author: Filip Szydłowski
Conflicts and friction in a company are virtually inevitable. In our experience at L3gal, we have not encountered a case or a project where at none of the stages of operations problems in the relations of the shareholders appeared, arising from their conflicting interests, goals or outlooks on a particular issue.
Founders’ agreements (in addition to phantom shares, which we will discuss in subsequent publications) are becoming an increasingly popular preventive measure to impose a framework and structure on shareholder relations, that will allow greater control over problematic issues, while benefiting the business at hand.
Contracts provide a safeguard for the interests of individual participants in the event of problems, but they can also facilitate business by openly outlining needs, expectations, rights and remuneration. Remember, that the more transparently a company is arranged internally, the easier it will be for it to transparently create business and investor relations externally.
The shareholders' agreement can also be of considerable importance to a potential investor in the company. Adequate protection of the company's interests in the event of the exit of one of the partners will certainly improve the outcome of the analysis of the company's investment potential in the framework of due diligence, and will have a positive impact on the company's image.
What is a founders’ agreement?
First of all, a founders agreement may or may not replace the company's contract. This means, more or less, that it is advisable to use the two forms simultaneously:
the articles of association should remain the act that regulates issues strictly related to the venture being established;
the shareholders' agreement should regulate the relationship between the founders, mutual obligations, rights and any other elements that the parties deem appropriate.
The founders’ agreement is an extremely flexible form of agreement, regulating the mutual relations of the company's founders/shareholders, which can be tailored strictly to the needs of a particular venture.
What should a founders agreement contain?
The basic elements that shareholders should have worked out when joining a project, and not only in the form of a contract, include:
the division of roles and the responsibility that goes with it;
the substantive contribution and area of activity of each partner;
expectations and possibly KPIs;
distribution of profits, salary expectations, surcharges in the company, securing liquidity;
procedure for exiting the company;
procedure for leaving the project;
planned dilution of shares;
business objective, product objective, venture roadmap;
investor admission to the company.
Transparent drafting of the above basic elements avoids many conflicting situations that may arise in the future - for example, in terms of mutual expectations of roles in the project. Depending on the specifics of the project, this catalog can be expanded to include additional issues - e.g. ESOP, or employee stock provisions (which will also be discussed in future publications).
In what form to conclude the founders’ agreement?
Polish provisions do not regulate the issue of the founders agreement. Therefore, it is possible to conclude such an agreement in any form - even if it is an email, a note from a meeting or a text message. However, in order to protect the interests of the parties, it is worth concluding such an agreement in a form that allows the parties to be identified.
The written form will make it easy to prove the conclusion of a founders’ agreement and to infer the parties' intentions behind specific provisions of the agreement.
In what form to conclude a founders’ agreement?
Polish regulations do not regulate the issue of the founders’ agreement. Therefore, it is possible to conclude such an agreement in any form - even if it is an email, a note from a meeting or a text message. However, in order to protect the interests of the parties, it is worth concluding such an agreement in a form that allows the parties to be identified.
The written form will make it easy to prove the conclusion of a founders agreement and to infer the intentions of the parties behind specific provisions of the agreement.
What is worth keeping in mind?
First of all, the founders agreement should take into account the minimum scope of legal protection and provisions under the Commercial Companies Code. If specific provisions of the agreement do not comply with the provisions of the Companies Act, they will not have the force of law.
Moreover, it is worth remembering that the founders agreement is intended to be supportive, not restrictive. If the circumstances of the company's operation change, for example, as a result of a change in shareholders or the subject of the business, there is nothing to prevent the founders agreement from being amended as an annex as well. The consensual will of the parties is sufficient for this.
Why use L3gal when creating a founders agreement?
As part of our practice, we have repeatedly participated in the design and planning of legal entities for a specific purpose, taking into account the contributions and interests of the parties. At the same time, we have participated in shareholder disputes that could have been avoided at the first stage of the company's formation - just in the form of a founders agreement.
The experience of our team helps identify areas that the founder could not think of on his own due to the lack of clear perspective. At the same time, a lawyer will never create a good agreement or opinion without working closely with the client. For this reason, at L3gal we put transparency and approachability at the forefront of our relationship with the client. We strive to be a support, not a stumbling block that hinders business.
If we get to know your situation, we will be able to propose specific solutions, negotiate their final content affordable to all shareholders, and create a concrete draft founders agreement based on it, which will accelerate your development in a safe way.