ATTORNEY CHECKLIST – Founder Friendly Standard

Founder Friendly Standard is a framework for determining if your term sheet or investment agreement is founder friendly.

Are your startup's legal documents compatible with the Founder Friendly Standard? Hand this checklist to an attorney to have them determine.

Founder Friendly Standard is an open source addendum for startup company organizational documents like term sheets, stock purchase agreements, private placement memorandums (PPM), stock
... show more

ATTORNEY CHECKLIST

Founder Friendly Standard® Version 1.1

This checklist is for helping Client understand how compatible term sheets, investment agreements, and organizational documents are with the Founder Friendly Standard. This checklist is to be completed by a licensed attorney (“Attorney”) on behalf of Client.

Attorney

Client

[ATTORNEY NAME]

[CLIENT NAME]

[ATTORNEY EMAIL]

[CLIENT EMAIL]

[LICENSE #]

[CLIENT COMPANY]

[ATTORNEY STATE]

[CLIENT STATE]

Attorney is reviewing the following “Agreements” for Client:

  1. Agreement 1
  2. Agreement 2
  3. Agreement 3
  4. … etc.

INSTRUCTIONS

Indicate whether Agreements are compatible, incompatible, or silent on each section of Founder Friendly Standard. You can leave comments after each finding. See examples here: https://eisaiah.blog/founder-friendly-standard-comparison/.

SECTION 1. VOTING

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 1.1 of the Founder Friendly Standard:

Individuals who work for the company and are instrumental in its inception (“Founders”) receive a class of equity such as Common Stock which provides no less than twenty-four (24) votes to one (1) vote of stock held by investors or employees.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 1.2 of the Founder Friendly Standard:

Investors receive a class of equity such as Class A Preferred Stock which will have one vote per share with a higher par value justified by a liquidation preference.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 1.3 of the Founder Friendly Standard:

Employees and contractors receive a class of equity such as Class B Common Stock which carries one vote per share and does not have a liquidation preference.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 1.4 of the Founder Friendly Standard:

The first board consists only of Founders. The term of the board is one year. After the first year, a new board is elected by the equity holders at the annual meeting. Board decisions are made by a majority vote of the board. Board members cast no more than one vote each on any decision. Board committees are disallowed for at least the first two (2) years.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 1.5 of the Founder Friendly Standard:

New equity of any kind, including stock option pools, dilutes all equity holders equally. Therefore, no investor in the company has anti-dilution rights of any kind.

Attorney comments…

SECTION 2. SWEAT EQUITY

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 2.1 of the Founder Friendly Standard:

Founders agree in writing they will give and receive performance reviews at the end of each fiscal quarter for the first four (4) years.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 2.2 of the Founder Friendly Standard:

Sweat equity vests each month over a period of four (4) years with a one (1) year vesting cliff. Vesting begins on the date shares are issued.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 2.3 of the Founder Friendly Standard:

Founders keep all information confidential and assign the company all intellectual property created within the scope of their work for the company.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 2.4 of the Founder Friendly Standard:

Due to potentially devastating tax consequences, the company tells individuals receiving sweat equity in the United States to consult with a tax professional about making an election under Section 83(b) of the Internal Revenue Code. Founders who live or pay taxes outside the United States are similarly advised to consult tax professionals about applicable local and national taxes.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 2.5 of the Founder Friendly Standard:

Non-compete restrictions only apply to employee or independent contractor agreements and do not survive termination. The company’s bylaws and other investor agreements are either silent on the issue of non-competition or expressly allow competition.

Attorney comments…

SECTION 3. LAW

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 3.1 of the Founder Friendly Standard:

For at least the first two (2) years of operations, the company will not agree to pay the legal expenses of any investor as a condition of investment.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 3.2 of the Founder Friendly Standard:

For at least the first two (2) years of operations, the company does not agree to binding arbitration with any investor.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 3.3 of the Founder Friendly Standard:

For at least the first two (2) years of operations, the company does not agree to binding arbitration with any Founder.

Attorney comments…

SECTION 4. TRANSFERS

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 4.1 of the Founder Friendly Standard:

Upon any transfer or sale of Founders’ super-voting equity, the portion of equity transferred converts to the class of equity described in Section 1.3. This also includes any transfer to a Founder’s estate, spouse, or heirs.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 4.2 of the Founder Friendly Standard:

The company has the right of first refusal on any transfer or sale of equity for up to forty-five (45) days, but it cannot veto a transfer or sale. This provision is void after a company’s stock is listed on a public exchange such as the NASDAQ, OTCBB, New York Stock Exchange, etc.

Attorney comments…

SECTION 5. USAGE

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 5.1 of the Founder Friendly Standard:

The company’s equity, financing, corporate governance, and Founder labor agreements invoke the Founder Friendly Standard as follows: Intention of the Parties. The Parties agree that the enclosed exhibit, “The Founder Friendly Standard” captures the intent of the parties in creating this Agreement. In the event of any discrepancy between this Agreement and the Founder Friendly Standard, the Founder Friendly Standard will prevail. The enclosed exhibit is an exact copy of version 1 retrieved from https://eisaiah.blog/founder-friendly-standard/.

Attorney comments…

Agreements are COMPATIBLE INCOMPATIBLE SILENT on Section 5.2 of the Founder Friendly Standard:

By using the Founder Friendly Standard, you agree that the Founder Friendly Standard LLC is not providing you with legal or tax advice and is not a party to any agreement where this work is invoked. Founder Friendly Standard is a registered trademark of Founder Friendly Standard LLC in Dallas, TX, USA. This work is licensed to you under CC BY-ND 4.0 which can be found online at https://creativecommons.org/licenses/by-nd/4.0/.

Attorney comments…

By signing this form, Attorney declares that the above findings are accurate based on the Agreements reviewed.

[ATTORNEY SIGNATURE]

[DATE]

[ATTORNEY NAME]

Revision 20191020-b. This form is licensed under CC BY-ND 4.0. Founder Friendly Standard is a registered trademark of Founder Friendly Standard LLC in Dallas, TX, USA. Founder Friendly Standard LLC makes no representations or warranties of any kind related to this form or Attorney.