Founder Agreement Template: Equity Splits, Vesting, and IP Assignment Explained

Why Every Startup Needs a Real Founder Agreement (Not Just a Handshake)

Most startups begin on trust and speed. The problem is that the disputes that actually kill companies usually come later — when co-founders realize they were working from different assumptions about equity, decision-making, and what happens if someone leaves.

In practice, a “founder agreement” is a package of aligned terms and documents: your equity split, vesting (so equity is earned over time), IP ownership/assignment to the company, role expectations, and departure/buyback mechanics — often implemented through founders’ restricted stock purchase paperwork.

This guide is for first-time founders and early-stage teams (pre-seed through Series A) who are dividing equity and formalizing the relationship investors will diligence.

We’ll break down each core clause, common market options, and what investors typically expect — so you can work efficiently with counsel and sanity-check a template like Promise Legal’s Founder Agreement Template with Vesting.

What is a founder agreement? A written set of terms (and usually multiple documents) that governs founder equity, vesting, IP assignment, roles, and founder exits, coordinated with your charter/bylaws or LLC operating agreement.

Start With the Big Picture: What a Comprehensive Founder Agreement Actually Covers

In startups, a “founder agreement” is rarely one PDF. It’s a coordinated founder package: founders’ stock purchase terms (how founders actually receive shares), IP and invention assignment into the company, and written expectations about roles and departures — all consistent with your charter/bylaws (or an LLC operating agreement).

• Equity split + stock purchase mechanics
• Vesting (cliffs, acceleration, repurchase rights)
• IP ownership and invention assignment
• Roles, responsibilities, decision-making
• Departures (buyback, good/bad leaver)
• Tax + cap table hygiene (including 83(b))

Example: two co-founders agree “50/50” by text. One leaves after six months. Now an investor asks for vesting, IP assignment, and repurchase documentation — and the company can’t prove ownership or clean up the cap table quickly.

That’s why investors and acquirers expect diligence-ready paperwork (see 83(b) election guidance and equity split basics).

Decide Your Equity Split With Eyes Open: Founders’ Stock Purchase Terms

A founders’ stock purchase agreement is the document that makes the equity split real: it states how each founder acquires shares (how many, at what price), and what restrictions apply (transfer limits, vesting-related repurchase, etc.). Without it, you may have “promised equity,” but no clean cap table to show investors.

• Percentage split (see equity splits).
• Shares math: authorized vs. issued/outstanding (see how many shares to authorize and your cap table guide).
• Purchase price/payment (cash, IP assignment, or a note — get counsel input).
• Transfer + repurchase rights to keep the cap table controllable.

Common models: (1) equal split for fully committed founders; (2) weighted split for prior IP/role load; (3) smaller grant for part-time/advisory. Cautionary example: a founder built key code but never actually received/paid for stock — later, a dispute or financing forces an expensive clean-up. Align the agreement with the charter and cap table; reconcile every number before signing.

Lock in Vesting and Cliffs: Protect the Company From Co‑Founder Breakups

Vesting is how founders “earn” their equity over time. Investors expect it because it prevents a departed co-founder from keeping a large, fully-owned stake (creating “dead equity” on the cap table).

• Standard: 4-year vesting with a 1-year cliff (often 25% at month 12, then monthly/quarterly) — see 4-Year Vesting with a 1-Year Cliff.
• Modified: partial immediate vesting for documented pre-company contributions, with the remainder vesting over time.
• Acceleration: single-trigger (on sale) vs. investor-friendlier double-trigger (sale + termination).

Decide and document: the vesting start date, what counts as “continuous service,” and what happens on departure (typically the company can repurchase unvested shares at cost; treatment of vested shares varies).

Example: if a founder leaves at month 10, a clear cliff means 0% vested; without it, they may walk with a full (or disputed) stake. Drafting tip: tie vesting/repurchase mechanics directly into the stock purchase docs and cap table, and flag the 83(b) election timing.

Make Ownership Clear: Intellectual Property and Invention Assignment

Investors don’t just fund a team — they fund a company that owns its product. That means the core IP (code, designs, domain names, data models, content, trademarks-in-progress) must belong to the entity, not to individual founders.

Most founder packages handle this through an IP/invention assignment: each founder assigns to the company any relevant IP created before or during their work, represents they’re not importing third-party IP they can’t assign (like a prior employer’s code), and agrees that future, work-related inventions are automatically assigned.

• Present + future assignment of inventions and works of authorship (plus “work made for hire” language where applicable).
• Disclosure of prior inventions and anything that might touch the company’s business.
• Moral rights waivers where enforceable.
• Confidentiality and no use of third-party trade secrets.

Common blow-up: a founder builds the MVP nights/weekends while employed elsewhere; later the employer asserts ownership. Use a consistent invention-assignment form across founders, employees, and contractors (see PIIA / invention assignment template) and pair it with an NDA where needed. Some states limit invention assignment — flag for counsel.

Clarify Roles, Responsibilities, and Decision‑Making Authority

Your charter/bylaws (or LLC operating agreement) control formal governance, but founders still need a plain-English, written understanding of who does what — especially before hiring, fundraising, and product deadlines create pressure.

• Titles + initial scope (CEO/CTO/COO, etc.) in a few concrete bullets.
• Decision domains: who leads product, sales, fundraising, hiring, and what decisions require board/member approval.
• Time commitment: full-time vs part-time, minimum expectations, and rules on outside projects.
• Compensation expectations: whether salary is $0 until financing, when it “turns on,” and how changes are approved.

Two common failure modes: (1) role drift — the “CTO” stops coding and pivots to biz dev, triggering resentment because expectations were never documented; (2) side projects — a founder runs a potentially competing product, which a conflicts/outside-activities clause could have addressed upfront.

Drafting tip: keep descriptions flexible (roles evolve), but document a change process (mutual consent or board approval) and ensure nothing contradicts your governance documents.

Plan for Departures Up Front: Buyback, Good/Bad Leaver, and Dispute Terms

Founder breakups are common — and expensive when the rules aren’t written. Planning now protects both the company (clean cap table) and the departing founder (predictable outcomes).

• Unvested shares: typically forfeited or repurchased by the company at cost under the stock purchase/vesting mechanics.
• Vested shares: often subject to transfer restrictions and a company/right-of-first-refusal; some companies negotiate repurchase options for specific scenarios.
• Good leaver / bad leaver: define consequences for resignation, termination for cause, disability/health, or joining a competitor.
• Post-exit protections: non-solicit and (where enforceable) non-compete/non-interference, with state-law caveats.
• Disputes: mediation first, then arbitration or court; align governing law/venue with the formation state.

Scenario: a founder is fired for misconduct and tries to keep vested shares while launching a competing product; or a founder leaves amicably but keeps a large passive stake because no buyback/right-of-first-refusal was documented. Use objective definitions of “cause” (and “good reason” if used), coordinate terms with investor documents, and discuss hard cases (burnout, relocation) before signatures.

Don’t Forget the Tax and Cap Table Housekeeping (Including 83(b))

Founder equity is where “paperwork” becomes real tax and cap-table risk. When stock is subject to vesting, founders typically receive restricted stock, and the timing of issuance, elections, and recordkeeping matters as much as the terms.

• Issue founder stock promptly and have everyone sign the stock purchase/restriction documents.
• File the 83(b) election (generally within 30 days of purchase) so you’re taxed on today’s low value, not later growth — see 83(b) election.
• Maintain the cap table and reconcile it to the signed docs after every issuance.
• Match the charter: authorized shares/classes must support what you issued (see how many shares to authorize).

Example: a founder buys 1,000,000 shares at $0.0001/share. If they forget 83(b) and the company later values shares at $1.00 as they vest, they could owe tax on ~$999,900 of “income” over time. Practical tip: use a closing checklist (sign, issue, update cap table, file 83(b), store centrally). These are common diligence red flags — coordinate with legal and tax advisors.

Putting It All Together: Using Templates and Working With Counsel

A diligence-ready “founder package” fits together: founder stock purchase terms (who owns what), vesting/repurchase (what’s earned), IP assignment (what the company owns), role expectations, and departure rules — all consistent with your formation documents and cap table.

• Start with a startup-focused template (YC-style or counsel-provided).
• As a team, walk clause-by-clause and make the hard decisions (split, vesting start, IP inventory, exit scenarios).
• Write down any nonstandard choices and the rationale (investors will ask).
• Have counsel review before you sign and issue stock.

Simple process: three co-founders spend an afternoon completing a checklist, then send it to a startup lawyer to turn into clean, signed documents.

If you want a starting point, see Promise Legal’s Founder Agreement Template with Vesting and pair it with the related housekeeping (e.g., 83(b) election and authorized shares).

Actionable Next Steps

1. Agree on an equity philosophy and draft a split.
2. Choose vesting (schedule, cliff, acceleration) and repurchase rules.
3. Inventory IP and confirm everyone can assign it.
4. Prepare the stock purchase + IP assignment + departure terms from a template.
5. Sign, issue stock, update the cap table, and file 83(b) where applicable.
6. Book a short counsel review to stress-test edge cases and investor expectations.