This classic, romanticised view has been the cornerstone of startup mythology. It is common for people to strive for the ‘Founder’ title itself as a first priority, being able to say “I founded my own business” and achieve the clout and freedom that comes with it. In reality though, the concept of a founder is actually more complex and nuanced, especially when it comes to being recognised as a founder in legal documents, for example with investors.

From an investor’s perspective, founders are not exclusively the originators of the idea, they are also the doers, the risk takers and, most importantly, the long term owners of the company’s vision. On that basis, it is possible for someone to be considered a ‘founder’ even if they didn’t originate the idea. That concept may sit uncomfortably with some who see the concepts of the idea and founding the business as inextricably linked. However, in our experience as legal advisors to a large number of startups and scaleups (through Accelerate Law), from a practical and legal perspective, there is more than one type of founder and many people who are defined as founders joined the business after its inception.

So what truly defines a founder in legal terms, and on the other hand, where do we draw the line between a core team member and a genuine founder from a legal perspective?

Founders in everyday language vs legal reality

In everyday conversation, a founder is often seen as the person who came up with the initial idea and had the conviction to turn it into a reality. This narrative often highlights the solitary entrepreneur who starts with little more than a spark of inspiration, echoing the simple definition of entrepreneurship as 'finding something. However, as the startup ecosystem has evolved, this definition has expanded. Today, the title 'founder' is not solely reserved for those who were present on day one. Instead, it extends to individuals who join early, take significant responsibility, and bear the entrepreneurial risk required to transform an idea into a sustainable, scalable business. This ties in with the common practice of a business founder looking for their co-founder, for a business they have started working on but for which they know they can’t do it alone.

From a legal and fundraising perspective, the definition of a founder can be even broader. Investors and legal frameworks tend to focus less on the origin story and more on who holds the reins when it comes to decision making, accountability and equity. In investment documents, the investors receive warranties (i.e. promises) from the founders about the state of the business, so they are also often accepting of the concept of additional people providing these promises because this provides them with additional security.

In this context, a founder is often someone with a significant shareholding, typically beyond participation in an EMI scheme, reflecting their long term commitment to the company’s growth and who is in a position to provide promises on behalf of the business. This legal distinction is crucial for founders seeking to secure investment, protect their equity and navigate complex corporate structures as their companies scale.

The distinction between founders and key hires

On the other hand, it is also important for many startups not to dilute the core founding team and therefore to distinguish between the founder(s) and the core operational team, including C-level team members. One key differentiator between founders and even the most senior employees is their level of ownership, both in mindset and in actual equity. Founders typically:

• Prioritise long term growth over immediate financial security, often taking reduced salaries in exchange for potential future gains
• Take personal responsibility for the company's direction, brand and mission, thinking beyond their immediate role
• Influence both day to day operations and high stakes strategic decisions
• Hold significant equity, reflecting their ongoing commitment to the company’s success
• Operate with a high tolerance for risk, often trading stability for the chance to create transformative value within their industry

This founder mindset tends to shape their approach to decision making and long term planning. Of course, there may be incredibly dedicated key employees who mirror a founder’s mindset and there is a spectrum and potential for grey areas. That being said, key employees will typically be rewarded through their salary and receiving share options at a lower equity level than the founder(s).

The role of directorship

Another key marker of a founder is their position within the company’s governance structure. It is common for founders to hold board seats, providing them with a direct influence over the company’s strategic direction. This formal recognition solidifies their role as more than just operational leaders, marking them as the architects of the company’s future.

For early stage businesses, the board is generally just comprised of the founders, and is often an indicator that someone is, from a practical perspective, a key employee rather than a founder if there is no intention to appoint them as a director or if they are not in a position to support with that level of strategic decision-making.

Overall

Ultimately, being a founder is not just about when you joined the business but how you show up for it through ownership, risk and long term commitment. Legally, founders tend to hold meaningful equity, often sit on the board and are the ones who can stand behind promises made to investors. But beyond the paperwork, the founder title reflects a deeper mindset: a willingness to prioritise future value over short term gain, to lead strategically and to act as a steward of the company’s mission and growth. Whether or not you were there on day one, what matters most is how you build from that day forward.

Documenting founder relationships

Founder relationships are often documented in a co-founder agreement (also known as a shareholders agreement). When a company takes on external investment, the external investors and the existing shareholders sign a new shareholders agreement together which usually replaces the pre-existing co-founders agreement. Our team at Accelerate Law work with company founders and investments regularly to ensure these documents protect each party’s interests fairly and ultimately safeguard the company’s long term success.

Across all of these documents, it is usually apparent who is a founder because ‘Founder’ is a defined term which refers to specific individuals. However, even in these documents, it is feasible to plan for adding new ‘founders’ in future (for example if one founder leaves), which is as clear of an indicator as any that you don’t need to ‘find’ a business to ‘found’ it.

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