The Founder Shareholder Agreement is a crucial document used when establishing a new company or formalizing the relationship between existing founders in Hong Kong. It should be implemented at the company's formation or before any significant business operations or external investment commence. This agreement covers essential aspects including equity distribution, decision-making processes, intellectual property rights, non-compete provisions, and exit mechanisms. Under Hong Kong law, while not strictly required by the Companies Ordinance, this agreement provides vital protection for founders and establishes clear governance structures. It serves as a key risk management tool by addressing potential future scenarios such as founder departures, disputes, or company sale, while ensuring compliance with Hong Kong's legal framework for corporate governance.
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1. Parties: Identification of all founding shareholders and the company
2. Background: Context of the agreement, including company formation and founders' roles
3. Definitions: Key terms used throughout the agreement
4. Share Ownership and Capital Structure: Details of initial shareholding, share classes, and capital contributions
5. Founders' Commitments and Obligations: Key responsibilities, time commitment, and performance expectations of founders
6. Board Composition and Governance: Structure of the board, appointment rights, and decision-making processes
7. Reserved Matters: Decisions requiring special majority or unanimous consent
8. Share Transfer Restrictions: Limitations on transfer of shares and right of first refusal provisions
9. Good Leaver/Bad Leaver Provisions: Consequences of founder departure under different circumstances
10. Intellectual Property Rights: Assignment and protection of IP created by founders
11. Confidentiality: Protection of company and founder confidential information
12. Non-Competition and Non-Solicitation: Restrictions on competitive activities and hiring
13. Dividend Policy: Framework for profit distribution and reinvestment
14. Dispute Resolution: Procedures for resolving conflicts between founders
15. Termination: Circumstances and procedures for terminating the agreement
16. General Provisions: Standard clauses including governing law, notices, and amendments
1. Drag Along and Tag Along Rights: Include when planning for potential future investment or exit scenarios
2. Vesting Provisions: Include when implementing staged earning of equity rights
3. Special Share Rights: Include when creating different share classes with varying rights
4. Management Structure: Include when establishing detailed operational roles beyond board level
5. Founder Loans: Include when founders are providing additional financing
6. Employee Share Option Pool: Include when planning future employee equity incentives
7. Dead Lock Resolution: Include when equal ownership might lead to decision-making impasses
8. Pre-emption Rights on New Issues: Include when anticipating future capital raises
1. Share Capital Table: Detailed breakdown of shareholding structure and share classes
2. Initial Business Plan: Overview of company's strategic direction and objectives
3. Deed of Adherence: Template for new shareholders to join the agreement
4. Reserved Matters List: Detailed list of decisions requiring special approval
5. Founders' Particulars: Personal details and contact information of founders
6. IP Schedule: List of existing IP rights brought into the business
7. Service Agreements: Key terms of founders' employment or service contracts
8. Company Constitution: Articles of association and other constitutional documents
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