When a new business venture is launched by multiple founders, it is important for those founders to consider and address any potential issues that may arise during the life of the business. Failure to do so at the outset can result in a difficult and costly resolution when and if those issues come to pass.

A founders’ agreement is an agreement that defines the rights of a business entity’s founders as they relate to each other and to the business entity. There are many types of these agreements, such as buy-sell agreements, shareholders’ agreements, property assignments, and employment agreements. Not all of these agreements are appropriate for every new venture, but founders should carefully consider where a potential conflict might exist, and what can be done to settle that conflict before it arises.

Properly constructed founders’ agreements are commonly needed to accomplish the following:

•Define each founder’s interest in the business
• Restrict the transfer of an ownership interests to third parties in case of death, disability, retirement, or withdrawal
• Transfer, license, or lease a founder’s property to the business entity
• Define compensation arrangements, such as stock option plans
• Delineate corporate titles, salaries, and benefits
• Ensure certain valuable intellectual property rights are retained by a founder
• Impose confidentiality restrictions and covenants not to compete