Founders’ and Co-Investors’ Agreements: Put the Deal in Writing Early

Why a handshake is not enough

Most ventures, whether a start-up or two families buying a development site together, start on a handshake. The trouble comes later, when money, workload or an exit offer changes how each party remembers the deal. A short written agreement signed early is far cheaper than a dispute.

Without a written agreement, each party relies on their own memory of what was agreed: a 50/50 split, or equity earned over time; full-time or part-time; who decides what. Contributions shift, and memories shift with them. By the time the business or property is worth something, there is no common reference point.

What the agreement should cover

Cover the initial equity split and the reason for it, whether equity vests over time or on milestones, how future capital is raised and who can be diluted, and how non-cash contributions (IP, time, contacts, land) are valued. Set out each party's role, authority, time commitment and pay. Say which decisions need everyone's agreement (raising capital, borrowing, selling the main asset, admitting new parties), which need a majority, and how deadlock is broken.

Spell out what happens if a party wants to leave, dies, becomes incapacitated or is removed. Include pre-emptive rights, tag and drag rights, a valuation method, and different terms for good and bad leavers. The business should own the IP each founder creates for it, including work done before signing. Add confidentiality terms and, where justified, carefully drafted restraints on competing or poaching.

Common mistakes

Equal splits that do not reflect real contribution or risk. No vesting, so a party can leave early and keep their full share. Side promises that contradict the written terms. Over-complicated share classes nobody understands. An agreement that is never updated as the venture changes.

Do it early, while everyone is still aligned. If you have already started without one, it is not too late, but it gets harder once there is real value at stake. Call (03) 8658 7069.

General information only, not legal advice. For advice on your matter, call MWBL Consulting on (03) 8658 7069.