Founder employment agreements
Founders of technology-based and life sciences do not generally enter into “employment agreements” with their companies. Employment agreements typically provide the employee with rights to severance and other employment-related protections. Because of the large equity stake the founders have in the company and the importance of cash to a startup, investors will generally not agree to provide contractual severance rights to founders.
That said, founders should sign an employment letter with the company that sets forth the general terms and conditions of their employment and states that they are “at-will” employees. This means that they can leave the company at any time (although their rights to retain their shares or exercise their will depend on the vesting terms), and also that the company can terminate their employment at any time—with or without cause. They should also sign an agreement with the company where they agree to keep the company’s information confidential, assign their rights to any developed intellectual property to the company and, in most states, agree not to compete with the company for a period of time following their employment. Take a look at our Document Generator for some of these forms.
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- The right time to incorporate
- Determining the right type of entity to create
- Where to incorporate
- Defining “qualified to do business” and where to be qualified
- Who makes decisions for the company?
- How startups compensate employees
- Foreign employees and their need for a visa
- Who owns your IP
- Licensing IP from a university or hospital
- Retaining a license to your IP
- Non-competes with former employers
- Reserving shares under the company’s option plan
- Accelerating vesting on a sale or termination
- Vesting terms that make sense
- Tax implications related to shares that vest
- Difference between consultants and employees
- How startups compensate employees
- Foreign employees and their need for a visa
- Unpaid interns
- Non-competes with former employers
- Reserving shares under the company’s option plan
- Agreements with employees
- Hiring a team before securing funding
- Vesting restrictions on shares held by the founders
- Accelerating vesting on a sale or termination
- Vesting terms that make sense
- Tax implications related to shares that vest
- Difference between options and restricted stock
- Tax differences between ISOs and NSOs
- Granting options vs. issuing restricted stock
- Advisory board setup and compensation
- Reserving shares under the company's option plan
