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What is a Founder Accord?

The Founder Accord is a short, plain English document that lays out the most basic structure for collaborating on a new idea or project that may develop into a company. It provides entrepreneurs with the comfort they need to take risks while sparing them the effort and expense required to complete a customary corporate formation before knowing whether they actually have a viable business.
The Founder Accord is intended as a temporary, legally binding agreement between founders. It should be superseded by formal legal documents once the company completes its initial financing or generates sufficient revenue.

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Why you need a Founder Accord

The early stages of company formation present unique challenges that make the Founder Accord essential:
Companies begin as ideas, and it’s not immediately clear whether an idea can become a viable business. Figuring that out takes time and effort, and you don’t want to commit to full incorporation too early.
Many entrepreneurs are involved at various levels with several “idea stage” projects simultaneously. The Founder Accord allows you to formalize your role without the overhead of full incorporation.
People tend to collaborate informally but use official-sounding words to describe these collaborations. This creates legal ambiguity that can lead to disputes later.
Without proper documentation, founders risk being “Eduardo Saverin-ed” — having their contributions minimized or equity deal re-cut when the company raises its first financing.

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Key issues covered in a Founder Accord

A properly executed Founder Accord addresses the most critical early-stage issues:
1

Company status and business idea

Define the company name, current legal status, and a clear description of the business idea you’re pursuing together.
2

Founder roles and equity

List all founders with their respective equity allocations and official titles. This is the most critical provision to prevent future disputes.
3

Board composition

Establish initial board structure and decision-making authority during the pre-incorporation phase.
4

Vesting schedule

Set vesting terms and commencement dates to ensure founders earn their equity over time through continued contribution.
5

Commitment expectations

Clarify each founder’s time commitment and any permitted outside activities to set proper expectations.
6

Compensation terms

Specify any salary or cash compensation arrangements, typically minimal or deferred at this stage.
7

Intellectual property and confidentiality

Ensure all company IP is properly assigned and confidential information is protected.
8

Modifications and disputes

Define how the agreement can be modified and establish dispute resolution procedures.

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What a Founder Accord does

Provides legal protection

The Founder Accord creates a legally binding agreement that controls any future disagreements among founders regarding equity splits, roles, and commitments until formal setup is complete.

Enables risk-taking

It gives entrepreneurs the comfort they need to take risks and contribute fully to a project without fear of being shortchanged later.

Sets clear expectations

The process of hashing out a Founder Accord clarifies each person’s respective time and professional bandwidth commitment to the project.

Builds team cohesion

Working through a Founder Accord together serves as a useful team-building exercise, particularly where not all founders know one another well.

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What a Founder Accord does NOT do

A Founder Accord is NOT a substitute for formal legal documents. It’s an intermediate step between a handshake and a full stack of legal agreements.
Important limitations to understand:
  • Not comprehensive: Don’t try to address every imaginable issue or detail. Save that for formal documents.
  • No liability protection: Without a separately incorporated entity (corporation or LLC), founders may be viewed as general partners who can be held jointly and severally liable for partnership obligations.
  • Temporary solution: The Founder Accord should be superseded by formal legal documents either at initial financing or when the company has sufficient revenues.
  • Not incorporation: This agreement does not create a legal entity. You’ll still need to formally incorporate when the time is right.

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How to use the Founder Accord

1

Download the template

Access the Founder Accord template from the source repository. Available formats include Markdown, Word, and as an OpenLaw smart contract template.
2

Gather all founders

Schedule a meeting with everyone who will be involved as a founder. Make sure all key players are present.
3

Complete each section

Work through each issue in the table systematically:
  • Company/Status
  • Business Idea
  • Founders
  • Equity split
  • Titles
  • Board structure
  • Vesting terms
  • Commitment expectations
  • Compensation
  • IP and confidentiality
  • Modification procedures
  • Dispute resolution
4

Get signatures

All founders must sign the agreement to make it legally binding. Consider using electronic signature tools for convenience.
5

Plan for formal setup

Set a timeline for completing formal incorporation and legal documentation, typically in connection with your first financing or when revenues permit.
At minimum, your Founder Accord should include: (1) all founder signatures, (2) the agreed-upon equity split, and (3) any major conditions or contingencies regarding founder equity. These provisions alone may resolve the most contentious founder disputes.

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Toward an industry standard

For the Founder Accord to achieve maximum value, it should become recognized as an industry standard for early-stage company formation. When widely adopted:
  • Protects spurned founders: It becomes a credible basis for claims by founders who were unfairly treated
  • Deters opportunistic claims: It protects legitimate founder teams from people coming out of the woodwork after a company succeeds
  • Simplifies due diligence: Investors and acquirers can quickly verify founder relationships and equity arrangements
The Founder Accord template was created by McCarter & English LLP to address common early-stage formation challenges. It has been adopted by numerous startups and is available as an open resource.

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Access the template

The Founder Accord is available in multiple formats to suit your workflow:

Markdown template

Human-readable format perfect for version control

Word document

Traditional format for editing and printing

OpenLaw template

Smart contract version with optional blockchain features

Extended description

Full background and detailed guidance
Once you’ve established your founder relationships with the Founder Accord, you may need these related documents:
Legal disclaimer: This documentation is for informational purposes only and does not constitute legal advice. Consult with a qualified attorney before entering into any legal agreement.

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