A founder’s contract of employment or service agreement outlines the terms and conditions of the working relationship between the founder and the company. Crucially, the contract sets out the founder’s obligations and responsibilities, as well as the compensation and benefits they will receive for their work.
 
It is helpful when drafting the contract to clarify whether the contract should be “founder-friendly” or “business-friendly”. A founder-friendly contract will contain less stringent obligations on the founder e.g., relatively short or no restrictive covenants and/or no restriction on them having other outside business interests or investments whilst they are employed by the business. However, an investor may request that a robust business-friendly contract is put in place with the founder to ensure their investment is safeguarded.
 
A typical founder’s contract will contain the standard points seen in most contracts of employment including: term of appointment, place of work, working hours, salary, benefits, holiday entitlement, sick pay, pension, other paid leave entitlements, training, termination and confidentiality provisions. However, special consideration should be had in relation to the following key points:

1. Hours: a founder’s contract will typically set out the minimum hours of work that the founder is required to work, e.g., 9am to 5pm. However, care needs to be taken to include an opt out of the Working Time Regulations 1998 48-hour cap on working hours per week, together with a requirement for the founder to devote all necessary additional time to the business as required without any further renumeration.
2. Restrictive covenants: a founder-friendly contract may not include restrictions post-termination of employment, but an investor may require such restrictions are included for a period of between 6-12 months to protect the interests of the business as a whole.
3. Intellectual property (IP): a business-friendly contract will include provisions that state that any inventions or IP rights created by the founder whilst they are employed belong to the company. A particularly stringent contract may also require the founder to appoint the company as their attorney in relation to any IP rights created to ensure that ownership passes to the company.
4. Duties: the duties of a founder are usually less onerous than those of a director or senior executive, but they can be tailored depending on the founder’s role and the type of business. Typically, obligations of directors such as the requirement to devote their whole time and attention to the business and the obligation to report regularly to the board of directors are not duties placed on a founder.
5. Termination: a business-friendly agreement will grant the business wide powers to terminate the founder’s employment if the founder is not facilitating the business’ growth. Investors will also want to ensure that there is a comprehensive clause stating the company’s right to pay the employee in lieu of their notice period rather than them being
   able to work their notice period. Overall, a founder’s contract is an important document that ensures that the founder's employment
   is legally binding, and helps to avoid misunderstandings or conflicts between the founder and the company.

This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.