This example of the Agreement of housing.com showcases that a successful startup is not only about getting huge funding from angel investors or angel investor companies but it is also important to protect and safeguard the rights and interests of the people who are going to run the startup or company and thus ultimately saving the startup or company. It will help readers especially entrepreneurs to realize the importance of having a co-founders agreement for their new startup or venture. So in this final blog on co-founders agreement, let’s have a look at the brief introduction of housing.com, problems faced by housing.com, and how a co-founders agreement would have provided solutions to such problems and protected housing.com.
Example of Housing.com showcases ‘Why co-founder’s agreement is a must for every startup or company?
Housing.com is an online website for searching residential properties. It was started by a group of 12 entrepreneurs. It tasted huge success initially as a potential e-commerce startup in India. It had received funding of over 700 crores. In housing.com there were conflicts between the co-founders and every co-founder tried to protect his self-interest without thinking of the company at first. The differences in their opinion were so severe that almost 9 out of 12 co-founders left the company.
It had 12 co-founders and two directors. This was a complex structure which was an obstacle to the functioning of this startup and it also negatively affected the decision-making process as the power of decision-making was only with the 2 directors. The co-founders of the startup were removed without any formal procedure. The co-founders who left the company started their own business similar to that of housing.com and also tried to pull away its clients and employees. Further, the co-founders also engaged in malpractices like disclosure of confidential emails and communications of the investors, co-founders, employees, and board to the media and public. Also, there was a transfer of shares without the consent of other co-founders.
In such a situation, a well-drafted co-founders agreement would have been a savior. A co-founders agreement would have provided for a clear and precise distribution of responsibilities amongst the co-founders. Further, even the structure of the startup would have been more simplified. Specific provisions in the co-founder’s agreement concerning the removal of a co-founder could have provided him protection from his abrupt removal at the discretion of others. A non-compete clause in the co-founder’s agreement would have barred the leaving co-founder from starting a similar business to the previous company and competing against it. A non-solicit clause in the co-founder’s agreement would have barred the leaving co-founder from soliciting and inviting clients and employees from the previous company. A leak or public disclosure of confidential information about the startup or company could have been prevented if there was a confidentiality clause in the co-founder’s agreement. Further, a pre-emption clause in the co-founder’s agreement would have made it mandatory for the co-founder to obtain the prior consent or permission of the other co-founders before transferring shares to the employees.
Conclusion:
Thus the example of housing.com shows the importance of having a co-founders agreement for every startup or company. A co-founders agreement safeguards the interest of the co-founders, the employees, and ultimately the startup or company. It also protects the startup or company from any reputational damage by providing dispute resolution clauses that can provide for the peaceful resolution of disputes either through mediation or arbitration.
Although it is optional for the co-founders to have a co-founders agreement it is highly recommended to enter into a co-founders agreement which saves a startup or company from a lot of future risks. It saves the trouble of signing various legal documents individually. It acts like a master document covering all the important requirements in one single agreement. Thus from the above, we come to know about the significance of a co-founders agreement. Every entrepreneur who wishes to start his startup or company should focus on a well-drafted co-founders agreement which can ensure its smooth functioning.
He should consult a startup lawyer for the drafting of the same and can ensure that all the required legal compliances concerning startups have been adhered to. Such a startup lawyer can not only help you in drafting and vetting legal documents(contracts and agreements) but can also be helpful in various stages like getting investors in your startups, startup finances, getting angel investors or angel investment companies providing angel capital or angel money, crowdfunding or other funding opportunities for startups. So if you are an entrepreneur with a startup plan, seeking the consultation of a Startup Lawyer who has all round knowledge concerning startups, is a must.
