Contract review guide
Partnership / Founders Agreement review: what to check before you sign
Partnership agreements are cheap to write and brutally expensive to skip. The clauses that matter are the ones for the bad days: deadlock, departure, and death.
Typical signers: co-founders and business partners formalizing a venture.
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Analyze my partnership agreement →The 5 most common Partnership agreement red flags
1. No vesting on founder equity
Without vesting, a co-founder can leave in month three and keep half the company forever. Four years with a one-year cliff is standard.
2. 50/50 with no deadlock mechanism
Equal partners with no tiebreaker means one disagreement can paralyze the company. Add a deadlock clause (mediation, buy-sell, casting vote).
3. No buy-sell provisions
What happens when a partner wants out, divorces, or dies? Without a valuation formula and process, the answer is: litigation.
4. Undefined roles and capital obligations
'Partners contribute as needed' invites resentment. Define who invests what, who decides what, and what happens if someone stops contributing.
5. Profit distribution without a written formula
Distributions 'as agreed from time to time' means the majority decides — or nobody does.
Pre-signing checklist
- Equity vesting with a cliff for all founders?
- Deadlock resolution mechanism defined?
- Buy-sell (shotgun clause, right of first refusal) with valuation method?
- Roles, decision rights, and spending limits documented?
- IP assigned to the company, not the individuals?
Frequently asked questions
What is a shotgun clause?
A buy-sell mechanism: one partner names a price; the other must either sell at that price or buy the first partner out at the same price. It forces fair valuations but favors the partner with more cash.
Do co-founders really need vesting?
Yes — it protects the founders who stay. Even solo-funded ventures use reverse vesting so a departing founder's unvested shares return to the company.
Should the partnership own the IP?
The entity, not individuals, should own all IP. Otherwise a departing partner can walk away with the product.
Review other contract types
This guide is general information, not legal advice. Laws differ per jurisdiction — for high-stakes contracts, consult a qualified lawyer.
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