Understanding the Importance of Section 5.12 in the Founders Agreement
Often glossed over during the drafting and signing phases, section 5.12 in the founders' agreement is crucial. This provision outlines that should a founder not fulfill their duties as specified under section 5, they are obligated to pay a defined penalty to the company for each day the delay continues, upon the company's demand.
What Does Section 5 Cover?
Section 5 primarily addresses reverse vesting and defines the consequences for founders who leave the company, distinguishing between departures classified as either good or bad. Specifically, under the terms of clause 5.12, founders should be aware that if categorized as a bad leaver, they are liable for a daily penalty if they fail to transfer their shares as initially agreed upon.
Setting the Penalty
The penalty amount, set in euros, is determined when the agreement is made. However, in the event of a dispute, it falls to the court to decide whether to enforce the stipulated sum or adjust it.
A Caution to Founders
It's important for founders to approach this clause with caution, as contractual penalties represent one of the simplest ways for a company to demand monies from a founder. Agreeing to such terms warrants careful consideration.
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