The prenup for co-founders

The scenario happens across the globe every day of the week.

A bunch of friends or family members dream up a business idea, nut out the details on a napkin, and the deal is sealed with a handshake.

If only it were that simple.

As Damien Andreasen from LawPath, himself a co-founder, attests – one of the most important things when starting a business with partners, is to decide on exactly what each person is responsible for delivering.

“Legal issues can arise because there’s no agreement or formalised understanding of what each person needs to put in, and the shares that they would then get out of it,” Andreasen told Dynamic Business.

For this reason LawPath has created a free, downloadable co-founder agreement to get startups thinking about how the business will be structured, even when it’s in its infancy.

“Really what it’s about is very simple in its format. It identifies who the co-founders are, breaks down exactly what input each co-founder is responsible for, or what that input is going to be. It also then identifies what percentage they will get from the business for that input as well,” Andreasen said.

Alongside the rise of hackathon weekends, ensuring an agreement is in place is highly important when some members of the team wish to carry on the project beyond the event.

“The agreement clears up that ambiguity, and gives everyone clear intentions of what they need to deliver, in order to be part of the team.”

According to Andreasen, a need for these agreements has emerged because of an exponential rise in legal disputes over business ownership and responsibilities.

“We have a huge number of these types of issues coming into us on a daily basis, around ‘I’m having conflict with my business partner about the business and how it’s structured, it was drawn up on a napkin, we’re not mates anymore and we need to sort this out,” he said.

While not legally binding, the agreements are a useful tool to use in the first instance, and hopefully aid in steering away from trouble further down the track.

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