We invited Elisabeth Flønes, Senior Lawyer at Advokatfirmaet Berngaard AS to write an article on founding agreements to give us an overview from the legal perspective.
"Founding agreements are typically so called Founders’ Agreements and Shareholders’ Agreements. Whereas a Founding Agreement is usually entered into before the company is registered, a Shareholders’ Agreement is an agreement that regulates rights and commitments associated with the ownership of shares of a company.
If you and your founding partners enter into a preliminary Founding Agreement, it is our recommendation that the agreement is based on the same principles as a Shareholders’ Agreement. However, under Norwegian law, Shareholders’ Agreements are the most common and practical.
There are no legal requirements to have a formal Shareholders’ Agreement between the owners of a company – no matter how big or small. If the shareholders haven’t entered into such an agreement, the regulations set out in the Private Limited Liability Companies Act (Nw. aksjeloven) will prevail. However, having a well-thought out shareholders’ agreement can be crucial for the success of your company as this can be tailored to the company you are trying to build.
"The agreement is set in place to ensure that the running of the company is rooted in a common understanding between the parties."
A Shareholders’ Agreement regulates the rights and responsibilities of the parties of the agreement, hereunder the shareholders. It is also quite common to make the company itself a part of the agreement. The agreement is set in place to ensure that the running of the company is rooted in a common understanding between the parties.
Before entering into a Shareholders’ Agreement, there are some general guidelines you should keep in mind. First of all, keep in mind who you are entering into an agreement with – is it a friend, a colleague, private investor or an employee? This is very important, as the relationship between the parties will usually affect the need for regulations in the agreement. As an example, a private investor will typically be more focused on regulating the distribution of dividends than maybe a friend or a fellow founder.
There are some key elements which we recommend are made part (or at least discussed in the process) of the Shareholders’ Agreement:
- Ownership structures – ex. are the parties allowed to own their shares through holding companies or only as personal shareholders?
- Company Strategy – where do the shareholders see the company going forward? Are there any milestones or benchmarks they’re working towards?
- Distribution of dividends – is there a desire to pay out dividends on the shares as soon as possible, or is a financial strategy to reinvest the profits?
- Active or passive shareholders – are the shareholders expected to be active in the day-to-day business of running the company, or will they be passive owners?
- Secure intellectual property rights – this is especially important for many start-ups, as they usually depend heavily on an idea or tech-solution. To make sure that the company, and not a single shareholder or employee, owns the rights to the IPR is extremely important.
There are a lot of templates for standard Shareholders’ Agreements available, but keep in mind that these are not tailored to your company or your special needs. The questions and regulations mentioned in this article are just some examples of questions and regulations which may be relevant to discuss in relation to your company.
As a final and general piece of advice; it is always easier, cheaper and better to regulate these matters early when all parties are pulling in the same direction – rather than later when the conflicting interests start appearing."
About the author
Elisabeth Flønes, Senior Lawyer at Advokatfirmaet Berngaard AS.
She was one of the guest speakers for Oslo Startup Day: Founder Agreements.