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Understanding Legal Status of a Cofounder


The ease of doing business globally has led to a rise in the number of organisations and products offered by organisations that mostly categorise themselves using new terms.

As the terms that describe the organisation have changed over time, the same has applied to how owners of businesses and their team members describe themselves. This leads us to the subject of this short piece; “legal status of co-founders”.

Who is a co-founder?

A co-founder is any person who starts a company or any business alongside other people. A co-founder can best be understood as a helper who compliments the founder of a company.

Many people use the words co-founder and founder interchangeably, however, these two roles or descriptions are distinct. While a founder is the main person who has the ideas and rough sketch of the product or service delivery for a company, the co-founder helps to make this idea come to life by providing some complementary skill or add-on. This can range from special skills to providing financing for the business. Typically, when there is more than one founder, they all become co-founders but the founder can always maintain his status and have co-founders.

Another term that may be recurring while exploring this subject is that of early employees. Although some founders make the earliest employees co-founders, early employees are not always co-founders. One may often hear of a “founding team” and this is basically a founder giving priority to the earliest employees as founding members of the company.

What is the implication of being a co-founder?

It might be imperative to state that the term ‘co-founder’ is not a legal term, it is something that was coined and grew over time in the startup and technology space. Thus, asides from being a co-founder, there has to be a legally recognisable role that this person occupies like director, shareholder, chief executive officer and so on which have legal status attached to them.

How does one become a co-founder?

Now that it has been understood that a co-founder is not a legal term per se, the role or description is assigned at the discretion of the founder who has the power to make or give this coined term to any person whom he or she deems fit.

This does not mean that as a founder, every person who on the face of it helped, in the beginning, be coined a co-founder. This can affect the brand and the story in the future when certain co-founders may not have played any role in starting the business.

How to properly guide a relationship between co-founders

The recommended way to ensure that things do not go south is to ensure that there is a founder’s agreement. Some of these legal documents which many people overlook based on personal relationship and fondness with others have cost them more than they can account for. As a matter of fact, if the parties actually trust and believe in each other they should put all terms of the relationship in writing in the form of a founders’ agreement.

Asides from an existing founders agreement, it is best to accompany the status of co-founder with a legally recognised role. Three of these will be examined below:

  1. Partner: This will usually apply to organisations that are not incorporated or undertake business as a business name, limited partnership or limited liability partnership. A co-founder can be made a partner in a business entity and enlisted in the partnership agreement so that in the event that this person is to be removed, due process can be followed.

  1. Shareholder: As mentioned earlier, the title of co-founder can be bestowed on a person because they financed a business from the start. It should be noted that not all persons that provide finance are co-founders, a co-founder differs from an investor. Shares are units of ownership in a company and where a co-founder owns shares, they are also shareholders and the shares are his or her property and unless he or she sells, transfers or transmits them, they belong to the person. Control can be limited by making them minority shareholders so they do not affect the decision making of the company substantially.

  1. Director: The term director is a title given to the senior management staff of businesses and other large organisations. They oversee the affairs of the company and this title can be obtained either by listing them in the Articles of Association as a Director or electing them at an annual general meeting.

How do I remove a co-founder?

As stated earlier, a co-founder is not a legal term and it is best to always accompany this with a recognised role within the company for the purpose of corporate affairs. This status dictates how a co-founder can be removed except there are overriding or conflicting provisions in the founders’ agreement. This will cause problems of interpretation and leave parties with no option other than to explore legal routes to settle any issues of interpretation from having multiple agreements.


Although the role of co-founder is left to a founder to pick and select who fills in, it is a sensitive title and should always be reserved only for the most deserving persons. This may not apply where parties from the onset worked together and acted as co-founders from the start. This can be done while considering the legal implications of such an appointment by consulting a legal adviser and ensuring that relationships are guided by agreements and policies.

The content of this article is intended to provide a general guide and does not substitute for legal opinion, readers are therefore urged to seek proper legal advice. You can reach any of the lawyers to help you put together the clause.