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What is a founders' agreement and why do you need one?

When you start a new company, it is very important to make sure that all of your legal paperwork is in order. This includes things like nondisclosure agreements, articles of incorporation, shareholder agreements, employee contracts and much more. Obviously, the specifics differ from one business to the next; for instance, a business without shareholders or investors needs less paperwork than one that has both.

One document to consider is a founders' agreement. What is this and why do you need it?

This is just another name for an operating agreement. It helps to lay out things like the official relationship between all parties who started the company, what type of work each person is expected to do, what tactics founders will use to resolve conflicts and things of this nature.

For instance, perhaps you plan to do most of the manufacturing, while your partner is in sales. You will own the business jointly, with an even 50-50 split. The agreement can lay out your job titles, duties and ownership percentage.

Having this type of document is very important because it can help you avoid conflicts and disputes in the future. No one can claim an ownership percentage that is unfair. No one can claim not to have certain responsibilities or duties. Many conflicts can be solved by turning to the document, and confusion can be avoided.

With the excitement of starting your new business, you likely do not foresee any problems, but they do happen. Make sure you understand your legal options and what you can do to address these things in advance.

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