More Than a Napkin Founders’ (“Stopgap”) Agreement
What do you do if you’re starting a company and have a very tight budget, not enough money to pay a great business lawyer to draft a thorough partnership agreement, which depending on your style, industry, or the type of entity you form (e.g., LLC vs. corporation), may be called different things, including a Founders’ Agreement, Stockholders Agreement, Operating Agreement, Company Agreement, Voting Agreement – to us, they all mean the same thing – your custom deal with your business partners.
A solid partnership agreement covers a lot of ground – ownership, decisionmaking, how to unwind things/separate if it comes to that (i.e., often called a buy-sell agreement), and more.
If you don’t have money to hire a business lawyer to create your founders’ agreement, here’s what you should NOT do:
- Nothing
- Buy a long, lawyer-prepared partner/founder agreement from an online website (we won’t name names but a popular one rhymes with Seagull Room, which often has great forms but isn’t the right option for complex, custom agreements)
- Hire an inexperienced lawyer or call out a favor from a friend who is a personal injury attorney
The problem with the first approach should be fairly obvious – what will you do when you and your partners have a dispute and you have no partnership agreement? Granted, some founders never have a dispute between launching and going public but don’t expect to be in that camp.
The problem with the other two approaches is that the end product won’t be solid. It’ll be something much less, and you may not even know what the partnership agreement says or means. Just as concerning, you will not know what isn’t in the agreement but should be – terms that you and your co-founders would want in your founder agreement but that was never discussed with you. You didn’t even know to think or ask about those things – how could you?
A two or three founder partnership agreement (typical startup context) will take us 7-10 hours of work. It’s an iterative process. We’ll give you and your co-founders questions to discuss, work through them on a kick-off call, produce a draft of the founders’ agreement, take your comments and feedback and produce another draft of the agreement. Sometimes there will be yet another round of changes and review. There are so many different ways to handle business partner issues. What we choose to do is almost always highly customized to the particular venture and the desires of the co-founders.
If you can’t afford that process, which will cost a few thousand dollars, but you recognize the value of it, we have a great option for you – our Back of the Napkin Agreement (I like to call it a “Stopgap Agreement” although I’m often told no one knows what a stopgap is, so we don’t lead with that name!).
This DIY template agreement is free to you. It’s very simple. It’s not a replacement for what we do for startup teams as business attorneys – a thorough, custom, collaborative, iterative approach to creating partner and founder agreements. It is, however, a solid hack if you don’t have the money to invest today in an experienced business lawyer who will be thorough and take the time to get your founder agreement right.
Watch the video and read the instructions – both will help you understand what this agreement is and what it isn’t. You’ll see that the key to our Back of the Napkin (“Stopgap”) Agreement is the commitment to upgrade it – to hire a business lawyer to represent the company and help the founders create a more fulsome, thorough agreement – at a determined time.
We hope this is a great resource for startup founders that are on a shoestring budget. We want you to use your startup budget wisely and to grow. When you do, come back and see us.
Get a copy of our Founders’ “More Than a Napkin” agreement here!