Question re. international founders agreements

by dizzeehaskell. Posted on Sep 15, 2020    2    6


Hi there!

Long-time lurker, first time poster - nice to meet you all!

I'm a UK-based CRO of a fintech startup, with three other co-founders based in Amsterdam, NL and San Francisco, US. Our startup is incorporated in the Netherlands, and whilst we've been working on our product, we sidestepped all of the paperwork involved in share issuance etc by simply having the CEO own 100% of the shares (since we didn't want to spend money we didn't have at the time on handing out shares that were worth nothing before we were confident our product would 'take').

However, things have evolved now, and we're at the stage where we're due to start accepting investment funding. As such - since it's always easier to talk about money before it becomes real - we want to hammer out a founders agreement that dictates ownership for the sake of getting our cap table affairs in order.

My question is - given that we're spread across three different countries, does a founders agreement have to be one that's legally valid in each founders' country of residence, or simply the country where the startup is incorporated? Does anyone here have any experience in such a setup?

Any insights would be greatly appreciated!


Comments

Famous-Factor 1

Just an FYI, to have the other founders added as shareholders would basically cost ($0).

AdamKyleWilson 1

It needs to be valid in the country the business is incorporated in.

orbit99za 1

I have seen an international contract using Switzerland as the arbitration Court for disagreements and other matters. None of the companies where registered in Switzerland, none of the founders / directors /shareholders had a presence there. Apparently the Swiss are good at solving disagreements. Or it was a tactic to make it to expensive for the non European shareholders to be able to argue, as it had to take place in Switzerland!

Timnolet 1

First: engage a lawyer specialized in startup funding. This is complicated stuff.

Second: I’m a Dutch founder, living in Berlin with two German cofounders, a US VC firm and Angels from multiple other countries (mostly US). We have a US Inc, German GmbH and even still a Dutch BV although we are winding it down.

Again, our seed funding was slightly similar to your situation. Get a Dutch lawyer that knows his/her way around international stock, financial and tax regulations. Bring money.

weCo389 2

You’ll generally need to pick one jurisdiction, and it should be a jurisdiction everyone is comfortable with. If there is no other jurisdiction that everyone agrees on then usually it makes sense to pick the jurisdiction where the holding entity is located (in this case the Netherlands). HOWEVER, if you have not already I strongly recommend you to make sure the Netherlands is the right place for the entity from a tax perspective, especially taking into account future subsidiaries, withholding tax treaties, etc. If you just picked the Netherlands because that’s where the CEO lives that’s not a good enough reason. Engage a tax attorney now, especially as it relates to your own personal situation, because you can easily set up a new holding company in another location and have the CEO transfer the Netherlands entity under they holding after. Now is the time to do it right.

Cultural_Beyond8851 2

The best answer is: ask your lawyer. But in most contracts there is a clause that states under whose jurisdiction a contract will be litigated under. I'm not a lawyer. Ask someone who is.