What is a Founders Term Sheet?

Contents

A Founders Term Sheet is a contract setting out the key points of agreement between co-founders of a business or new project.

Also known as a Founders Agreement, this important document governs important matters such as ownership of the business, how decisions are made, what happens when a co-founder wants to leave the business and how disputes are handled.

Typically, a Founders Term Sheet is not a legally binding contract. However, it’s still really important — it can shape future contracts as it frames discussions between the parties down the track.

When Do I Need A Founders Term Sheet?

A Founders Term Sheet can be used for new businesses, startups and projects at the very beginning of the planning process.

It’s a helpful document that can be used to brainstorm key commercial terms and foreshadow potential disputes. By outlining where both parties stand, a Founders Term Sheet can actually help avoid future disputes as drafting a document together forces the parties to discuss sensitive issues up front.

Additionally, a Founders Term Sheet is a useful tool to structure and guide a dialogue between founders — ensuring that some of the big issues in a business are considered and planned for from the beginning. It can help manage you and your co-founders’ expectations and responsibilities from the start.

Because a Founders Term Sheet doesn’t have to be legally binding, your business has the flexibility to change the terms later.

How Do I Use A Founders Term Sheet?

A Founders Term Sheet can be used in negotiation between founders. To potential investors, it shows your business is organised, professional and has thought through any potential pitfalls and conflicts.

Plus, a Founders Term Sheet can form the basis of what will later go into your Shareholders Agreement. If you want more information on what a Shareholders Agreement is, you can check out this article.

What Should I Include In A Founders Term Sheet?

Here are some things you should consider outlining in your Founders Term Sheet:

What the founders’ responsibilities are
How will the founders be paid
How many hours each founder is expected to contribute
What will happen to the business if a founder wants to leave
How decisions will be made
How the equity of the business will be divided
Ownership of intellectual property

Need Help With Your Founders Term Sheet?

When you’re considering putting together a Founders Term Sheet, it can be difficult to know where to begin or what you should include.

But we’re here to help! For a one off fee, you can take the stress out of creating your Founders Term Sheet.

Our expert lawyers can help with drafting and reviewing Founders Term Sheets; ensuring they are prepared effectively and reflect the terms you’ve agreed upon with your co-founders.

Get in touch with our friendly team of legal consultants on 1800 730 617 or at team@sprintlaw.com.au to see if a Founders Term Sheet could help your business.

Justine Wu

Justine is a legal consultant at Sprintlaw. She has experience in civil law and human rights law with a double degree in law and media production. Justine has an interest in intellectual property and employment law.

Tomoyuki Hachigo

Tomo is the co-founder of Sprintlaw and a commercial lawyer with a broad range of legal experience. Before starting Sprintlaw, he was an M&A lawyer at a top-tier law firm advising businesses of all sizes from large corporates to startups.