Founders' Equity Agreement

A sample equity agreement for founders. I make no claims about the usefulness or legal strength of this document!

This Equity Sharing Agreement (henceforth, the “Agreement”) is entered into as of the date set forth below by and between Founder 1 and Founder 2 (collectively, the “Founders”).

1.    VALIDITY OF AGREEMENT

Any of the following events will invalidate the current agreement and require a new agreement to which both Founders must consent:

  • Receipt of outside investment
  • Introduction of additional equity partner(s)
  • Change of business entity type
  • Reaching a total, cumulative capital infusion of $Funding (regardless of any balance owed between Founders)

Agreement can also be terminated my mutual consent of the Founders.

2.    VALUATION AND EQUITY SPLIT

The Founders hereby agree to divide shares of Company as follows, resulting in a total current valuation of $Valuation:

Founder 1: Founder 1's Stock shares @ $Founder 1's Investment

Founder 2: Founder 2's Stock shares @ $Founder 2's Investment

3.    CAPITAL INFUSIONS

We also hereby commit that if the Founders both agree that the business requires capital infusions of up to a cumulative total of $Bootstrap Funds, they will contribute equally (50/50), not on the basis of current personal ownership stake; without prejudice to the balance of equity between the Founders.

Capital infusions will be composed of capital calls and contributions, as follows:

Capital Calls:

A “capital call” is a cash expenditure that is mutually agreed upon prior to and paid by both Founders, per the terms above. Typically, capital calls will be higher cost expenses. In the event that a capital call is made on the $Bootstrap Funds amount noted above, each of us will have 10 calendar days to transfer the cash directly to Company.

In the event that one of the Founders is unable to meet the capital call, the other Founder will have the right to meet the capital call on their behalf, thereby purchasing equity on the basis agreed upon above. Additionally, if one party only meets a portion of the capital call, the other party will be allowed to purchase their equity on the basis agreed upon above.  [For example:

1.    Founders agree on capital call of $5,000

2.    At any time within the 10 calendar day deadline window, the deadline can be extended multiple times and/or indefinitely if both founders agree.

3.    Founder A is unable to meet their $2,500 share of call within 10 calendar days, and no deadline extension has been agreed upon

4.    Founder B has option to contribute all $5,000, thereby purchasing 2,500 shares from Founder A.  Founder B also has the option to extend the capital call deadline entirely at his discretion (e.g. multiple extensions can be made unilaterally).

5.    In the event that Founder A only pays $1,000 of his $2,500 share of call within 10 calendar days, Founder B has the option to purchase $1,500 worth of shares from Founder A.

6.    If Founder A is unable to meet their share and Founder B is unwilling to cover the full outstanding amount, no equity transaction will be mandated ]]

Capital Contributions:

Unlike capital “calls,” capital contributions will typically be smaller expenses. Each Founder may make additional “capital contributions” on an on-going basis individually. These capital contributions will be recorded and “zeroed out” on a regular basis, at the partners’ discretion. [For example, if Founder A has spent $45.00 on business expenses and Founder B has spent 200.00 on business expenses, Founder A will pay Founder B $77.50 ($122.50 owed - $45.00 paid = $77.50). The Founders have “zeroed out” existing expenses to create a starting point for this system beginning on 2/1/2011, after which all expenses will be split 50/50, unless other specified.]

In the event of a capital call, a personal transfer between the partners must be made to zero out any imbalance in the capital contribution ledger.

4.    VESTING SCHEDULE

Vesting will occur based on the following schedule:

·    Until and through Start Date, neither Founder’s shares will vest

·    On and not before Cliff Date – 25% of each Founder’s shares will vest

·    On and not before the 1st of every month thereafter, 1/36th of the remaining 75% will vest

·    Thus, on End Date, each Founder will be 100% vested

If both Founders are still fully involved with the business and a liquidity event (i.e. sale to a third party, an initial public offering, or other liquidity event) occurs, 100% vesting will occur immediately.

5.    CONCURRENT NON-COMPETE

Neither Founder will consult for, be employed by, or offer any aid to any direct competitor of Company without the other partner’s explicit consent.

6.    DEATH OR INCAPACITATION

In the event that a partner dies or is otherwise legally incapacitated, the equity stake (and all rights associated thereof) of the deceased/incapacitated partner shall transfer to his estate/beneficiary immediately.

Document Discussion

I don't see anything about acceleration on termination without cause

"If both Founders are still fully involved with the business and a liquidity event (i.e. sale to a third party, an initial public offering, or other liquidity event) occurs, 100% vesting will occur immediately."

"If both Founders are still fully involved with the business and a liquidity event (i.e. sale to a third party, an initial public offering, or other liquidity event) occurs, 100% vesting will occur immediately."

Bill, isn't this effectively a partnership agreement. And if so, you might consider adding some language about allocation of P&L, and tax provisions.

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