Handshakes Don't Scale: A Co-Founder's Pre-Disagreement Checklist

In the first eighteen months of a UK company's life, the founders' agreement is almost always the last document anyone wants to draft. There is product to build, a first hire to make, a VAT registration to file. Sitting down to discuss what happens if the relationship sours feels like buying travel insurance for a honeymoon.

The reasoning is understandable and, in the short term, correct. A well-matched founding team does not need a contract to make the obvious decisions. The difficulty is that a founders' agreement is never written for the obvious decisions. It is written for the two or three occasions, usually years later, when the obvious answer is no longer obvious to both of you.

Why the good years are the wrong test

Founders tend to assess their partnership against the problems they currently have. If we can survive this funding round, this difficult client, this cash crunch, we can survive anything. That is a test of endurance, not of alignment.

The disagreements that damage companies are rarely about effort. They are about direction, entitlement and the meaning of fairness. Those questions are cheap to settle while everyone is still friendly and expensive to settle once they are not. A short, plainly written document, agreed early, is not a sign of distrust. It is the mechanism that lets a team trust each other later.

1. Who decides what

The first question is not who owns the most shares. It is who is entitled to make which decisions without asking. Most UK founder disputes that reach advisers could have been avoided by two lists agreed in year one: matters the chief executive decides alone, and matters that require both founders to agree.

Reserved matters typically include taking on debt above an agreed figure, issuing shares or admitting an investor, changing what the company actually sells, closing a product line, appointing professional advisers, granting a long lease, and hiring above a salary threshold. Everything else sits with the person running the function.

Write the lists down. Circulate them. Review them annually. The exercise takes ninety minutes and prevents the most common form of founder paralysis: two people with equal authority and unequal information, each waiting for the other to move.

2. What happens when the two of you cannot agree

Deadlock is not a personality failure; it is a structural feature of any 50/50 arrangement. The question is what the structure does when the two of you are immovable.

There are several workable answers. A casting vote that rotates according to domain — one founder decides on product, the other on finance — is simple and surprisingly durable. An escalation to an independent non-executive or a named mediator is slower but preserves the relationship. A time-limited "disagree and commit" rule, where the decision is taken by one party but reviewed formally after six months, keeps momentum while leaving the door ajar.

Whatever you choose, put a clock on it. A clause saying that a deadlock unresolved after thirty days triggers a defined process is worth more than a page of good intentions. Silence is not a resolution mechanism, and in practice it is the most common one.

3. Who owns the work

Intellectual property is where founder disputes turn genuinely unpleasant, because the assets are often the only valuable thing the company has.

Under UK law, IP created by an employee in the course of their employment generally belongs to the employer. The trap is that founders are frequently not employees at the moment that matters. The brand name registered personally by one founder, the code written on a home laptop before incorporation, the process documents sitting in a personal cloud account, the client relationships that live in one person's inbox — each is a genuine risk if left unassigned.

Have every founder sign an assignment deed. Confirm that contractors have assigned their work. Check that domain names, trademarks and accounts are held in the company's name rather than an individual's. It is dull housekeeping, and it is the difference between a fundable company and a contested one.

4. When someone leaves, and on what terms

A founder who departs still holds their shares, still votes, and still has a claim on future value. Most early-stage companies have no agreed mechanism for changing that, which leaves the remaining team negotiating from a position of weakness.

Agree in advance what constitutes a good leaver and a bad leaver, how vesting works, and — critically — how any departing stake is valued. A formula based on a multiple of trailing earnings, an independent expert determination, or a pre-agreed buy-back price all work. What does not work is leaving the price to be discussed at the moment of departure.

If the numbers are material, consider whether a buy-sell arrangement or key-person cover would fund the purchase without draining the company's cash.

5. What if ambition diverges

The least discussed question is also the most common cause of quiet breakdown. One founder wants to raise institutional capital and expand into Europe. The other wants a profitable business of a certain size and Fridays at home. Neither is wrong. Both are unworkable if unspoken.

Beyond strategy, this covers time commitment, outside interests, family circumstances, and the level of pay each founder draws. Build in an annual founder review: a scheduled, minuted conversation about role, time, appetite and remuneration. It is not a legal mechanism. It is a governance habit, and it surfaces divergence while it is still a conversation rather than a resignation letter.

A template a growing firm can adapt

The document itself need not be long. A useful starting point is a one-page founders' charter covering the following:

• Names, roles, and stated time commitment for each founder.
• A schedule of reserved matters and decision rights.
• A deadlock clause with a thirty-day clock and a named route to resolution.
• An IP assignment deed, signed by every founder.
• Vesting and leaver provisions, reflected in the articles or a shareholders' agreement.
• An annual founder review, minuted and filed.

At some stage a solicitor will need to translate this into the company's articles and a shareholders' agreement. That work becomes considerably cheaper, and the conversation considerably easier, once the founders have already decided what they want it to say.

The charter is not the deliverable. The conversation is.