Starting a business with your friends can be an exciting time, but time should be spent on deciding the common goals for your business and the roles of each co-founder. Over 75% of startups fail due to co-founder conflict. When starting out, all co-founders may share common aspirations but disagree on how these will be achieved. Without appropriate dispute resolution procedures and agreements in place, these issues will become more difficult to resolve over time.
If you are about to start a business with your friends, it is important have the right legal documents in place. To ensure that you, your co-founders and your business are protected, sign up to Lawpath today.
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What Legal Documents Do I Need to Start a Business with Friends?
A Co-Founder Agreement
It is important that all founders are on the same page. A Co-Founder Agreement is an important first step when you’re looking to start a business with your friends. It is a contract between co-founders that formalises the business relationship; setting out the ownership, initial investments and rights and responsibilities of each co-founder. The agreement also outlines the decision-making powers of each co-founder within the business. By forming an agreement with your co-founders early on, your business will be protected and prepared to handle any future business disputes.
A Non-Disclosure Agreement
A Non-disclosure Agreement is a document that allows your business to safeguard any confidential information, with the parties agreeing to not disclose any information covered by the agreement. Using an NDA when starting your business ensures that any confidential information shared between co-founders is protected, preventing any co-founders from using the information for themselves or sharing with competitors.
A Shareholders Agreement
The Shareholder’s Agreement is the foundation of your business, setting the intentions, rights and responsibilities of each shareholders. By setting out the responsibilities of each shareholders, the agreement is helpful way of avoiding disputes between co-founders. With a shareholders agreement in place, your co-founders will have a clear understanding that their investment in the company is determined by the number of shares they own and not by any pre-agreement promises.
Hire a Startup Lawyer
When starting a business with friends it is critical to be working with a lawyer familiar with what needs to be in place. A startup lawyer has extensive experience in the legal requirements of launching a business, covering everything from company formation, confidentiality and funding.
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Final Thoughts
When starting a business with your friends, you will need to have the right legal documents in place such as a Co-Founders Agreement or Shareholders Agreement. Ensure that your documents are prepared to handle any potential co-founder conflict, get in touch with a startup lawyer and have these documents reviewed.
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