Founders Agreement in Bangladesh
Co-Founder Agreement 101: Legal Framework, Drafting & Compliance for Startups
Overview: Why You Need a Co-Founder Agreement in Bangladesh
The Jurisdictional Reality for Startups
If you are launching a startup, establishing a legally binding co-founder agreement in Bangladesh is your most critical first step. Before filing documents with the Registrar of Joint Stock Companies (RJSC), founders must formalize their commercial relationship.
Without a Founders Agreement, the default provisions of the Companies Act 1994 apply. This leaves startups highly vulnerable to "dead equity" (where a departing founder walks away with a massive chunk of shares permanently) and makes the company un-investable to venture capitalists due to Intellectual Property (IP) chain-of-title risks.
1. Founders Agreement 101: Core Architecture
A professional Founders Agreement relies on dynamic "Schedules" appended to the main document. This keeps the core legal boilerplate static while business-specific details remain adaptable.
IP Assignment & Business Model
Defines the exact nature of the product. Crucially, it houses the Present Assignment of Future Inventions. Any code written or business plans drafted pre-incorporation by any co-founder must be legally transferred to the corporate entity. Failure here is the leading cause of Series Seed deal collapse.
Roles & Responsibilities
Maps founder names to C-level titles (CEO, CTO, COO) and details their precise operational purview. This avoids the "too many cooks" dilemma, clearly stating who has the final say on product, engineering, and financial matters.
Initial Capital Contribution
Documents the cash injected by each founder. Because issuing true "Sweat Equity" (shares for labor) is procedurally complex under Bangladesh RJSC rules, founders typically subscribe to shares at nominal face value (e.g., BDT 10/share), governed by a reverse-vesting schedule.
Restrictive Covenants
Because broad geographic non-competes are heavily scrutinized in Bangladesh, Magic Circle-style drafting relies on robust Non-Solicitation clauses (preventing the poaching of current employees and clients) and perpetual Trade Secret undertakings.
2. Co-Founder Friction Points & Negotiations
Before engaging investors, founders must negotiate the commercial realities of their partnership. A well-drafted co-founder agreement resolves these four critical pressure points.
The Equity Split: The 4 Pillars
Founders often default to an equal split (e.g., 50/50) to avoid uncomfortable conversations. Institutional investors view this as a red flag. Equity should be dynamically weighted based on:
- Idea & Origin IP: Who brought the core thesis, initial code base, or proprietary client network?
- Capital Injection: Who is funding the early, high-risk months prior to revenue?
- Opportunity Cost: Who is taking zero salary and leaving a high-paying corporate role versus moonlighting?
- Future Execution Value: Who will drive the highest tangible value over the next 5 years?
Control & Deadlocks
In a 50/50 two-founder setup, a fundamental disagreement can paralyze the company. Structural resolutions drafted by startup lawyers include:
- Reserved Matters (Veto): Minority founders secure veto rights over "existential" decisions, like selling IP or taking massive debt.
- CEO Casting Vote: The CEO is granted a tie-breaking vote at the board level, strictly for day-to-day operational deadlocks to keep the company moving fast.
- Russian Roulette: For unresolvable breakdowns. Founder A offers to buy B's shares at Price X. Founder B must either sell to A at Price X, OR buy A's shares at Price X.
Time Commitment & IP Contamination
If a founder is moonlighting, the agreement must draft specific "Commitment Triggers" (e.g., "Must resign from outside employment upon closing BDT 10M in seed capital"). Furthermore, moonlighting poses a severe IP Contamination Threat; the agreement must state the founder is not using their current employer's equipment or corporate time.
3. Vesting Mechanics & Leaver Provisions in Bangladesh
If a founder leaves on Day 2 owning 25% of the company, the startup is uninvestable. This is solved via Reverse Vesting: founders own shares on paper, but the Company retains the right to repurchase them if the founder leaves early.
The 1-Year Cliff
The global standard is a 4-year vesting schedule with a 1-year "cliff". At Month 11, the founder has exactly 0% fully earned equity. If they leave before Year 1, they walk away with nothing. On the 365th day, 25% vests immediately, with the remainder vesting monthly over the next 3 years.
Good Leaver vs. Bad Leaver
Good Leaver: Departure due to death, permanent disability, termination without cause, or resignation for "Good Reason". Consequence: The founder retains all vested shares.
Bad Leaver: Termination for cause (fraud, breach of FA) or resignation without Good Reason before the cliff. Consequence: Severe penalty. The founder loses all unvested shares, and often, vested shares are subject to forced repurchase at nominal face value.
4. Investor Readiness (Transitioning to a Share Subscription Agreement)
A pristine Founders Agreement is a prerequisite for executing a Share Subscription and Shareholders Agreement (SSHA) with institutional investors.
The Dilution Reality & SSHA Terms
Founders must negotiate their initial splits fiercely because institutional rounds (Seed, Series A) and the mandatory creation of an Employee Stock Ownership Plan (ESOP) pool will aggressively dilute their initial holdings.
When negotiating the SSHA, investors will introduce complex terms like Anti-Dilution and Rights of First Refusal (ROFR). If founders failed to negotiate basic control mechanisms in their initial Founders Agreement, they will likely be out-maneuvered by experienced venture capitalists during the SSHA drafting phase. Furthermore, a well-drafted FA automatically satisfies major investor Conditions Precedent (CPs) regarding IP ownership and clean cap tables.
