What a founders' agreement should decide

When several people start a company together, it is common to incorporate on the basis that "we will split the shares evenly for now" and "we can settle the details at the first financing round."

In the first months the founders get on well and want to spend their attention on the business. Setting out in detail what happens to shares on departure, who decides what, and who owns the intellectual property can feel like an act of distrust.

But a founders' agreement is not something you reach for after the relationship has deteriorated.

Once there is a conflict, or once one founder has left, agreeing new terms — "give the shares back if you are leaving", "the CEO should have the final say" — is not easy.

Capital policy at incorporation is not simply a matter of deciding who holds what percentage. It is the design of how control and economic value in the company are allocated, looking ahead to financing, hiring, a founder's departure and an eventual exit.

The short version

• The founding split should be set by looking not only at present contribution but at departure, future rounds and dilution from stock options.
• The most important term in a founders' agreement is what happens to the shares if a founder leaves early.
• Vesting is not only for employee options. The same idea can be applied to founder shares.
• A shareholders' agreement does not by itself change the position under the Companies Act, so it has to be consistent with the articles of incorporation, the share transfer restrictions and the governance structure.
• Capital policy is worked backwards from a future cap table, from incorporation — not drafted in the week before a round.

1. Capital policy is more than "how much are we raising"

"Capital policy" tends to be read as a financing plan: how much to raise in the next round, and what percentage the investors get.

Seen more broadly, it is the design, over time, of how much the founders hold, how much goes to co-founders, how much is issued to angels and venture capital funds, how much is reserved for stock options, and who is diluted by how much across several future rounds.

The Organization for Small & Medium Enterprises and Regional Innovation publishes a capital policy worksheet for startups, and METI's guidance on stock options asks companies to consider the size of the option pool against future dilution.

The point that matters: shares are not like contractual compensation. Once transferred, they cannot easily be recovered without the holder's consent.

In that sense, the founding split is less a question of dividing the company's present value than of deciding who receives how much of a claim on value that may be created in the future.

2. "Co-founders, so 50/50" is not necessarily fair

Where two people start a company, an even split feels intuitively fair.

But a shareholding is not only an economic interest. It is also voting power.

While the two agree, nothing turns on it. If they later disagree on the direction of the business, a 50/50 structure can leave important decisions impossible to take.

That does not mean the CEO should simply hold an overwhelming majority.

What has to be thought through is: who carries final management responsibility as CEO; whether each founder is full time; what funding, technology or customer base each brings; how long each is expected to commit for; and who decides what if the founders disagree.

Rather than trying to solve every one of those with the shareholding percentage, separate the question of who owns the shares from the rules on how decisions are made.

3. The question that matters most is what happens when a founder leaves

One of the most important issues in practice is a founder's departure.

Suppose A and B incorporate with 50% each. Six months later B takes a job elsewhere and stops being involved in the business altogether. If nothing was agreed, B remains a 50% shareholder.

If A then grows the company over five years, B's holding does not shrink by itself. Asking B to transfer shares once the company has become valuable is a negotiation, not a right, unless B is under an obligation.

So it is common to agree at the outset that a founder who leaves within a defined period will transfer all or part of the shares to the other founders or to a person they designate. Applied to founder shares, this is what is meant by vesting, or reverse vesting.

4. Designing vesting for founder shares

Suppose a founder receives 40% on the basis of a four-year commitment. Simplified, the parties can treat the equivalent of 10% as earned after one year, 20% after two, 30% after three and 40% after four.

In practice the founder already holds the shares from incorporation, so rather than granting new shares each year as with options, the usual structure is an obligation, agreed in advance, to transfer a defined portion to the other founders or a designated person on departure.

At a minimum the agreement has to settle: the vesting period; whether there is a cliff during which nothing is earned; whether vesting is monthly or annual; whether a resignation for personal reasons is distinguished from a departure for illness or similar unavoidable cause; how a departure following misconduct is treated; who acquires the shares; and at what price.

The "who" and "at what price" deserve particular attention. "The shares are returned to the company on departure" is not enough on its own: the mechanism has to be one that can actually be performed, taking into account the Companies Act restrictions on a company acquiring its own shares, and the tax position.

5. Should you distinguish good leavers from bad leavers?

Founders leave for all kinds of reasons. Treating a removal for serious misconduct and a departure caused by illness or family circumstances on identical terms is not necessarily reasonable.

So the practice is to distinguish a good leaver — a departure for unavoidable reasons — from a bad leaver — serious breach, misconduct, walking away without notice — and to vary the terms on which the shares are dealt with.

That said, an extreme clause under which "the company may take all of the shares at ¥1 if it decides the founder is a bad leaver" simply creates a new dispute about who makes that call. Define the trigger events as objectively as possible.

6. Allocate authority, not just titles

"A is CEO and B is CTO" is often not enough.

Who has the final say on hiring? Who can sign contracts above a given value? Who decides on borrowing or on issuing new shares? Who decides to enter a new line of business? Who can sell an important piece of intellectual property?

The Companies Act does not allow the powers of the shareholders' meeting, the directors and the board to be rearranged freely by contract. A founders' agreement therefore has to be designed to sit consistently with the articles of incorporation and the company's governance structure.

7. Do not leave founder-owned intellectual property ambiguous

Source code, algorithms, designs, patents, know-how and domain names developed before incorporation are often still held by a founder personally.

Assuming that "it is used in the company's service, so it must belong to the company" is how this becomes a problem in financing or M&A due diligence.

Where intellectual property essential to the business remains with a founder personally, the parties have to settle whether it is assigned to the company or licensed, and on what consideration.

As with joint development, the question of who created the IP should be kept separate from the question of who uses it in the business.

8. Put stock options into the capital policy from the beginning

Startups use stock options to hire. But when options are exercised, the existing shareholders are diluted.

So rather than looking only at today's figures — "founders 70%, investors 30%" — look at the cap table on a fully diluted basis, assuming all options are exercised.

METI's guidance asks companies to size the option pool against their own hiring strategy rather than mechanically following past practice. Separately, a "stock option pool" framework is in operation from 2026 under which qualifying startups may delegate authority over the issue of share options from the shareholders' meeting to the directors more flexibly than before.

9. When you raise, investors will examine what you did at the start

When a venture capital round begins, the investor will look at the current share register.

A person who left long ago holding a large stake; inconsistent records of who the shareholders are; a share transfer agreed between founders only orally; key IP still held by a departed founder personally; defects in the procedure for an earlier share issue — each of these obstructs a financing.

A founders' agreement is not only about preventing disputes between founders. It is also what puts the ownership of the company into a state you can explain, before the investors arrive. What is then settled with the investors is covered in how to read a Japanese financing agreement.

10. What to settle in a founders' agreement

11. In conclusion: what you settle at the start is how to part

Nobody starting a company wants to plan for a founder leaving.

But the purpose of a founders' agreement is not to cast doubt on the relationship. It is to make sure that if someone does leave, the remaining founders can carry on the business, and the departing founder is dealt with under rules agreed in advance.

In a startup in particular, shares that were worth almost nothing at incorporation may be worth a great deal a few years later. Agreeing how to divide value before it exists is far easier than negotiating over it afterwards.

A founders' agreement and a capital policy are not paperwork for setting up a company. They are the first piece of governance, designed so that the company can keep moving through financing, hiring, a founder's departure and an exit.

Principal sources

• SME Support Japan (J-Net21), capital policy worksheet
• METI, guidance on incentive compensation for startup growth (stock options) (February 2025)
• METI, the stock option pool framework for the flexible issue of share options (last updated 15 April 2026)
• e-Gov, Companies Act
• METI, guidelines on startup investment agreements (expanded edition) (September 2025)

These documents are published in Japanese.

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This article is general information, not legal advice on any specific matter. What is appropriate depends on the number of founders and their roles, the business plan and the financing you expect. For advice on founders' agreements and capital policy for a Japanese company, please use the contact form.