--- title: "Free founder agreements: A guide for UK startups" id: "1837" type: "post" slug: "free-founders-agreement-for-uk-startups" published_at: "2019-02-15T14:15:33+00:00" modified_at: "2023-05-03T12:57:22+00:00" url: "https://seedlegals.com/resources/free-founders-agreement-for-uk-startups/" markdown_url: "https://seedlegals.com/resources/free-founders-agreement-for-uk-startups.md" excerpt: "Find out why it's mission-critical for early stage startups to have this contract in place." taxonomy_category: - "Startup Guides" --- 6 min read Expert reviewed This article has been fact-checked by a SeedLegals subject matter expert. [Meet our experts](https://seedlegals.com/authors-and-experts/) and learn more about our review process and quality assurance in our [editorial policy](https://seedlegals.com/editorial-policy/) . # Free founder agreements: A guide for UK startups Published: Feb 15, 2019 Updated: May 03, 2023 Contents [What is a founder agreement?](#what-is-a-founder-agreement) [Why is it important to have a founder agreement?](#why-is-it-important-to-have-a-founder-agreement) [Who should sign the founder agreement?](#who-should-sign-the-founder-agreement) [Is a founder agreement legally binding?](#is-a-founder-agreement-legally-binding) [What’s the difference between a founder agreement and a shareholders agreement?](#whats-the-difference-between-a-founder-agreement-and-a-shareholders-agreement) [What terms do I need to cover in my founder agreement?](#what-terms-do-i-need-to-cover-in-my-founder-agreement) [How do you create a founder agreement?](#how-do-you-create-a-founder-agreement) [Ready to get started?](#ready-to-get-started) [Kirsty MacSween](https://seedlegals.com/resources/author/kirsty/) Founder agreements are one of the most important legal documents when you start a new venture. But many of the founders we talk to put off creating a founder agreement, thinking it’s just a time-sucking formality without any teeth. Actually, it’s mission critical for early stage companies to have this important contract in place – for founders, the company itself and future investors. We feel so strongly about the importance of founder agreements that we’ve made them completely **free** to create on SeedLegals. It’s one of several essential legal documents you can access as part of our [7-day free trial](https://app.seedlegals.com/signup?utm_medium=email&utm_campaign=UK+Events+Newsletter&utm_content=2&utm_source=hs_email&_ga=2.211429330.61857805.1682326549-2146359457.1665075587&_gl=1*1xhtmah*_ga*MjE0NjM1OTQ1Ny4xNjY1MDc1NTg3*_ga_P024RMJJ48*MTY4MjUwMDM5My4yMS4xLjE2ODI1MDIwMTYuMTUuMC4w) . In this post, we’ll explain what founder agreements are, why you need one, how to create one and the terms to include. - [What is a founder agreement?](#what-is-a-founders-agreement) - [Why is it important to have a founder agreement?](#why-founders-agreements-are-important) - [Who should sign the founder agreement?](#who-signs-founders-agreement) - [Is a founder agreement legally binding?](#is-founders-agreement-legally-binding) - [What’s the difference between a founder agreement and a shareholders agreement?](#founders-agreement-vs-shareholders-agreement) - [What terms do I need to cover in my founder agreement?](#founders-agreement-terms) - [How do you create a founder agreement?](#how-to-create-founders-agreement) - [Ready to get started?](#founders-agreement-get-started) ## What is a founder agreement? A founder agreement lists a set of obligations that company founders have to each other and the company. It details their roles, responsibilities, salary, equity compensation and more. There are two main types, designed for startups at different stages: ‍1) **Founder Agreement** for founders who are pre-salary and pre-funding 2) **Founder Service Agreement** for founders to sign at the point where they start paying themselves a salary or before the first funding round, whichever comes first > The Founder Agreement is a lightweight version of the Founder Service Agreement, used by companies when they’re still at the idea stage. You should then upgrade to a Founder Service Agreement before you start your first funding round. > > [Anthony Rose](https://seedlegals.com/resources/author/anthony/) > Co-founder and CEO, > > [SeedLegals](https://seedlegals.com/) ## Why is it important to have a founder agreement? Founder agreements clarify and formalise the relationship between the founders and the company, including roles, responsibilities and remuneration. Most startups begin in a burst of energy and ambition from the founders. No matter how tight-knit and committed you all are at the beginning, it’s worth putting founder agreements in place to protect your company from worst-case scenarios. A founder agreement helps you navigate tough situations and answer important questions, such as: - If someone leaves later on, what happens to their shares? What happens to their voting power? - Who actually owns the IP that your startup depends on? - What power do you have to remove a co-founder if they’re acting against the company’s best interests? You should make sure you have a Founder Agreement signed as soon as possible after you [register your company](https://seedlegals.com/start/register-a-company/) . At this stage, you’re probably not paying yourselves a salary, and the Founder Agreement details how company equity is distributed among the founding team. When your company has grown to the point where you can pay yourself a salary or you’re about to raise a [funding round](https://seedlegals.com/raise/raise-a-round/) (whichever comes first), you’ll need to upgrade to a Founder Service Agreement. This more detailed agreement is the Founder Agreement plus an employment agreement. As well as detailing what happens in case the founders fall out or leave, it also lays out the founder’s entitlements to pay and time off. Founder agreements are crucial early documents that map out how the company is run and how it’s protected if a founder isn’t acting in its best interests. Whether you’re planning to raise external funding or not, it’s still important to protect your startup through proper IP assignment, confidentiality clauses and equity vesting terms. And if you are planning to raise funding, as part of your investors’ due diligence, they’ll expect to see high quality founder agreements in place. ## Who should sign the founder agreement? All company founders should sign one, including the original founder(s), and new co-founders when they join. Even if you’re the sole founder, you should still sign to show that you’re serious about protecting your company’s long-term health. ## Is a founder agreement legally binding? If the document is well drafted and signed by the correct parties, a founder agreement is legally binding. The quality of free founder agreements you find online varies greatly. Make sure you’re using a reputable template – like the documents you can find on SeedLegals – to properly protect your company. ## What’s the difference between a founder agreement and a shareholders agreement? A founder agreement is a contract between the co-founders of a company that outlines their rights and obligations, while a shareholders agreement is a contract between the shareholders of a company that outlines their relationship with each other and the company. The former focuses on the founders’ relationship, while the latter focuses on the shareholders’ relationship. You only need a shareholders agreement after you onboard new investors during a funding round. Before then, the founder agreements are enough to cover how the current shareholders (ie, the founders) can act. **Why you don’t need a shareholders agreement before a funding round** When your company is just owned by founders, here’s why a [shareholders agreement isn’t necessary yet](https://help.seedlegals.com/en/2302038-can-seedlegals-produce-me-a-shareholders-agreement-before-my-round) ## What terms do I need to cover in my founder agreement? ### **1. Roles and responsibilities to the company‍** CEO or CTO? The founder agreement will cover day-to-day tasks and determine whether they’re also a director of the company, which comes with its own set of responsibilities. You should also declare any external business interests that might conflict with your ability to work at the company (such as running a separate business in tandem). ### **2. Salary and working schedule (Founder Service Agreement only)‍** The Founder Service Agreement outlines holiday days, how sick leave is handled and whether there’s a notice period. ### 3. Equity compensation and vesting Founders usually own a substantial percentage of the company as shares, and founder agreements lay out how the share ownership structure works. Often founder shares are subject to reverse-vesting. This means the shares are allotted upfront but they are ‘earned’ over a period of years (most commonly, 3 or 4 years). If the founder leaves before the vesting period ends, they have to return the equity they haven’t yet earned. A vesting schedule prevents co-founders from leaving the company early with a large chunk of company equity. **How founder vesting can save your startup** Vesting terms help minimise the impact of a founder leaving the company. Find out more in this short article on [founder vesting](https://seedlegals.com/resources/startup-founder-vesting/) ### 4. Founder restrictions‍ Founder agreements often include non-compete restrictions on whether the founders can start or work for a competing business. This means that if a co-founder leaves on bad terms, they can’t take your startup’s secrets to your biggest rival. ## How do you create a founder agreement? There are plenty of founder agreement templates out there you could use. But beware of a one-size-fits-all approach. Your startup, and the collective skills and experience of your founding team, is unique. It’s worth investing the time in creating a founder agreement that is tailored to exactly what you need. That’s where SeedLegals comes in. We combine the speed and efficiency of an online template, with the legal heft of an in-house lawyer. Our documents are drafted and regularly reviewed by our legal team and our online workflow makes it quick and easy to understand and choose the right terms for your startup. In just a few minutes, you’ll have a complete, correctly worded document ready to sign. And if you have any questions along the way, our friendly team of experts is ready to help. You can use our default terms or choose your own terms. The guide text gives more context to help you make your decision. How to create a founder agreement on SeedLegals: - [Log into SeedLegals](https://app.seedlegals.com/login) or [sign up](https://app.seedlegals.com/signup?utm_medium=email&utm_campaign=UK+Events+Newsletter&utm_content=2&utm_source=hs_email&_ga=2.174393189.61857805.1682326549-2146359457.1665075587&_gl=1*fbnjh*_ga*MjE0NjM1OTQ1Ny4xNjY1MDc1NTg3*_ga_P024RMJJ48*MTY4MjUwMDM5My4yMS4xLjE2ODI1MDYwNTYuNjAuMC4whttps://app.seedlegals.com/signup?utm_medium=email&utm_campaign=UK+Events+Newsletter&utm_content=2&utm_source=hs_email&_ga=2.174393189.61857805.1682326549-2146359457.1665075587&_gl=1*fbnjh*_ga*MjE0NjM1OTQ1Ny4xNjY1MDc1NTg3*_ga_P024RMJJ48*MTY4MjUwMDM5My4yMS4xLjE2ODI1MDYwNTYuNjAuMC4whttps://app.seedlegals.com/signup?utm_medium=email&utm_campaign=UK+Events+Newsletter&utm_content=2&utm_source=hs_email&_ga=2.174393189.61857805.1682326549-2146359457.1665075587&_gl=1*fbnjh*_ga*MjE0NjM1OTQ1Ny4xNjY1MDc1NTg3*_ga_P024RMJJ48*MTY4MjUwMDM5My4yMS4xLjE2ODI1MDYwNTYuNjAuMC4w) to start your free trial - On the left-hand menu, go to **Team** - Click **+ Add team member** in the top-right corner, choose **Founder** - Add the founder’s details, click continue - Click **+ New agreement**, choose **Founder agreement**– To create a **Founder Agreement**, enter 0 in the box for salary – To create a **Founder Service Agreement**, enter a number above 0 for salary - Set the terms you want across: – Key terms – Role & competing interests – Equity – Founder restrictions – Additional items - Share and sign online – it’s that easy **What does a free trial include?** Create your documents for free with seven days of free access to our platform. To access your documents after the trial is over, you’ll need an [Access, Funding or Options membership](https://seedlegals.com/pricing/) . If you decide not to join, simply download your agreement before the end of your free trial. ## Ready to get started? On SeedLegals, it’s quick and simple to create the documents you need to protect your startup. We think early-stage businesses shouldn’t be overcharged for their fundamental legal docs. That’s why we’ve bundled together the tools and contracts you need into Access, our best-value membership plan. To check out what you get, see [SeedLegals membership: what’s included.](https://seedlegals.com/resources/seedlegals-membership-contracts/) Got a question for us? Jump on a [free call with one of our experts](https://seedlegals.com/talk-to-an-expert/) . If you’re raring to go and ready to create your founder agreements right now, hit the button below to start your free trial. ##### Create your documents now ### Try SeedLegals free for 7 days All the essentials and more in just a few clicks. [Start free trial](https://app.seedlegals.com/signup?utm_network=g&utm_medium=email&utm_campaign=Founders+Newsletter&utm_matchtype=e&utm_keyword=seedlegals+pricing&utm_adposition=&utm_content=2&utm_source=hs_email&utm_term=seedlegals+pricing&utm_device=c&_ga=2.219968794.2017878521.1683017266-2146359457.1665075587&_gac=1.86841706.1682674786.Cj0KCQjw3a2iBhCFARIsAD4jQB0jFVAMHlP7LkjjCMN2FP-bPYnNRs1oNuwcV-vsbGjW_VXqZNRexO4aAm_qEALw_wcB&_gl=1*1mrjk0i*_ga*MjE0NjM1OTQ1Ny4xNjY1MDc1NTg3*_ga_P024RMJJ48*MTY4MzAyOTk1My40MC4xLjE2ODMwMzMwNzIuNTkuMC4w) ## Related posts [9 min read 10 essential legal documents for UK startups Learn what these essential documents are for and why you need them to start, run and grow your business. Kaylin Sullivan](https://seedlegals.com/resources/legal-documents-for-uk-startups/) [8 min read How to incorporate and set up a UK limited company Get the complete guide to setting up a limited company. We explain every step, from choosing a name and share structure ... Kirsty MacSween](https://seedlegals.com/resources/how-to-set-up-a-limited-company/) [9 min read How to complete your first funding round: the step-by-step guide Here’s your step-by-step guide on raising your first funding round. Learn how to get investment ready, agree deal terms ... Anthony Rose](https://seedlegals.com/resources/how-to-complete-your-first-funding-round/)