Founders’ Agreement

A founders’ agreement is an arrangement among a company’s founders describing how the company should be founded, operated and what the founders’ rights and obligations are. This Founders’ Agreement can be used if:

  • the founders wish to regulate their rights and obligations
  • all founders are inclulded

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What happens if the Founders’ Agrement and the Articles of Association of the future company contradict each other?

The Founders’ Agreement is binding only to the parties of the contract and the articles of association apply with respect to third persons. If the two documents contradict each other, then the articles of association apply with respect to third persons, but the Founders’ Agreement applies to the founders. In order to apply the Founders’ Agreement with respect to third persons it is recommended to coordinate the articles of association with the Founders’ Agreement.

How are the decisions adopted until the founding of the company?

Founders can agree in the contract how they wish to adopt the decisions regarding the company until founding. Usually decisions are adopted by the consensus or by the vote of the majority of the founders. 

How many members can the management board have?

According to the Commercial Code the management board can have one member or several members. The exact amount or the range of members of the management board can be established in the Founders’ Agreement. There is no maximum number of members of the management board prescribed by law. In most cases it is recommended to appoint an odd number of members to the management board to ensure its quorum.

For which term is the member of the management board elected?

A member of the management board shall be elected for an unspecified term unless the articles of association prescribe a term. This means that the term for which the member of the management board is elected can be established with the Shareholders’ Agreement when it’s also established in the articles of association.

Can any member of the management board represent a private limited company?

A private limited company can be represented by any member of the management board individually when making transactions. However the articles of association may prescribe otherwise. It can also be prescribed that that all the members of the management board have the right to represent the company jointly. It may also be prescribed that two out of the three members of the management board have the right to represent the company only jointly, but the third member has the right of representation individually. It must be noted that if every member of the management board does not have the right of representation individually, then the joint representation shall apply with regard to third persons only if it is entered in the commercial register.

What is vesting?

Vesting means that a founder does not receive his share in full, but earns it part-by-part by working for the company. The founder earns his whole share after the end of the defined (vesting) term. For example, if the term is 4 years and the founder is entitled to 50% of the shares after the term, then he will be awarded 25% of his share (12,5% of the total share capital) after one year. This means that if the founder leaves the company before the end of the (vesting) term, then he is only entitled to his earned share of the share capital.

A cliff is a period in which the founder must remain working for the company, otherwise if he leaves, he loses all the earned shares up to date. The aim of the cliff-period is to motivate founders and prevent situations where the private limited company has many small shareholders which can make the management harder. Usually the lenght of the cliff period is 1 year.

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