Process to add Co-Founder in a Private Limited Company
Author : Ebiz Filing | Published On : 05 Feb 2024
Introduction
There are many different types of business entities, and the term “company” refers to a group that has acquired the distinction of being a separate legal entity. The founder of a company has an important role in the development of the company. The idea of starting or starting a business doesn’t always come from a single founder. Sometimes a founder needs additional help from a co-founder, who is a separate person from the company. The co-founder is the company’s first employee and helps with planning, financing, employee onboarding, product development, and mentoring.
Who is the founder?
The person who establishes the business is called the founder. The founder conducts all the preliminary research and builds his business. The founder usually works on everything when starting a business, be it financing, production, research or distribution. The founder of a start-up company is called an entrepreneur.
Who is the founding partner?
A person who starts a firm or other business with the help of others is known as a co-founder. If there is more than one founder, they are called co-founders. This shows that they not only came up with the company concept together, but also divided the workload and tasks to start the business.
What is co-founder’s agreement?
A co-founder’s agreement primarily governs the professional relationship between individuals who initiate a new business or seek to bring their ideas into reality. The main objective of this agreement is to formalize the company’s operations, define the co-founders’ roles and obligations, and legally bind them through a written contract. Within this agreement, co-founders must establish clear business terms, address investment and resource considerations, and maintain transparency.
It covers critical factors such as the company’s future objectives, the time commitment expected from each co-founder, the distribution of responsibilities, and the agreed-upon profit-sharing ratio. Ultimately, this agreement aims to prevent disputes within the business and protect essential aspects of the company, facilitating open discussions among partners regarding operational matters when needed.
What are the basic articles of the founding partner agreement?
1. Ownership
The distribution of shares and equity capital among the founding partners is essential. A co-founder’s role and contribution should be taken into account. Below is a list of the property divisions:
- Rule N: Each member must receive an equal share of the distribution.
- Based on capital and effort: The owner’s efforts and financial contributions determine ownership of shares.
- Vesting: Allows the sharing and purchase of stock in a company.
- Loss and separation of ownership: The rights of the founder in case he leaves the business should be specifically stated in the contract and no restrictions should be placed on the sale of shares.
- Distribution of profits: Disputes and disputes regarding distribution of profits are unprofessional. To prevent these, a clear explanation needs to be made on how the profits will be shared among the founding partners.
2. Duties and responsibilities
The agreement should specifically state the obligations and levels of each co-founder to avoid disputes between them. Position descriptions should be flexible enough to be changed as needed during the decision-making process.
3. Dismissal of the founder
The agreement should specify the conditions and procedures under which even the founder can be dismissed.
4. Decision-Making
An agreement between co-founders should outline the decision-making process to avoid disagreements regarding the stage of development of a business.
5. Conflict Resolution
If participants cannot reach an agreement, a predefined alternative conflict resolution process should be provided.
6. Non-competition
Non-competition provisions are important in the business world to ensure that founders who leave their businesses do not enter into direct competition with the main manufacturer.
7. Loan from founders
The agreement should specify how founder loans will be managed. Otherwise, the fixed order in which the founder’s loan must be repaid along with interest or other incentives.
8. Compensation
It is important to decide on profit, income, reimbursement to founders and compensation provisions. These factors are important because they include both benefits and risks. Therefore, the provision must be stated in the contract.
Documents required to add a co-founder to a company
The following are the documents required to add a co-founder of a Company:
- Pan Card
- Audited financial statements
- Director’s DSC
- MOA and AOA of Private Company
- Audit Report and Board Report
- Certificate of Establishment
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Summary
Shares of an existing founder can be transferred to a new founder. However, startups often do not do this because it is a more complex and expensive process. A co-founder agreement, which specifies the percentage of ownership, management and control duties to be shared equally between the co-founder and the company, allows a private company to add new co-founders.
