Strictly speaking, the titles of “founder” or “co-founder” have no independent legal meaning and alone do not confer a person with rights or responsibilities in a company. Conversely, “directors,” “officers” and “stockholders” have certain defined legal rights and responsibilities in a company that is structured as a corporation. Generally, founders have rights and responsibilities only to the extent that they are directors, officers, or stockholders of the corporation, or if they have some other contractual arrangement with the corporation. Therefore, it is important to document these relationships properly.
Despite the lack of formal meaning, it is commonly understood that a company’s founders are the people who have a significant amount of responsibility in building the company in its earliest days. Since these founders usually are the people who take on the director and officer roles, and who become stockholders of the company, it is important to choose co-founders carefully and place them in the right roles for both them and the company to succeed. Founder departures, for any number of reasons, are some of the most common issues faced by startups. Once the legal relationships of a founder as a director, officer, or stockholder of the company are formalized, managing the departure of that founder can be complicated if they were not the right fit for the company or the role.