Founders agreement

A founder stock purchase agreement (also called a restricted stock purchase agreement or common stock purchase agreement) is an agreement under which a founder purchases its shares of common stock from the startup and agrees to certain terms of vesting and, in certain cases, rights of first refusal on its shares.The agreement is important to founders because it sets forth how much stock they own and the rights the startup has to repurchase some or all of their shares upon termination of services. The agreement is also important to investors because investors want to make sure a sufficient number of the shares of stock held by the founders are unvested at the time of their investments to provide the founders and incentive to continue to provide services to the startup.

Many founders believe they own their stock when they incorporate their startup, which is technically not true even though they are the owners in theory. Founders purchase their stock under the founder stock purchase agreement for value equal to the fair market value on date of purchase, which must be equal to at least the par value. The typical purchase price is $0.0001 per share. The founders also typically contribute intellectual property, such as the business plan, to the startup.

A four-year vesting term with a one-year cliff (25% vest after one year and then monthly thereafter) is the normal vesting terms. For founders, there is also some accelerated vesting, which means that if there is a sale of the startup or a founder’s services are terminated involuntarily, the founder will have some or all of its unvested shares vest either on the sale (called a single trigger) or on sale and a termination of the founder (called a double trigger). Investors often accept double trigger acceleration for the founders, but are much more reluctant to accept single trigger acceleration because acquirers expect key persons to have an incentive to stay with the startup post sale.The founder stock purchase agreement also typically includes a provision that requires the founder to hold his or her stock for some period minimum period of time (at least 180 days) following the startup’s IPO. This is called a lockup or market standoff agreement.