A Founders' Agreement is the same as a Shareholders' Agreement.
A shareholder is a person who owns a share of a company. A shareholder has certain rights that are defined by company law in your jurisdiction and the Articles of Association or Constitution of your company. Typically, these rights include the right to receive dividends from the company, the right to vote at a general meeting, and the right to receive a return of capital if the company is liquidated.
A "founder" is commonly understood as the "entrepreneur who started the business". Legally speaking, the founder is "the first shareholder" of a company. A founder has exactly the same rights as a shareholder (if they hold the same class of shares).
To govern the relationship between the founders and shareholders of a company (e.g. restrictions on transfer of shares or consents required for decision-making), you need a Shareholders' Agreement or a Founders' Agreement. On our app, this document gives you the same protection and obligations; it's only a choice of your preferred terminology and name of the agreement.
Zegal’s Shareholders’ Agreement offers a wide range of provisions. Always remember there is no “one-size-fits-all” and the legal implications of various terms must be considered on a case-by-case basis, with reference to the number of shareholders, the relative size of their shareholdings, and even their respective financial strength. Do not include provisions in a Shareholders’ Agreement without fully understanding how they work in the context of your particular business.
Be prepared for a detailed or lengthy discussion on the various terms of a Shareholders’ Agreement. Your time and effort is well justified by the fact that even incoming shareholders in future will agree to these terms (by executing a Deed of Adherence). Or, if a new shareholder comes in with significant bargaining power, you may re-negotiate the terms and execute a new Shareholders’ Agreement.
If you are not familiar with the provisions in a Shareholders’ Agreement, you must seek legal advice.
Drafting notes:
In this agreement, we have simplified the language as far as possible to make it user friendly for non-legally trained businesses. We have structured the agreement as follows:
company being the holding company of a group of companies (if there are multiple companies involved in the business)
company having ordinary shares and one class of preference shares
reserved matters at shareholders’ level to be decided by special resolution or unanimous approval
reserved matters at board level to be decided with shareholder majority consent
simple and standard pre-emptive rights for issue of new shares and transfer of issued shares
If you need the following customisation to the document, you may need help from lawyers:
company having non-voting or other classes of shares
different structure of reserved matters
specific funding obligations on shareholders
specific dividend or distribution provisions
deadlock provisions with “Texas shoot-out” exit
founder share vesting by criteria other than time
Key clauses
proceedings of the board
director nomination rights
option to have an executive committee in place
reserved matters at shareholders’ level
matters at board level subject to shareholder majority consent
pre-emptive rights on issue and transfer of shares
permitted transfer of shares to family relatives and wholly owned companies
option to have tag-along provisions
option to have drag-along provisions
transfer of shares in the event of death or default
option to have deadlock provisions (with “Russian roulette” exit)
option to have vesting of founders’ shares
option to have non-competition restrictions on founders
valuation of shares where transfer price refers to fair value
circumstances where this agreement will terminate
Document available for Hong Kong, Singapore, United Kingdom and New Zealand.