What is standard founder vesting?

The standard startup vesting schedule is four years with a one-year cliff. At the one-year mark, 25% of shares vest (the cliff). The remaining 75% vests monthly over the next three years. If a founder leaves before the cliff, they receive no equity. This structure is expected by investors and protects co-founders from a scenario where someone leaves early but keeps their full stake.

When should co-founders sign a founder agreement?

At formation, or as soon as possible after you start working together — before anyone has invested significant time or money. The provisions that are easy to agree on when relationships are strong become difficult to negotiate when tension has developed.

What happens to a founder's equity if they leave the company?

Under a standard vesting agreement, unvested shares are forfeited upon departure. Vested shares are typically retained, but the company and remaining founders usually have a right of first refusal — the right to buy those shares at a defined price before the departing founder can sell to an outside party. For-cause terminations may trigger additional buyback rights on vested shares.

Founder Agreements: What They Cover and Why You Need One

Co-founder disputes are the leading cause of early-stage startup failure. Not bad markets, not bad products — disagreements between founders about equity, roles, decision-making, and what happens when someone wants to leave. A founder agreement doesn't prevent disagreements. It gives you a framework for resolving them without destroying the company.

What a founder agreement is

A founder agreement (sometimes called a co-founder agreement or shareholders' agreement) is a contract between the founders of a company that governs their relationship, equity ownership, roles, and what happens in scenarios that are easy to imagine but hard to discuss — someone leaving, someone getting fired, a buyout, a dispute.

It is separate from the company's formation documents (articles of incorporation or articles of organization) and separate from the operating agreement (which governs the LLC itself). The founder agreement governs the founders' relationship with each other.

What a founder agreement should cover

Equity split and ownership

The agreement should state clearly who owns what percentage of the company, how that was determined, and what happens to ownership over time (see vesting, below). Vague language like "we'll figure it out" is the setup for expensive litigation.

Vesting schedules

Vesting is the mechanism that ensures founders earn their equity over time rather than receiving it all upfront. The standard startup vesting schedule is four years with a one-year cliff:

At the one-year mark, 25% of shares vest (the "cliff")
The remaining 75% vests monthly over the next three years
If a founder leaves before the cliff, they receive no equity
If a founder leaves after the cliff, they keep what has vested

Why vesting matters: Without vesting, a co-founder who leaves after six months keeps their full equity stake. The remaining founders continue doing all the work while their departed co-founder holds 30% (or whatever their share was) of the company. Investors will require vesting be added before they invest, often with a reset — meaning the founders accept new vesting from scratch at the time of funding. Better to set it up correctly at formation.

Roles and decision-making authority

Who is the CEO? Who controls product decisions? Who manages finances? What decisions require unanimous consent of all founders versus a majority? Ambiguity here creates conflict. The agreement should be specific about who has authority over which domains and what escalation looks like when founders disagree.

IP assignment

All intellectual property created by founders in connection with the company must be assigned to the company — not retained personally. This includes code written before incorporation if it's related to the product, designs, content, and any other work product. Investors will walk away from a company where a founder personally owns the core IP.

This provision is often handled in a separate IP assignment agreement and should be signed at formation or, at latest, when the founder agreement is executed.

Confidentiality

Founders should agree not to disclose confidential information about the company, its technology, financials, or customers — both during their time at the company and for a defined period after departure. Standard confidentiality provisions survive departure.

Non-solicitation

A provision preventing a departing founder from soliciting the company's employees or customers for a defined period after leaving. Scope and enforceability vary by state.

Non-compete

Non-compete clauses restrict a departing founder from starting or joining a competing business for a defined period. Enforceability varies dramatically by state — California effectively prohibits non-competes entirely, while other states enforce them if reasonable in scope and duration. Get legal advice before relying on a non-compete clause.

What happens when a founder leaves

The agreement should address:

Voluntary departure: What happens to unvested equity? (Typically forfeited.) What happens to vested equity? (Typically retained, subject to buyback provisions.)
For-cause termination: Can the company buy back vested shares? At what price?
Death or incapacity: Does the company have a right of first refusal on the founder's shares? How is valuation determined?
Divorce: Does the company have any protection against a founder's shares passing to a spouse in a divorce proceeding?

Buyout mechanics

If a founder wants to sell their shares, the other founders and the company should have a right of first refusal — the right to purchase the shares before any third party can. This prevents an unwanted outside party from becoming a co-owner of the company.

Common mistakes

Waiting too long. The time to negotiate a founder agreement is when everyone is excited about the company and relationships are strong. The same provisions that are easy to agree on at formation become contentious when someone is already thinking about leaving.

Not addressing vesting. Every founder agreement should include a vesting schedule. "We'll add it later" means you'll add it under pressure, probably when investors require it, with less favorable terms.

Equity splits based on contribution to date rather than future value. The founder who had the original idea often wants a larger share based on that. The founder who will build the product full-time often justifiably wants parity. Negotiate based on expected future contribution, not past.

No decision-making framework. A 50/50 split between two founders with no tie-breaking mechanism means every disagreement is a potential deadlock. Build in a framework before you need it.

Generic templates. A co-founder agreement from a general legal template site may not reflect your actual arrangement, your state's laws, or the specifics of your equity structure. Founder agreements are worth customizing.

Frequently asked questions

Do solo founders need a founder agreement? No — a founder agreement governs the relationship between multiple founders. Solo founders need an operating agreement (for LLCs) or bylaws (for corporations), along with IP assignment agreements for any contractors or employees.

When should we sign a founder agreement? At formation, or as soon as possible after you start working together. Before anyone has invested significant time or money is the ideal moment.

What's the difference between a founder agreement and an operating agreement? An operating agreement governs the LLC as an entity — management structure, profit distribution, voting rights. A founder agreement governs the founders' relationship with each other — equity, vesting, what happens when someone leaves. You need both.

Can a founder agreement be changed later? Yes, with the consent of all parties. Major changes — like adjusting equity splits after a co-founder leaves — require careful documentation and often legal review.

Do we need a lawyer to draft a founder agreement? Attorney-vetted templates cover the standard provisions and are appropriate for most early-stage companies. For complex structures — multiple founders with different contribution types, deferred compensation, unusual equity arrangements — attorney review is worth the cost.

Talking Tree is a 501(c)(3) nonprofit (EIN 99-2664819) providing attorney-vetted founder agreement templates and AI-powered legal drafting to startups at nonprofit pricing. Get started at talkingtree.app.