What is a founders' agreement and do we need one?
By SuLe · Updated 3 May 2026
A founders' agreement is a short contract between co-founders recording the deal between you: roles, the equity split, vesting, commitment, and what happens to shares and IP if someone leaves. No law requires one — but if there are two or more of you, it is the cheapest insurance you will buy, and its terms later roll into a full shareholders' agreement.
Key facts
- No statute requires a founders' agreement — it is a private contract, never filed at Companies House.
- It typically records roles, the equity split, vesting, commitment, IP and what happens if a founder leaves.
- IP created before incorporation belongs to the person who made it until it is formally assigned to the company.
- A founders' agreement is usually superseded by a shareholders' agreement — often at incorporation or your first round.
- Founder vesting is typically 4 years with a 1-year cliff; the buyback mechanics belong in the shareholders' agreement or articles.
What does a founders' agreement actually cover?
Six things, and the discipline of writing them down matters as much as the document itself. If two founders cannot agree these points on paper now, the disagreement exists already — the agreement just surfaces it early, while it is still cheap.
| What to cover | What to actually agree |
|---|---|
| Roles and decision-making | Who is CEO, who owns which decisions, how ties get broken |
| Equity split | The percentages — and the reasoning behind them, written down |
| Vesting | The intended schedule and cliff, to be implemented in the shareholders' agreement |
| Commitment | Full-time or part-time, start dates, outside work, what salary is deferred |
| IP | Everything built before and after incorporation gets assigned to the company |
| Leaving | What is meant to happen to shares and responsibilities if someone exits |
Keep it short. A founders' agreement that tries to be a shareholders' agreement usually ends up a bad version of both.
Do we legally need one?
No — nothing in the Companies Act 2006 or anywhere else requires it, and plenty of companies incorporate without one. The case for it is asymmetry: it costs little now, while the dispute it prevents can cost the company itself.
It matters most where there is something unwritten to fight over later: a founder joining before incorporation, a part-time phase, unequal cash contributions, or IP one founder built before the company existed.
If you are already incorporated with investors arriving, skip straight to a shareholders' agreement — there is no point papering the early deal twice.
When should we sign it — and when does it get replaced?
Sign it when the founding team settles, ideally before incorporation — it is the only founder document you can sign while the company does not yet exist. Waiting for the "right moment" usually means signing nothing.
It is not meant to last. At incorporation or your first funding round, a shareholders' agreement restates the deal with proper machinery — share rights, leavers, transfer controls — and usually supersedes the founders' agreement entirely through an entire-agreement clause.
The handover is where details get lost. Check that the vesting start date, the split's logic and any IP promises survive the move into the new document.
What makes a founders' agreement enforceable in practice?
It binds the founders personally, like any contract — but it cannot bind a company that did not exist when it was signed, and it cannot itself execute share buybacks or conversions. Those need the shareholders' agreement and articles, operating within the Companies Act 2006 framework.
The same applies to IP. A promise to assign is enforceable, but the company only owns the IP once a written assignment is actually signed after incorporation — investors will look for that document, not the promise.
So treat the founders' agreement as the record of intent with real evidential weight, and move its terms into company documents as soon as the company exists.
Worked example
Imogen and Raj are three months from incorporating their D2C skincare brand. Imogen has spent nine months developing formulations and the brand identity; Raj, a retail operations specialist, joins now but cannot go full-time until his notice period ends in June.
Their founders' agreement records a 60/40 split in Imogen's favour, 4-year vesting with a 1-year cliff for both, Raj's full-time start date, and Imogen's commitment to assign the formulations and brand to the company at incorporation.
When they incorporate with 10,000 ordinary shares — 6,000 to Imogen, 4,000 to Raj — the vesting and leaver terms move into a shareholders' agreement, and Imogen signs the IP assignment the same week. The founders' agreement has done its job in four pages.
Where founders go wrong
Relying on a handshake and a WhatsApp thread.
Memories of what was agreed diverge exactly when the stakes rise. Write it down while you still agree.Signing a founders' agreement and stopping there.
Buybacks and share conversions only work through the shareholders' agreement and articles — move the terms across at incorporation.Leaving pre-incorporation IP with the individual.
The company needs a signed, written assignment of the brand, code and designs; due diligence will ask for it.Fudging commitment.
A part-time founder on full-time equity is a classic source of resentment — agree hours, start dates and a review point now.
Related questions
Is a founders' agreement legally binding?
Yes — a properly signed founders' agreement is a binding contract between the founders personally. Its limit is machinery: it cannot itself buy back shares or convert them, because those mechanics run through the shareholders' agreement and articles once the company exists. Treat it as the record of the deal, not the enforcement tool.
Founders' agreement or shareholders' agreement — which do we need first?
Before incorporation, a founders' agreement is the only one you can sign, and it captures the deal while goodwill is high. Once the company exists — and certainly by your first investment round — a shareholders' agreement should take over, restating the vesting and leaver terms with real teeth. [More: Founders' agreement vs shareholders' agreement — what's the difference?]
Do I need a founders' agreement as a solo founder?
No — with one founder there is no founder deal to record. Solo founders face a different question: whether a shareholders' agreement becomes worth it once investors, advisors or an employee-shareholder arrive, and what should sit in the articles in the meantime. [More: Do I need a shareholders' agreement as a solo founder?]
Should vesting go in the founders' agreement?
Record the intended schedule there — typically 4 years with a 1-year cliff — so nobody can later claim it was never agreed. But implement it through the shareholders' agreement or articles, which is where buyback-at-nominal-value mechanics actually operate under UK company law. [More: What is founder vesting and how does it work in the UK?]
What happens to IP we created before incorporating?
It belongs to whoever created it, not the company — incorporation does not sweep it up automatically. The founders' agreement should commit each founder to assigning pre-incorporation IP to the company, and a written assignment should be signed once the company exists. [More: How do I transfer pre-incorporation IP into my company?]
A founders' agreement is short enough to feel DIY-able — and the gaps only show when a founder leaves, a round closes or the IP turns out to belong to an individual. A SuLe solicitor can draft or review yours, and make sure the terms survive the move into your shareholders' agreement. Get your founder documents reviewed — book a free consultation before the goodwill you are relying on gets tested.
Keep reading: What should a shareholders' agreement include for a UK startup? · How should co-founders split equity in a UK startup? · What happens to a co-founder's shares if they leave? · What are good leaver and bad leaver provisions? · What is reverse vesting? · What legal documents does a UK startup actually need?
Primary sources: Companies Act 2006 · GOV.UK — Running a limited company
