Co-founder Agreements for Australian Medical Device Distribution Startups

If you are building a medical device distribution startup with one or more co-founders, a handshake is not enough. This type of business usually involves imported products, supplier negotiations, regulatory responsibilities, sales targets, warehousing, and healthcare customer relationships. Founders often make three expensive mistakes early on: they split equity without tying it to actual work, they assume one founder will “handle compliance” without defining what that means, and they rely on verbal promises about who owns supplier contacts, data, and brand assets.

A well-drafted co-founder agreement for medical device distributor businesses helps prevent those problems before they turn into a dispute. It sets out who does what, who owns what, how decisions get made, and what happens if a founder leaves, underperforms, or wants out. For Australian medical device distribution startups, it should also reflect the industry realities around regulatory accountability, customer contracts, confidentiality, and product risk. Here’s what to sort out first, before you sign and before you rely on a verbal promise.

Overview

A co-founder agreement is the rulebook between founders at the stage where expectations are high but structures are often still informal. For a medical device distributor in Australia, the agreement should do more than split shares. It should allocate practical responsibility for compliance, supplier management, financing, customer relationships, and day-to-day authority.

• Define each founder’s role, authority, time commitment, and key responsibilities.
• Record equity ownership clearly, including vesting, milestones, and what happens if someone leaves early.
• Deal with decision-making, deadlocks, reserved matters, and director or shareholder approvals.
• Clarify ownership of intellectual property, brand assets, customer data, and supplier information.
• Set rules for founder pay, expenses, loans to the business, and future capital contributions.
• Cover confidentiality, restraint-style protections, and use of business opportunities.
• Address who handles regulatory and contractual obligations linked to medical device distribution.
• Include dispute resolution and exit mechanics before tensions arise.

What Co-founder Agreement for Medical Device Distributor Means For Australian Businesses

A co-founder agreement for medical device distributor businesses is a private contract between founders that sets the commercial and practical rules of the relationship. It usually sits alongside your company constitution and, if the business grows, may later be replaced or supplemented by a more formal shareholders agreement.

For Australian founders, this matters because medical device distribution is rarely a simple “sales” business. One founder may source devices from overseas manufacturers, another may manage hospitals or clinic accounts, and another may take responsibility for operations or quality systems. If those responsibilities are not written down, arguments often start as soon as revenue, delays, or compliance issues appear.

Why this agreement matters more in medical device distribution

The main risk is that founders assume ordinary startup documents are enough, when this sector has extra pressure points. Devices may be regulated products, customer expectations are high, and supplier arrangements can determine whether the business survives.

A founder agreement in this space often needs to reflect matters such as:

• who is responsible for checking product listings, import requirements, packaging, labelling, or sponsor-related obligations where relevant
• who signs supplier contracts and who can commit the business to minimum orders or exclusivity
• who manages complaints, product issues, recalls, or quality concerns if they arise
• who owns and controls key customer accounts, tender responses, and distributor relationships
• who keeps records and who has authority to speak with regulators, logistics providers, and key customers

The agreement is not a substitute for regulatory advice, supply contracts, or customer terms. It does, however, allocate responsibility between founders so there is less room for denial later.

How it fits with business structure

Most startups in this area use a proprietary limited company, with the founders holding shares and often acting as directors. In that case, your co-founder agreement should work with your company structure rather than fight against it.

That means the document should line up with:

• the shareholdings on issue
• any director appointments and director powers
• the company constitution, if you have one
• any option plan or future investor rights you expect to introduce
• the practical reality of who is contributing capital, labour, networks, or stock access

If one founder is operating through a trust or another entity, or if shares are held unequally for tax or investment reasons, get the legal and accounting position checked carefully. Founders often think “we can clean that up later”, but later is usually the point where trust is already under strain.

What issues a founder agreement usually covers

A useful agreement should answer the questions that founders are most likely to ask each other in a stressful moment. Before you sign, make sure it deals with the real commercial arrangement, not an idealised version.

• What is each founder expected to do each week, and is the role full-time, part-time, or transitional?
• How much equity does each founder get, and why?
• Does equity vest over time or on milestones, especially where one founder is joining before revenue?
• Can a founder keep shares if they stop working in the business?
• Who can approve supply agreements, debt, hires, leases, software subscriptions, or large purchases?
• What decisions require everyone’s consent?
• What happens if a founder wants to leave, is removed, or becomes unable to continue?
• Who owns the brand, logo, product materials, know-how, and documents created by founders?
• Can a founder compete, approach suppliers, or solicit staff and customers after leaving?
• How are disputes handled before they become company-ending fights?

Legal Issues To Check Before You Sign

Before you sign a co-founder agreement for a medical device distribution startup, make sure the document reflects how legal risk actually sits in the business. Generic startup precedents often miss the points that matter most when products, healthcare customers, and regulatory obligations are involved.

Roles, authority, and accountability

Each founder’s role should be specific enough that everyone can tell whether it is being performed. “Operations”, “sales” and “compliance” sound clear until a shipment is delayed or a customer complaint arrives.

Spell out matters such as:

• who manages manufacturer and wholesaler relationships
• who negotiates and signs distribution agreements
• who oversees logistics, warehousing, and stock controls
• who handles customer onboarding, tenders, and account management
• who maintains records and internal procedures related to product compliance and complaints
• who is the main internal contact for lawyers, insurers, and external advisers

If one founder is the public face of the business but another controls back-end decisions, the agreement should say so clearly. This is where founders often get caught.

Equity split and vesting

Equity should reflect contribution, risk, and commitment, not just excitement at the start. In medical device distribution startups, one founder may bring supplier access, another may bring technical or regulatory knowledge, and another may bring capital or hospital relationships. That does not automatically mean fixed ownership from day one is the best choice.

Vesting can be particularly useful where:

• a founder is still employed elsewhere
• a founder is joining mainly for future growth rather than immediate work
• the value of a founder’s network is promising but untested
• the business depends heavily on one founder completing specific milestones

Your agreement should also distinguish between good leaver and bad leaver outcomes. A founder who leaves due to illness or an agreed change in circumstances may be treated differently from a founder who walks away after taking supplier contacts or failing to perform.

Decision-making and deadlocks

If the business has two founders with equal shares, deadlock risk is high. That problem gets worse when urgent decisions need to be made about stock orders, customer commitments, financing, or responses to product issues.

Before you sign, decide which matters can be handled by day-to-day management and which are reserved matters requiring all founders, the board, or shareholders to approve. Reserved matters often include:

• issuing new shares or changing ownership percentages
• taking on debt or giving security
• entering major supplier or exclusivity contracts
• hiring senior staff
• approving large capital expenditure
• changing the business model
• selling the company or key assets

Deadlock clauses should do more than say the founders will “discuss in good faith”. They should set a process, such as escalation, mediation, or a buy-sell mechanism, so a disagreement does not freeze the business.

Intellectual property, data, and business assets

Founders often underestimate how much value sits in materials created before and during the startup phase. If one founder designed the branding, another prepared product documentation, and another built the CRM and customer lists, ownership must be transferred to the company clearly.

Your agreement should deal with:

• assignment of all IP created for the business to the company
• ownership of business names, logos, and product marketing materials
• control of email accounts, domains, systems, and databases
• ownership and use of customer lists, supplier pricing, and tender materials
• return of confidential information when a founder leaves

If the startup collects personal information from clinics, practitioners, procurement teams, or end users, privacy obligations may also apply. The founder agreement should identify who is responsible for privacy processes and data handling, even if a separate privacy policy, privacy notice, or internal data procedure is needed.

Regulatory responsibility and product risk

The agreement should name who is responsible internally for regulatory tasks, but it should not create false comfort. A clause saying one founder “handles compliance” does not remove the company’s obligations or other directors’ duties.

For a medical device distributor, the founders should discuss and record responsibility for matters such as:

• checking whether devices are supplied in line with Australian requirements
• maintaining records relating to suppliers, complaints, and corrective actions
• reviewing representations made to customers and distributors
• coordinating recall or incident responses if required
• managing product liability insurance and related reporting

You should also make sure sales claims, warranties, and customer communications are aligned with Australian Consumer Law and any sector-specific obligations. Overpromising performance or supply timelines can create legal exposure very quickly.

Pay, expenses, and founder funding

Money disputes often start early. One founder pays for travel, another funds stock samples, and another expects a salary once orders begin. If the agreement is silent, resentment builds fast.

Record the commercial position clearly, including:

• whether founders are paid salaries, consulting fees, or nothing initially
• what expenses can be reimbursed and with what approval
• whether founder loans are documented and repayable
• whether founders must contribute more capital if cash runs short
• what happens if one founder cannot or will not contribute further funds

Do not guess on tax treatment. If founder payments or equity arrangements have tax implications, speak with an accountant or tax adviser.

Restraints, conflicts, and side projects

Medical device distribution businesses often rely on trust around supplier and customer access. If a founder can leave and immediately take the manufacturer relationship, key account pipeline, or a parallel side business, the value of the startup can collapse.

Your agreement should address conflicts of interest and competing activities, including:

• whether founders can work on other ventures
• whether they can hold interests in related healthcare or distribution businesses
• how business opportunities must be offered to the company first
• reasonable confidentiality, non-solicitation, and restraint protections after exit

These clauses need careful drafting to improve enforceability. Overly broad restraints may not hold up, but no protection at all can leave the business exposed.

Common Mistakes With Co-founder Agreement for Medical Device Distributor

The most common mistake is treating the founder agreement as a standard startup form when the business depends on regulated products, supply continuity, and institutional customer trust. A document that ignores those realities usually fails when pressure hits.

Equal shares without equal obligations

Many founders default to a 50/50 split to keep things friendly. That can work, but only where contribution, authority, and long term commitment are genuinely balanced.

Trouble starts when one founder is full-time and another is “advisory”, or one founder carries the manufacturer relationship while the other contributes irregularly. If the equity split is simple, the agreement still needs to state the expected contribution and the consequence of failing to meet it.

Not documenting who controls supplier relationships

For a medical device distributor, supplier access may be the business. Founders often assume the person who introduced the manufacturer can control that relationship personally forever.

That creates risk if the relationship was built using company resources or if the founder leaves. The agreement should make it clear that supplier opportunities, communications, and contract rights belong to the company where appropriate, not to the individual founder.

Leaving compliance as a vague shared responsibility

Shared responsibility often means no one acts until there is a problem. If product complaints come in, shipping issues arise, or customer claims need to be corrected, delay can be costly.

Even where all directors remain legally responsible for governance, the agreement should allocate internal responsibility for monitoring, reporting, and day-to-day action. Ambiguity is expensive.

Forgetting the exit scenario

Founders are usually optimistic when signing, which is exactly why exit provisions get neglected. The hard questions still need answers before you sign.

For example:

• Can a departing founder keep shares if they stop contributing?
• How is share value set if the other founder wants to buy them out?
• What happens to unpaid founder loans or expenses?
• Must they hand over devices, samples, records, and passwords immediately?
• Can they contact customers or suppliers after departure?

If those issues are not documented, the exit becomes a negotiation at the worst possible time.

Ignoring director duties and company governance

A co-founder agreement does not replace directors’ duties under Australian law. Founders who are also directors still need to act in the company’s best interests, manage conflicts appropriately, and avoid misusing their position or information.

This matters where one founder wants the company to buy through their own related entity, divert a lead, or prefer a side arrangement that benefits them personally. The founder agreement should support proper governance, not undermine it.

Assuming verbal promises will be enough

“We already agreed how this works” is one of the most expensive sentences in startup law. Memory changes once money, stress, or outside investors appear.

If you are relying on a verbal promise about future shares, exclusivity, salary, commission, or ownership of contacts, get it in writing. Courts and negotiators are far less interested in what was “understood” than founders expect.

FAQs

Is a co-founder agreement legally binding in Australia?

Usually, yes, if it is properly drafted as a contract and signed by the parties. It should be tailored to the actual arrangement and made consistent with the company structure and any constitution.

Do we need both a co-founder agreement and a shareholders agreement?

Often, yes at different stages. Early on, a co-founder agreement can set practical founder rules. As the company grows, raises investment, or formalises governance, a shareholders agreement may be added or replace parts of it.

Should a medical device distribution founder agreement mention compliance responsibilities?

Yes. It should allocate internal responsibility for regulatory, quality, complaint-handling, and contractual tasks relevant to the business. It cannot remove the company’s legal obligations, but it can make accountability much clearer.

What if one founder brings the supplier relationship?

The agreement should say how that relationship is treated, who owns resulting opportunities, and what happens if the founder leaves. This is particularly important where access to stock or exclusivity is central to the business model.

When should founders sign the agreement?

Ideally, before you sign major supplier or customer contracts, before you spend money on setup, and well before a dispute starts. The earlier the founders align expectations, the easier the business is to run.

Key Takeaways

• A co-founder agreement for medical device distributor businesses should do more than divide equity, it should allocate real responsibility for supply, compliance, customer relationships, and decision-making.
• The agreement should match your company structure, shareholdings, director roles, and any future investment plans.
• Key clauses usually cover roles, authority, vesting, founder exits, IP ownership, confidentiality, restraints, funding, and dispute resolution.
• Medical device distribution startups should pay special attention to supplier control, complaint handling, regulatory accountability, product liability insurance, and product-related risk allocation.
• Founders should not rely on verbal promises about shares, salary, exclusivity, or ownership of contacts and documents.
• It is much easier to negotiate these points before you sign than after money has been spent and contracts are on foot.

If you want help with founder equity terms, exit provisions, supplier relationship protections, and governance rules, you can reach us on 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.