For some people, running a business solo is hard.

That's why a lot of people start a business with their friends and family.

But this is where most people make a mistake.

They assume because they know the person, everything is going to be a smooth sail for them.

But we all know that's never the case.

Anyone who has ever run a business knows that 9/10 times things don't go your way.

And in such cases, people might have different expectations of a business.

Also, it doesn't take long for the different expectations to turn into frustrations.

So in order to avoid such cases, there's a Contract people use.

Let me share with you more details in today's case study.

Our client was starting a Tech Business together with his friend.

Before getting an agreement, they worked on a few projects together.

But they knew they had to get some formal arrangement in place, just to make sure everything goes smoothly in the future too.

That's when they approached us - to guide them and draft them the appropriate agreement!

Problems:

1) Inexperienced in Business Operations:

They were running a business for the first time.

And were not very aware of how things work.

And that's why they wanted us to provide them with different options available to safeguard their business.

2) Equal Ownership Concerns:

They had a 50:50 ownership stake.

But wanted to ensure both stuck around and didn’t just leave the company mid-way.

3) Future Decision-Making and Exits:

They wanted to make proper arrangements for the decision-making.

And exits by co-founders, if need be in the future.

Solutions:

1) Co-Founders Agreement:

Our first step was to draft them a co-founders agreement dealing with the most common problems that may arise.

We specified their respective equity along with reverse vesting, so they don’t leave the Company just after the funding round.

We also retained most of the power with major shareholders.

But reserved certain decisions like future financing for both co-founders, which could have a major impact on the Company.

2) Contingency Planning:

We also accounted for contingencies when a founder may want to leave

We made sure the founders that want to exit only get the right to share for which he has worked.

For this, we made provision for “reverse-vesting”, so the exiting founder would be bound to transfer the remaining shares back to the Company at a discounted price.

3) Business Priority:

Our other goal was to prioritize the interests of the business.

So we made sure that the Company wouldn't be affected, even if one co-founder wanted to leave.

We added the provision for the exiting founder to offer their shares to the remaining co-founder first, before third parties.

This is to make sure no random person gets into the Company.

The shareholders may change, but the business must sustain, so we included the provision for non-compete, non-solicit, and protection of proprietary information.

With the help of these steps, the founders were sure on:

1) The duties of each party

2) Their respective shares in the company and in what cases that share can be taken from them

3) The ways to protect the business and its future shareholders

And all this took was ONE Agreement!

Sometimes, part of running a business requires you to do planning upfront.

It will require you to have conversations that won't be easy.

Conversations that will make you uncomfortable.

But this will be necessary upfront if you want to set yourself up for success in the future.

Now if you are in a similar situation, and want someone to Draft you a Co-Founders agreement, pick a slot here:

https://calendly.com/mtlegalteam/discovery-call-with-mtlegal-team

And in that call, we can discuss the most common issues founders face.

And the ways to prevent them.

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