Posted by Justine Wu on 18 December 2019
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 email@example.com to see if a Founders Term Sheet could help your business.