Term sheet · Partnerships

Coding Contract for Partnership/Co-founder?

Jacob Johnson Artist and Creative Product Designer

August 6th, 2014

I have a partner/co-founder who is excited to jump into my project in a couple weeks.  Yesterday in an email conversation he asked for a contract and terms agreement for the project.  He stated " it will establish the terms by which you want me to create code. This will free you from liability and clarify what you want me to do."  He is aware that he will be an equal partner in this and that there is no funding right now, not even a company yet.

My question is; do partnerships typically require these contracts and terms even at the pre-company phase?  Does this always relate to code?  Any advice to this respect would be great.
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Tim Kilroy Analytics - LTV - Boosting Profits - Digital Marketing

August 6th, 2014

You SHOULD have a contract that states that he is working for some kind of compensation (equity, cash, whatever) and that everything he creates belongs to the company and not to him. This is an absolute must do - it will avoid all kinds of problems later. And even if there is no revenue, it could be a good time to incorporate so that all efforts put forth are for the corporation, and not owned or claimed by any individual...

Jasmine Alexander

August 6th, 2014

I would add that you think about a vesting schedule so that he doesn't walk away with half your company in case something goes awry.  You will need some of that equity to hire someone else.  25% per year on a 4 year vesting schedule seems to be the most common.  You can read a lot about these topics on various VC blogs, founders.org, also, several cases in the book "Founders Dilemma".

syerram

August 6th, 2014

It not really required if there is a certain amount of trust/you've known the person for a while - I've started 3 companies & never had to put an agreement in place. (There are some founder templates on docracy.com)

Jacob Johnson Artist and Creative Product Designer

August 6th, 2014

Thanks for the advice.  I was hoping not to actually create a company just yet.  Most of the partnership agreement templates I see have an extensive section about company name, capital and equity.  All of which I do not have.  Maybe I should get a customized agreement drawn up for my current situation?  I'd hate to start a company with just an idea...

Gray Kuglen Director of UX Design / Principal Consultant

August 6th, 2014

I would suggest getting your working relationship in writing including roles and responsibilities if you want to keep it loose and continue moving forward without a legal entity formed.  I am not an attorney, but a contract can be as simple as an agreement between two parties stating how you are to work together. From my perspective documenting what to do when something goes wrong is the most important.  For example what happens if your partner decides to leave and take the code with him?  I have experienced an amicable partnership break-up first hand - even on good terms 'the divorce' is tough all around.  

Karl Diedrich Principal Engineer at Mebio, Inc.

August 6th, 2014

I write a 1 page NIH style specific aims page for new software projects with partners. The partners will receive and possibly even sign the specific aims. The aims will each have an acceptance criteria which is some kind of test or comparison of the software like "automated ... will be compared against manual ... done by 3 experts and the software will perform within 1 standard deviation of the mean of the 3 experts."
Background
Aim 1
Aim 2
Aim ...
Background
Methods
Acceptance criteria
product from aim

Project innovation
Future work

Monica Borrell CEO and Founder at Cardsmith

August 6th, 2014

talk -- a lot.  about what he expects from this, and what you expect.  Do that before you write code or do a legal agreement.  talk in person -- or at least on skype (not email!)  

team is the hardest part of the start-up, and a bad partnership can set you back months. take the time it takes and be willing to walk away from a partnership if it doesn't feel right or if you don't have complimentary skills and expectations. 

Andy Terrel Fashion Metric CTO , NumFOCUS President

August 7th, 2014

Yes this is generally a good idea. Intellectual property (IP) and copyright around code are only protected if you have a contract in place. Otherwise you are negotiating based on supposed IP contributions.

This is not for just code, but any IP generating activity. It will save you lots of headaches later to establish clearly what is being developed and what is not. This will also help the process as well, since it will establish some basic specifications that you can work with. In general I find that when it's just talking, nothing gets serious, but once something hits paper you have a commitment together and the work is enabled by the established terms.

I highly recommend you going to read Founder Dilemmas by Noah Wasserman if you want to see all the ways not having some basic contracts goes wrong.

Mike Bloise

August 7th, 2014

Is your partner's equity tied to any development or functionality milestones?

Jacob Johnson Artist and Creative Product Designer

August 7th, 2014

@Mike, up until this point we've only had discussions about the project.  I've been working in the idea phase for over a year before I even talked to him about joining as a partner.  At this stage there is only talks of partnership and nothing about equity or ownership in a company.

@Andy, I've actually picked up the book since Jasmine talked about it above.  When drawing up a contract with no actual company entity in place, how would you recommend I handle the transfer of the IP if the partnership doesn't work out?