveal all conversation regarding the fairs, works, attitude and aspiration of every individual. This agreement contains responsibility, ownership and initial agreement .According to legal language, Founders' agreement is an official contract that's signed between all the co-founders of a firm. The objective of founders' agreement is to protect each founders' interest and memorialize that all founders are in agreement about basic structure.
There is no formal structure of the founder's agreement. But there are following range of provisions in the founder's agreement which can be seen in every founders' agreement
Transfer of property
decision-making and dispute resolution
representations and warranties; and
choice of law
Definition of the business
Details of capital raised (by founders and investors)
Ownership details (in the company)
Roles and responsibilities of each of the co-founders
Compensation (salary drawn by each of the co-founders)
Details of exit formality for founders
Dissolution of the firm
Details of dispute resolution
According to the Indian contract act, 1872, 'every promise and every set of promises, forming the consideration of each other is an agreement'. There are two types of agreement: first is oral agreement and second is written agreement. The founders' agreement is a written agreement.
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There are various benefits of the founder's agreement.
One of the main features of this form of agreement is that any forms of issues between the founders of the agreement are removed. If there is any confusion or doubt regarding the responsibility and interest of founders, all individuals can go through the agreement.
The founders agreement provides well defined roles and responsibilities to the co founders. Through this the co founders would know their roles and responsibilities with respect to the company or the business.
Roles of the co-founders are recorded. Through this any form of issue related to the role of the founder can be avoided by referring to this agreement.
The founders agreement plays an important role in dispute resolution also like in arjit ration, meditation and out of court settlement. The agreement contains the clause of dispute resolution. By having this in writing the founders would be able to effectively utilise systems of dispute resolution such as arbitration, mediation and out of court settlement. Having this clause in the agreement would also reduce the amount of litigation in courts.
In layman terms , a corporation or company is a business association between two or more persons.but in law there is no strict and clear definition of corporation or company. According to sec. 1(4) of the company's act, 2013 company means 'a company formed and registered under the companies act.'
In common law, a company is a legal person or legal entity separate from, and capable of surviving beyond the lives of its members. Like any juristic person, a company is legally an entity apart from its members, capable of rights and duties of its own, and endowed with the potential of perpetual succession.
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