Founders’ Collaboration Agreement
[10]
agreement have the same type of rights, including the same voting rights.
14
This section states that a sale of the company will occur if the Managers authorize it. This
does not foreclose a sale according to methods outlined in the operating agreement of the
LLC. However, as mentioned previously, the company can explore other restrictions on
ownership transfers.
15
The inclusion of Managers here is proper only if the entity is in fact a manager-managed
LLC. If the entity is not a manager-managed LLC, then Managers should be replaced with the
respective entity’s appropriate governing authority.
16
This provision ensures that the Business Concept remains confidential during the
formation process to guard against theft by third parties. Common exceptions to
confidentiality obligations include: information that the recipient can demonstrate that they
had prior to receipt of information from the discloser, information that becomes known to
the public through no fault of the recipient, information that becomes known to the recipient
from a third party that has a lawful right to disclose the information, information that was
public knowledge before the disclosure of the information to the recipient, and information
independently created by the recipient.
17
This provision is important because it covers the method through which both simple and
substantial decisions should be made. It might include information such as: which sorts of
decisions can be made by a single individual and which sorts of decisions should be voted on
by the group of Founders; If a vote occurs, does everyone have an equal vote (regardless of
their proportion of equity) or will voting procedures align with the distribution of
percentage interests; In the case of a split vote (50% on one side of the decision, 50% on the
other) will anyone have the deciding vote, and if so, how is that person determined and how
will that decision be made?
18
This provision ensures that the parties remain committed to completing the entity’s
formation within a reasonable timeframe. The template suggests a timeframe of one year
with an additional 30 days to work toward formation before a separation agreement should
be put in place, but this can be increased or decreased based on the Founders’ wishes.
19
In the event of a deadlock among the Founders, it is helpful to have a clear mechanism in
the agreement for resolving the conflict as that will avoid confusion and uncertainty and
save time and money. A deadlock provision aims to create a mechanism that will treat the
Founders fairly while allowing the business to continue to operate. Without a deadlock
provision, dissolution of the enterprise is often the only choice. The Agreement template
suggests a binding confidential mediation as the deadlock mechanism. There are many
different forms of mediation, ranging from a more formal arbitration, in which the mediator
make her own binding decision, to “baseball mediation,” where each side writes down its
final position and the mediator picks one side or the other (this should lead to the Founders
presenting their most reasonable position in order to be picked), to "golf mediation," where
the mediator writes down the most equitable solution and whichever Founder presents a
solution closest to the mediator's wins. Mediation works well for factual matters but it does
not always work so well for solving multi-faceted business issues, such as determining the
best capital-raising terms or deciding whether to admit a new strategic member. Founders
have several other options for resolving deadlocks, however. Other common provisions
include:
Escalation. In the event of a deadlock, the Founders’ Agreement can provide that
the issue is escalated to certain key executives on behalf of each member (if put in