Co-founder Agreements for Medical Device Distributors

A handshake between founders is not enough when you are building a medical device distribution business in Australia.

The pressure usually comes early: one founder brings supplier contacts, another handles hospital relationships, another funds the first shipment, and everyone assumes the details can be sorted out later. That is where founders often get caught. Common mistakes include splitting equity equally without linking it to actual contributions, relying on verbal promises about who owns distributor relationships, and ignoring what happens if a founder leaves just before a Therapeutic Goods Administration issue, product recall, or major supply contract negotiation.

A well-drafted co-founder agreement for medical device distributor businesses sets the ground rules before money is spent, contracts are signed, and responsibility becomes hard to untangle. It can help you deal with ownership, decision-making, confidential information, regulatory responsibility, deadlocks, and founder exits in a way that suits a regulated distribution business, not just a generic startup. Here's what the agreement should cover, the legal issues to check before you sign, and the mistakes Australian medical device founders make most often.

Overview

A co-founder agreement for a medical device distributor should reflect the commercial reality of a regulated supply business. It needs to do more than divide shares, it should spell out who does what, who owns what, and what happens if the business relationship changes after supplier negotiations, customer onboarding, or compliance issues arise.

• Founders' roles, authority, time commitment and performance expectations
• Equity split, vesting, capital contributions and how future funding affects ownership
• Who owns supplier relationships, customer contracts, IP, data and business opportunities
• Decision-making rules for major contracts, regulatory issues, recalls and borrowing
• Confidentiality, restraint clauses and handling sensitive technical and commercial information
• Exit rules if a founder resigns, is removed, becomes inactive or breaches the agreement
• Dispute resolution and deadlock processes before the business is damaged
• Alignment with shareholder arrangements, employment terms and supplier or distribution contracts

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

A co-founder agreement is the founders' rulebook for ownership, control and risk. For an Australian medical device distribution startup, it should be tailored to a business that deals with supply chains, regulated products, clinical customers, and valuable commercial relationships.

Founders often assume a standard startup agreement will do the job. In this sector, that can leave major gaps. A device distributor may be responsible for import arrangements, warehousing, complaint handling, adverse event reporting support, marketing controls, and contract commitments to manufacturers and customers. If those responsibilities sit informally with one founder, the business can face serious disruption when that founder stops performing or leaves.

The agreement usually sits alongside the company constitution and, if the company has already issued shares, may also work with a shareholders agreement. The co-founder agreement is often signed early, before or around incorporation, to capture the deal between founders while expectations are still clear.

Why this matters more in medical device distribution

The main risk is that a regulated distribution business depends heavily on trust, documentation and continuity. A founder may control the manufacturer relationship, know the product specifications, manage customer complaint workflows, or be the person dealing with quality issues. If that knowledge and authority are not documented properly, the business can lose leverage quickly.

Medical device distribution startups also tend to rely on a mix of commercial and compliance responsibilities. Your agreement should reflect practical founder moments, such as:

• before you sign an exclusive distribution arrangement with an overseas manufacturer
• before you rely on a verbal promise that one founder will fund initial inventory
• before you accept a hospital procurement contract with service level obligations
• before you appoint one founder to manage TGA-facing compliance processes or complaint handling
• before you spend money on setup based on an assumed equity split that has not been documented

What the agreement usually covers

The exact drafting depends on your business model, but most founder agreements for this type of company deal with a core set of issues.

• Who the founders are and what each founder contributes, whether cash, industry expertise, technical know-how, customer introductions, warehousing access, or full-time work
• How ownership is divided, when equity is earned, and whether vesting applies if a founder leaves early
• Whether founders are required to work minimum hours, hit milestones, or stay involved for a certain period
• Which decisions require unanimous approval, majority approval, or can be made by a managing founder or board
• How director appointments work and who can bind the company to contracts
• How confidential information is handled, including device specifications, pricing, customer data, tenders and supplier terms
• What restraints apply if a founder leaves and tries to compete, poach staff, or take key supplier contacts
• How disputes are handled and what happens if founders are deadlocked
• How shares are dealt with if a founder resigns, is dismissed, becomes incapacitated or seriously breaches the agreement

For Australian businesses, the agreement should also fit the company's actual structure. If you are operating through a Pty Ltd company, the agreement needs to work with the Corporations Act framework, director duties, the constitution, and any share issue documents. It should not promise arrangements that conflict with the legal mechanics of the company.

Legal Issues To Check Before You Sign

Before you sign, make sure the agreement matches the way your medical device distribution business will really operate. A document that sounds fair in principle can still fail if it does not deal with regulatory responsibility, share ownership mechanics, and control over key contracts.

Roles, authority and accountability

Founder job descriptions matter. In a distribution startup, one person may lead supplier onboarding, another may handle warehousing and logistics, and another may manage sales into clinics, hospitals or wholesalers. If those roles are not clear, responsibility becomes blurred when something goes wrong.

The agreement should set out:

• each founder's main responsibilities
• whether the role is full-time, part-time or transitional
• who has authority to negotiate or sign contracts
• which founder handles compliance reporting, product complaints or quality-related escalations
• what happens if a founder stops meeting agreed commitments

This is especially important before you sign distribution agreements or customer contracts that carry service, reporting or stock availability obligations.

Equity split and vesting

An equal share split is common, but not always fair or workable. If one founder contributes capital, another brings exclusive supplier access, and another plans to work full-time for two years, the equity deal should reflect that reality.

Vesting is often sensible. It means a founder does not walk away with all their shares if they leave early. Instead, their ownership may accrue over time or against milestones. That protects the business if a founder exits after opening a few meetings but before doing the long-term work.

You should also check:

• whether founders are buying shares, receiving them for services, or both
• how future investment rounds affect founder ownership
• whether there are pre-emptive rights if new shares are issued
• what price applies if shares are bought back after a founder leaves

Tax treatment can vary depending on the structure and how equity is issued, so founders should speak with an accountant or tax adviser alongside legal drafting.

Intellectual property, data and know-how

The business should own the assets it relies on. That can include branding, internal procedures, training materials, sales scripts, customer databases, regulatory documentation templates, and software tools created for the business.

Medical device distribution businesses may also rely on non-public technical information from manufacturers. Your founder agreement should deal carefully with who can use that information and for what purpose. If a founder has pre-existing IP or industry materials, document whether they are licensed to the company or assigned to it.

Confidentiality and restraints

Confidentiality is not just about secrecy, it is about preserving commercial value. Founders often gain access to distributor margins, hospital contacts, tender strategy, technical product information and quality system documents. If a founder leaves with that information, the damage can be immediate.

Restraint clauses may help limit competition, solicitation of clients, poaching of staff, or interference with supplier relationships after a founder exits. These clauses need careful drafting to improve enforceability under Australian law. Terms that are too broad may not hold up.

Decision-making and deadlocks

The agreement should say who decides what. Minor day-to-day decisions can usually sit with management, but major issues should be carved out clearly.

Key decisions often include:

• entering into exclusive or long-term manufacturer deals
• taking on debt or giving security
• changing the product range significantly
• accepting liability-heavy customer contracts
• appointing or removing directors
• raising capital or issuing more shares
• settling major disputes or recall-related issues
• selling the business or substantial assets

Deadlock clauses matter where there are two founders with equal power. Without a process, a disagreement can freeze the business. Options may include escalation to mediation, a structured buy-sell mechanism, or a casting vote in narrow circumstances.

Exit events and bad leaver scenarios

Every founder agreement should answer the uncomfortable questions early. What if a founder resigns, becomes inactive, breaches confidentiality, competes with the business, or is removed as a director?

The agreement should distinguish between different departure scenarios. A founder who leaves for genuine health reasons may be treated differently from a founder who diverts a supplier opportunity or breaches a restraint. This is where founders often get caught if they rely on a generic online template.

Alignment with other legal documents

Your co-founder agreement should not sit in isolation. Before you sign, check it against the rest of the legal paperwork around the business.

• company constitution
• share subscription or share issue documents
• shareholders agreement, if one exists
• employment agreements or contractor agreements for founders working in the business
• distribution or manufacturer agreements
• customer supply contracts
• privacy policies, privacy notices, and data handling procedures where customer or patient-related information is involved

If these documents pull in different directions, disputes become much harder to resolve.

Common Mistakes With Co-founder Agreement for Medical Device Distributor

The most common mistake is treating the founder deal like a generic startup arrangement. Medical device distribution has specific risks around regulated products, supplier dependence, and operational responsibility, so the agreement needs to match that reality.

Using a basic template with no industry detail

A general co-founder template may cover equity and exits, but miss core business issues. It may say nothing about who manages product complaints, who approves promotional claims, or who is responsible for maintaining critical supplier communication.

That gap matters if a founder later says, "I was never responsible for that."

Assuming relationships belong to the business automatically

Many early-stage distributors are built around one founder's manufacturer or hospital contacts. Unless the agreement and supporting contracts are set up properly, the business may not truly control those relationships.

Founders should document:

• whether introductions are personal or made on behalf of the company
• who signs supplier and customer contracts
• whether a departing founder can continue dealing with those contacts
• what non-solicitation rules apply after exit

Leaving equity disconnected from contribution

Founders often divide shares at the start based on optimism rather than commitment. Six months later, one person is full-time, one is advising occasionally, and one has not delivered promised capital. Without vesting or performance-linked mechanisms, resentment builds quickly.

Before you sign, make sure the commercial deal reflects expected effort, cash contributions, and critical deliverables.

Forgetting director duties and personal risk

If founders are also directors, they owe duties to the company under Australian law. A founder agreement cannot remove those duties. It should work with them.

That means founders should be careful about clauses that appear to let one founder act entirely in their own interest, or that assume side deals can override what is best for the company as a whole.

Not planning for funding and growth

Distribution businesses often need working capital for inventory, warehousing, insurance obligations, and customer payment cycles. If the agreement says nothing about future funding, founders can clash when cash runs short.

Useful clauses may cover:

• whether founders must contribute more capital
• whether loans from founders are allowed and on what terms
• what happens if one founder can fund and another cannot
• how external investors are approved

Ignoring privacy and data handling issues

Not every distributor handles sensitive personal information, but some do collect customer contact details, complaint information, or data linked to device users through service and support processes. If one founder controls that information personally, the company can lose access or create compliance issues.

The agreement should support a clear rule that company information is held for the company, not privately by individual founders, and should align with the business's data protection practices.

Relying on verbal side promises

Founders often say things like, "You'll handle regulatory matters," or "I'll put in another $100,000 if we win the tender." If those promises matter, write them down in the written terms. Otherwise, they are hard to enforce and easy to deny.

This matters most before you sign a major contract, before you hire staff, and before you spend money on setup based on assumptions about who will carry the load.

FAQs

Is a co-founder agreement different from a shareholders agreement?

Yes. A co-founder agreement usually deals with the founders' early deal, roles and expectations, while a shareholders agreement often governs rights attached to share ownership more broadly. In practice, the documents can overlap, so they should be consistent.

Should medical device distribution founders use vesting?

Often, yes. Vesting helps protect the business if a founder leaves early or does not deliver what was promised. It is especially useful where equity is being granted for future effort rather than upfront cash.

Can a founder keep supplier relationships after leaving?

That depends on the contracts and the agreement terms. If the company has documented ownership of the business relationship and there are valid confidentiality and restraint clauses, the founder may have limits on what they can do after exit.

Do we need special clauses because we distribute medical devices?

Usually, yes. The agreement should reflect regulatory and operational realities, such as complaint handling responsibility, authority over supplier communications, and control of technical and commercial information relevant to the products.

What if one founder is investing cash and another is contributing industry expertise?

The agreement should record both contributions clearly and explain how they affect equity, decision-making and future obligations. Founders should avoid vague statements about "equal value" unless they are genuinely satisfied with that arrangement.

Key Takeaways

• A co-founder agreement for medical device distributor businesses should be tailored to a regulated supply model, not copied from a generic startup template.
• The agreement should clearly cover founder roles, authority, equity, vesting, confidentiality, restraints, exits, and deadlock resolution.
• Supplier relationships, customer contracts, technical know-how, internal systems and data should be treated as company assets where appropriate.
• Before you sign, make sure the founder deal aligns with the company constitution, share documents, employment arrangements, and distribution contracts.
• Medical device distribution founders should address practical risk points early, especially where one founder controls compliance processes, funding, or key manufacturer relationships.
• Clear drafting at the start can reduce disputes, protect business continuity, and make future investment or growth easier to manage.

If you want help with founder equity terms, vesting and exit clauses, confidentiality and restraint provisions, alignment with supplier contracts, you can reach us on 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.