[Guide] How to use the Employee Agreement Contract

Most startups fail. 95% of startups fail within the first 2 years because of an issue related to the founding team. This employee contract is designed to allow your startups withstand shocks and build the strongest culture possible, as opposed to other contracts that lead to fragile team dynamics.

When you use this Employee Agreement, you’ll need to know what state your company currently is in. This Employee agreement is typically for early stage employees, cofounders or directors of your company. There are 2 types of shares that employees get. Restricted Stock Purchase Agreements will entail voting rights. Stock Options (and RSU’s) on the other hand do not entail voting rights. When you are first building a company, you will want your initial teammates to have as much voting power as possible, since this voting power gets diluted over time.

It is strongly recommended to make your first engineers directors. By law, directors are required to meet these obligatiions.

  • Duty of loyalty. You must put the interests of the company and its stockholders over your own personal interests in making decisions for the Company and evaluating opportunities. This includes not taking opportunities that arise for yourself before offering them to the company, and not divulging or using company confidential information for personal gain.
  • Duty of care. You must exercise care in making decisions as a director, based on adequate information and a good faith belief that your decisions are in the best interest of the company and its stockholders

This is incredibly beneficial to your company. Given how the majority of startups are strapped on cash, from a risk management perspective it always makes more sense to add extra protection to minimize the fallout that may occur from rogue employees.