Guide
Founders' Agreement Australia: 11 Clauses Every Co-Founder Needs
The document that stops your best friendship from ending your company.
A founders' agreement is the document that stops your best friendship from ending your company. It is boring to draft, uncomfortable to negotiate, and worth ten times what it costs. Skip it and the questions you were too polite to ask each other over coffee will surface — usually mid-raise, usually with a lawyer on the other side.
What a Founders' Agreement Actually Is
In Australia, a "founders' agreement" is almost always a shareholders' agreement between the founding shareholders of a Pty Ltd. It sits alongside the company constitution and governs how founders behave as owners: what they own, what happens if they leave, and who decides what.
The 11 Clauses That Actually Matter
1. Equity Split
The named percentages every founder holds at incorporation. Not "we'll work it out" — actual numbers on paper. See our guide on how to split startup equity.
2. Founder Vesting
The single most valuable clause in the whole document. Standard Australian startup vesting is four years with a one-year cliff — a founder who leaves before month 12 gets nothing; after that, they earn 1/48th per month. Read our vesting schedules guide.
3. IP Assignment
Every founder assigns all pre-incorporation IP (code, designs, brand, customer lists) to the company. Without this, the IP legally belongs to the individuals — and a diligence lawyer at your Series A will spot it in one afternoon.
4. Roles and Time Commitment
Full-time, part-time, or advisory. If a "co-founder" is actually a weekend contributor, the agreement should say so — and their equity should reflect it.
5. Decision Rights and Reserved Matters
Who can bind the company? What decisions need unanimous founder consent (issuing new shares, taking on debt, selling the business)? What can the CEO decide alone? Clear rules prevent 50/50 deadlock.
6. Good Leaver vs Bad Leaver
What happens to unvested shares if a founder leaves? A "good leaver" (illness, family reasons, mutual agreement) may keep vested shares. A "bad leaver" (breach, fraud, walking out) forfeits them or sells back at par value.
7. Drag-Along Rights
If founders holding (say) 75% agree to sell the company, they can force the minority to sell on the same terms. Without this, a 5% shareholder can block an acquisition.
8. Tag-Along Rights
The mirror clause: if the majority sells, the minority can insist on being included at the same price. Protects small holders from being left behind with a new majority owner.
9. Pre-Emptive Rights on New Shares
Before the company issues new shares to an outsider, existing shareholders get first offer — pro rata. Stops silent dilution.
10. Share Transfer Restrictions
Founders can't sell shares to just anyone. Typical rule: any transfer needs board approval, and existing shareholders get first right of refusal.
11. Dispute Resolution
Mediation first, arbitration second, court last. Litigation between co-founders is expensive and, in a small company, terminal.
What It Costs to Skip It
| Scenario | Cost with agreement | Cost without |
|---|---|---|
| Co-founder leaves in month 6 | Vested equity forfeited | They keep full stake, veto raise |
| Series A diligence on IP | Clean — signed at day one | $15k–$40k in retrospective deeds |
| Acquisition offer, 1 founder objects | Drag-along carries deal | Deal dies or minority extracts ransom |
Timing: When to Sign
Day one. The moment you have a Pty Ltd and more than one founder holding shares, the agreement should be executed. Signing later — especially after one founder has done materially more work than the others — becomes a negotiation instead of a formality.
Frequently Asked Questions
Is a founders' agreement the same as a shareholders' agreement?
In Australia they are usually the same document. 'Founders' agreement' is the informal name used before a company exists; once you incorporate, the enforceable version is a shareholders' agreement between the founders as shareholders of the Pty Ltd.
Can we sign a founders' agreement before we incorporate?
You can sign a heads-of-agreement or MOU, but it is not fully binding until executed by the incorporated company. Best practice is to incorporate first, then sign the shareholders' agreement on day one.
How much does a founders' agreement cost in Australia?
Expect $1,500–$3,500 + GST for a properly drafted agreement covering all 11 clauses below. Free templates exist but almost always miss vesting, leaver mechanics or drag-along — the exact clauses that matter at a raise.
What happens if we don't have one and a co-founder leaves?
Without vesting or leaver provisions, the departing founder keeps every share they were issued at incorporation. A 50/50 co-founder who leaves in month four keeps 50% of your company — permanently — and can veto future decisions.
Next Step
See our shareholders' agreement service for fixed-fee drafting, or book a 15-minute discovery call to talk through your founder setup.
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