Corporate Advisory

Startup & Founder Advisory

Most founder disputes begin with an agreement that was never written down properly. We help founders set up governance and ownership terms before the money and the disagreements arrive.

Founders usually come to us at one of two points: before incorporation, when the choice of entity and the split of equity still feel like formalities, or after a falling-out, when the absence of a written founders’ agreement has become the entire problem. Both conversations are easier the first way round.

We advise on private limited companies and LLPs under the Companies Act 2013 and the LLP Act 2008, draft the documents that hold founder relationships together, and prepare businesses for the due diligence that a serious investor will eventually run. We do not draft template documents and move on; we ask what happens if a co-founder leaves in year two, because that question is what the document is actually for.

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Scope

What we handle

Entity structuring

Advice on private limited company versus LLP, considering fundraising plans, tax treatment, and the founders’ appetite for compliance.

Founders’ agreements

Drafting agreements covering roles, equity split, vesting, decision rights, deadlock, and what happens if someone leaves early.

Vesting and reverse vesting

Structuring standard vesting schedules and reverse vesting for founder shares already issued, with cliff periods and good/bad leaver terms.

Cap table management

Setting up and maintaining a clean capitalisation table across SAFE notes, convertible instruments, and priced rounds.

ESOP schemes

Designing and documenting employee stock option schemes under the Companies Act 2013, including trust structures where used.

Term sheets and instruments

Reviewing and negotiating SAFE agreements, compulsorily convertible preference shares, and term sheets from angel investors and funds.

Due diligence readiness

Organising statutory registers, board minutes, and contracts so the company can withstand investor due diligence without last-minute scrambling.

In Detail

The four clauses that prevent most founder disputes

Vesting on founder shares

Founders often issue themselves fully paid, fully owned shares on day one, on the theory that they are the founders and the shares are obviously theirs. The problem surfaces when one founder leaves after eight months holding the same equity as a founder who stayed for five years. A reverse vesting clause, under which founder shares are subject to buy-back or forfeiture on a vesting schedule if the founder departs early, is the single clause that prevents this. A typical structure is a four-year schedule with a one-year cliff, mirrored on what investors will expect for the option pool later.

Good leaver, bad leaver

Not every departure is the same. A founder who leaves for health reasons or by mutual agreement is usually treated as a good leaver, entitled to keep vested equity and sometimes a portion of unvested equity. A founder who leaves to join a competitor, or is removed for cause, is usually a bad leaver, with harsher repurchase terms. Without this distinction written down in advance, every departure becomes a negotiation conducted under stress, generally through lawyers, sometimes through the courts.

Decision rights and deadlock

Two co-founders with equal shareholding and equal board seats is a common starting point and a common source of paralysis. The founders’ agreement should set out which decisions need unanimous consent, which need a simple majority, and what happens if the founders cannot agree, whether that is a casting vote, a cooling-off period, or a buy-sell mechanism. This is worth resolving on paper while the founders are still on good terms.

Intellectual property assignment

Code, brand names, and product designs created by a founder or an early contractor before the company existed do not automatically belong to the company. Each founder and each early hire should sign an assignment agreement transferring intellectual property created for the business to the company. Investors check this specifically during due diligence, and gaps here are a common reason a term sheet stalls. Fixing a missing assignment retroactively is possible but slower, and it becomes harder the longer a founder has since left the company on unclear terms.

Get the founders’ agreement signed before the company opens its first bank account, not after the first disagreement.

Questions

Commonly asked

Do we need a founders’ agreement if we already have a shareholders’ agreement?

Yes, generally. A shareholders’ agreement governs the company and its investors once shares are issued and often after a funding round. A founders’ agreement covers matters specific to the founding team, such as roles, vesting, and what happens if a founder exits early, which investors will not have addressed in detail. The two documents work together rather than replacing each other, and having only one usually leaves gaps.

Should we set up a private limited company or an LLP?

It depends on your plans. A private limited company under the Companies Act 2013 is generally the structure investors expect, since it permits equity fundraising, ESOPs, and standard share transfer mechanisms. An LLP under the LLP Act 2008 has simpler compliance and different tax treatment but is harder to raise equity funding into. Most startups planning to raise external capital choose a private limited company from the outset.

When should ESOPs be granted to early employees?

There is no fixed rule, but granting options early, while the exercise price is low, is usually more meaningful to the employee than granting the same percentage later at a higher valuation. Companies typically create an ESOP pool at incorporation or before the first funding round, reserving a percentage of equity, and grant options to key hires with a standard vesting schedule under a scheme approved by the board and shareholders.

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Consultation

Speak to a lawyer about your matter.

Tell us what has happened and what you need. We will tell you candidly whether you have a case, what it would take, and how the matter would be conducted.

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