Written by Fraz Butt, Senior Director · SRA-regulated · Last reviewed 8 September 2026
A founders agreement is a document, sometimes informal and sometimes forming part of a formal shareholders agreement, in which the people starting a business together set out their roles, their ownership split, how much time and money each will commit, and what happens if one of them wants to leave. It is best agreed before the company is incorporated, or very shortly after, while the relationship between co founders is still straightforward and no value has yet been created to argue over. This guide explains what to include.
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Why Founders Fall Out, and How an Agreement Helps
Most founder disputes are not caused by dishonesty, they are caused by unspoken assumptions. One founder assumes they will hold more shares because they had the original idea. Another assumes both founders will work full time, when in fact one intends to keep a separate job. Without a written agreement, these assumptions only surface once there is money or success at stake, by which point they are far harder to resolve.
A founders agreement forces these conversations to happen early, while they are still easy to have honestly.
Ownership and Vesting
The agreement should record how shares are split between founders and why, for example based on the value of ideas, funding contributed, or ongoing time commitment. Many founders also agree vesting, meaning shares are earned gradually over time, often three or four years, rather than fully owned from day one. This protects the business if a founder leaves early, since their unvested shares can be returned to the company rather than being retained by someone no longer contributing.
Roles, Time Commitment and Decision Making
Setting out each founder’s role, whether that is commercial, technical or operational, and how many hours per week they are expected to commit, avoids later disagreement about who is pulling their weight. The agreement should also record how day to day and major decisions will be made, particularly where founders hold equal shares and could otherwise reach deadlock.
What Happens if a Founder Wants to Leave
Even founders who are fully committed at the start sometimes need to leave, whether for personal reasons, a change in circumstances, or a falling out. The agreement should set out how a departing founder’s shares are valued and bought back, and whether the outcome differs depending on the circumstances of departure. This is closely linked to the good leaver and bad leaver provisions found in a full shareholders agreement.
Related reading: shareholders agreements.
Turning a Founders Agreement Into Formal Documents
A founders agreement is often the starting point for a conversation that then gets formalised into the company’s articles of association and a full shareholders agreement once the business is incorporated. It is worth taking advice at this stage to make sure the informal agreement between founders is properly reflected in the legal documents that will actually govern the company.
Related reading: choosing a business structure.
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Frequently Asked Questions / Questions & Answers
Is a founders agreement the same as a shareholders agreement?
Not quite. A founders agreement often covers the informal understanding between founders before or shortly after incorporation, including roles and vesting, while a shareholders agreement is the fuller, formal document governing the company once it is set up. In practice, the two are often combined.
What is vesting and why does it matter for founders?
Vesting means shares are earned gradually over an agreed period, rather than owned outright immediately. It protects the business and the other founders if someone leaves early, since unvested shares can return to the company rather than being kept by someone no longer involved.
Do we need a founders agreement if we trust each other?
Trust is exactly why it is easier to agree these terms early. A founders agreement is not a sign of distrust, it is a way of making sure everyone has the same understanding before there is anything of value to disagree about.
Can a founders agreement be changed once the company is set up?
Yes, though any changes should be agreed by all founders and reflected in the company’s formal documents, such as a shareholders agreement, to make sure they are legally binding.
What happens if we start the business without a founders agreement?
The business can still operate, but if founders later disagree about ownership, roles or an exit, there is no agreed framework to resolve the dispute, which often makes it slower and more costly to settle.
Speak to Saracens Solicitors
To put a founders or shareholders agreement in place before you start trading, speak to our Corporate Law team.
Visit our Corporate Law service page or call us on +44 (0)20 3588 3500 to arrange a consultation.
Saracens Solicitors, Thanet House, 231 to 232 Strand, London, WC2R 1DA.
