Co-Founding A Startup? Key Points that you Should Keep in Mind

You must have heard of the term called "co-founders" before, but how does it work?

A co-founder startup is someone who has helped found a company and shares in its success. Co-founding can be a good way to mitigate risk, but it can also be a source of strife.

When you co-found a company with someone else, you are entering into a partnership agreement with them that impacts your relationship and the company's future. While it's always good practice to have a solid business plan in place before embarking on a startup, it's equally important to have a good partnership agreement in place.

If this sounds like something you might be interested in, we have some tips for making sure your partnership agreement covers these key points.

1. Pick the Right Co-Founder for the startup

Every partnership is unique, and every business relationship will have its ups and downs. Before you make any decisions for your business, take the time to get to know your potential co-founder(s). Try to find out if they are truly committed to making this venture successful. Remember, your future will be tied to this person, so you want to make sure the person is trustable.

2. Define the Business Relationship

If you've found a person that seems interested in co-founding your business, start discussing how you want your business relationship to work. Having clear expectations around these relationships is the key, and it will help mitigate future issues as well. For example:

• Who will be responsible for what?
• What does each of you contribute to the business/company?
• How will you handle disagreements?
• Will there be a way to buy out someone's stake in the business?

It's better to sort out any of these issues before they become actual issues.

3. Research the startup

After the business relationship is defined, you must focus on what you want your startup to accomplish. Are there any legal or financial issues that could pose a problem for you in the future? Only take a step forward when you find yourself at an agreeable spot with your co-founder.

4. Make the Right Investment

As much as possible, make sure both co-founders are contributing an equal amount of money and time to the startup. The simple fact is that dollars equal power; if one person is more invested in the company, they are entitled to more rewards. For example, if one person works for free for three months while you cover living expenses, the person working for free should be compensated accordingly after that period.

5. Determine How Profits Will Be Split with co-founder startup

Typically, it's easier to split profits 50/50. However, that is not always the case. You may want to consider splitting them in a different ratio depending on the value each of you contributes. For example, if one person does more networking than another, it might be accepted that they will receive a larger share of their profits.

6. Keep Your Personal Lives Out of It

Of course, co-founding a business with someone is not the same as having them move into your house or using your significant other's toothbrush. You may be in close contact with this person for many hours every day, but you should never let personal problems spill over into your work life. If there are any issues between you and your co-founder, handle them privately and never let arguments disrupt the work environment.

7. Write It Down & Sign On The Dotted Line

Putting your thoughts on paper can help clear up any confusion or misunderstandings that might arise later down the road. You should write down everything that you agree upon, including how profits will be split, how much each of you is investing, and how your personal lives will be kept out of the company. It's always best to put these details into a legal contract so that everyone is clear on what they are promising to do or avoid.

Conclusion

These are some of the many things to consider when co-founding a startup. If you prefer, you can consult with an attorney who focuses on the laws of your state to help draft up your partnership agreement so that it covers everything your business needs. Once everything is in order, you can move forward with your startup.

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