One of my friends jokingly said that the reason they’re not divorced yet is because divorce is too expensive...

Business partnerships are no less than marriages. And as per several studies, the biggest reason for the failure of a business is co-founder conflict, at higher than 60% of all failures attributed to this.

But I believe it’s not the conflict, but the lack of a co-founders agreement... which had it been in place, the folks would’ve resolved it amicably to begin with.

Most businesses make the mistake of picking up the template Memorandum and Articles of Association or a template partnership deed executed by an accountant, not realizing that the template does not have the following clauses that are almost mandatory for every business now...

👉🏼 Reverse Vesting - If either of the co-founder leaves before completing say 4 years in the business, they lose proportionate shareholding in favour of the continuing founder.

So, if they started with 50:50, and one co-founder leaves after 2 years, the resulting shareholding should be 25:75 in favour of the remaining founder.

👉🏼 Price of Mandatory Transfer - The price for any transaction among co-founders has to be pre-decided in writing. It could be an X multiple of the Revenue or Profit, or lower of X multiple of Revenue and Y multiple of Profit.

You cannot defer it to later. It just won’t work.

👉🏼 Decision Making Vote in case of a conflict - Who has the deciding vote in a conflict depending on specified functions and departments. No confusion.

👉🏼 Ownership over IP - if the business does not last, who owns to IP to which asset.

👉🏼 Non Compete - If the business does not last because of ABC reasons, who will not compete in the same line of business for how long.

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A Chartered Accountant with about 10 years of experience in areas of Tax Advisory, Startup Consulting, Fundraising, Audits, Deal Advisory, Business Modelling and contract CFO services.

Winner of the ISB Young Leader Award 2017 and the Best All Rounder, PGP Class of '17, Sarthak has also been published about in the leading financial newspapers such as The Financial Express as possibly the youngest Indian to have completed the courses of CA, CS and CMA along with a graduate degree in Financial & Investment Analysis from University of Delhi, all by the age of 23 years.