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A well-thought-out founders’ agreement can be one of the most important prerequisites for a start-up’s success and survival. More than 60% of companies fail to reach their fifth year of operation – and among start-ups, this percentage is even higher. One major risk factor is the lack of carefully considered agreements between founders, which can affect the company’s development and stability in the long term.

“A contract is usually signed when everything still feels positive – the idea is fresh, the team is motivated, and the goal is explosive growth. But that is also when it’s important to think about what happens in difficult situations,” explains Timo Kullerkupp, Partner at RASK Attorneys-at-Law. “The founders’ agreement helps you play through future scenarios – what if the money runs out, one of the founders leaves, or disagreements arise about bringing in an investor?”

The impact of a founders’ agreement throughout a company’s life cycle, as well as the risks associated with its absence or superficiality, were discussed by several start-up practitioners at a Tehnopol-led roundtable “A Handshake Is Not Enough: Let’s Talk About the Founders’ Agreement,” held at KIOSK NO3.

Entrepreneur Marek Kesküll shared his experience, having had to return to the founders’ agreement several times when three out of four founders decided to leave the company at different stages. “We were developing the project on our own, focused on the goal ahead, but one partner – who had been coding from five to ten every day – eventually got tired and decided to quit,” Kesküll recalled. “You have to think early on about what happens if someone leaves. The ownership structure should be as clear as possible to avoid so-called ‘dead equity’ – shareholders who no longer contribute to the company. These are realistic situations you must plan for.”

According to Vaido Mikhem, Head of the Start-up Estonia programme, a founders’ agreement is not merely a legal document. “It’s a tool that helps a company grow and succeed. Many are prepared for failure, but few are prepared for success – the agreement helps you plan for both,” he said. “Another key aspect is decision-making. What separates a good company from a bad one is how decisions are made. I’ve been in the start-up world for 15 years, and decision-making is mentioned extremely rarely.”

Kullerkupp adds that the decision-making principles laid out in a founders’ agreement directly shape the company’s daily operations, and therefore should be thought through realistically and based on the founders’ actual dynamics.

“When one person wants to make all the decisions, things can get complicated. Even a 50:50 decision-making model can become a deadlock,” Kullerkupp explained. “There are different ways to approach it – you can specify which matters require joint decisions or which topics certain founders want to be involved in. You can also set a monetary threshold above which decisions must be made jointly, as well as define the principles and timing of decision-making.”

According to him, RASK’s attorneys have repeatedly seen how the absence of an founders’ agreement has led to tension among founders, painful departures, and even the end of companies. However, a well-designed founders’ agreement often helps overcome difficult situations. In addition to decision-making, the agreement should cover matters such as conflict resolution, balancing contributions, maintaining founder motivation, and preventing dead equity.

Kullerkupp emphasises that a founders’ agreement establishes a crucial foundation for the company’s future, which is why founders should go beyond using standard templates. “These templates are an excellent starting point, and you should definitely take the time to understand each clause thoroughly,” he said. “But don’t just sign a generic document – give it your own identity. It’s the place where you define intellectual property, decision-making processes, flexibility, values, commitment, and exit arrangements.”

Kesküll recommends using a template as a basis, but involving a lawyer to review and tailor it. “We once had a clause stating that if you raise money and want to repay it, you must either convert it into shares or pay it back yourself,” Kesküll said. “I had to remove it because, as a founder, I didn’t have that kind of money. Don’t be afraid to ask about the details – you need to understand the agreement thoroughly, and that clarity benefits all parties.”

According to Jüri Bogatkin, a founders’ agreement provides a sense of security for when things go wrong.

“I encourage founders to take a step even before signing – discuss your expectations and viewpoints openly. Do you really know the person you’re about to start a company with? By negotiating, setting expectations, and understanding each other’s perspectives, you lay the groundwork for future cooperation,” he added.