Knowledge Base: Founder Service Agreement

What is a Founder Service Agreement?

If this is your first time setting up a company or raising funding, the Founder Service Agreement (FSA) can feel unfamiliar.

The Founder Service Agreement is an employment contract between a founder and the company. It sets out the terms on which the founder works for the business after a funding round, including salary, duties, and expectations. Importantly, it also helps align founders, the company, and investors by clearly documenting how a working founder is engaged by the business post-investment.

This is a standard and expected document for investor-backed companies.

Who signs the Founder Service Agreement?

On the FounderCatalyst platform, anyone assigned the role of ‘Founder’ will sign a Founder Service Agreement.

Other platform roles - such as Shareholders or Advisors - do not sign the FSA. More on FounderCatalyst platform roles can be found here.

Who should be a ‘Founder’?

On FounderCatalyst, the term ‘Founder’ is a specific legal role, not just a title.

When someone is assigned the role of ‘Founder’ on the platform, they are treated as an executive director in the legal documentation.

A ‘Founder’ is typically someone who:

• Is actively working in the business

• Will be paid a salary by the company

• Holds a substantial shareholding

• Is an executive director, with the associated duties and responsibilities

Practical examples

‘Founder’

An executive director who is actively running the business, will be paid a salary, and has a meaningful equity stake.

Not a ‘Founder’

• A co-founder by title who is not a director. The Founder Service Agreement is not appropriate here because it assumes directorial responsibilities, including board authority and resignation from office. In this situation, the individual would typically sign:

  • the FounderCatalyst IP assignment (the same IP assignment signed by founders), and

  • a standard employment contract.

• An employee. Employees are not founders and must have an employee contract by law.

• An executive director who is not considered a founder. For example, in a husband-and-wife team where both are directors but only one runs the business day-to-day, the non-operating director may be a Shareholder, not a Founder.

• Advisors or Non-Executive Directors. These individuals are not employees and instead enter into an advisor or consultancy agreement covering fees, confidentiality, and IP.

What documents does a ‘Founder’ sign?

A founder signs several documents as part of a funding round:

• The Subscription and Shareholders’ Agreement (SSA) and Disclosure Letter, like all shareholders and investors.

• The Founder Service Agreement.

• An IP Assignment.

While the Founder Service Agreement contains IP provisions, these are forward-looking - covering IP created after the funding round (for example: “If you create an invention, discovery, design, improvement or copyright work…”).

The IP Assignment, by contrast, deals with existing IP and ensures that anything created before the round closes is formally assigned to the company. Investors will expect both documents to be in place.

Founder Service Agreement setup - platform walkthrough

Key considerations in the Founder Service Agreement

Salary

The Founder Service Agreement is signed on closing the funding round, so it should reflect the salary you will be paid after the round has completed.

If you have a variable salary structure - for example, £30,000 immediately after the round, increasing to £50,000 once certain conditions are met - you will need a custom amendment your FSA using our guide.

Once the round has closed and the FSA is signed, any later change to salary is documented via a ‘Change to Terms and Conditions’ letter. This letter is issued by the company, signed by the founder, and should be disclosed in the Disclosure Letter in any future funding rounds.

It’s worth noting that investors will typically scrutinise founder salaries, particularly at early stages, so figures should be consistent with the company’s stage and runway.

Founder vesting

Founder vesting (as an employee) is set out in the Articles of Association (AoA). See our guide on reverse vesting and vesting schedules in the AoA.

Vesting starts from the employment commencement date recorded in the Founder Service Agreement.

In some cases, investors may ask founders to ‘revest’ in a future funding round. For example, you may be two years into your FSA and, under the leaver provisions in the Articles, entitled to retain a certain number of shares - but investors may request that vesting is partially or fully reset.

This can feel frustrating, particularly for first-time founders, but it is a relatively common negotiation point in later rounds.

Revesting is not achieved by issuing a new Founder Service Agreement or changing your employment start date. Instead, it is typically documented via a side letter that resets the vesting clock to an agreed position.

A 100% reset (back to year 0) is considered ‘punchy’ from an investor perspective. More commonly, founders and investors agree a compromise - for example, a 50% reset.

FAQs

I’m paid via a service agreement rather than as an employee for tax reasons - does this work with the FSA?

Investors will generally still expect a Founder Service Agreement to be in place. In these cases, the FSA may reflect a £0 salary, with a separate service agreement running in parallel.

I’m not currently taking a salary, but I plan to be paid £X once the funding round closes. How do I show this?

Include the salary you will receive once the round closes in the Founder Service Agreement.

Do we need a founder collaboration agreement before we start fundraising?

Yes and No.

Even if you are unsure whether your business will seek external funding, producing a founder collaboration agreement is strongly recommended. It helps founders align on key items such as shareholding, directorship, roles, start dates, salaries, effort, IP allocation, and other early decisions.

In practice, most of these points will later be formalised in the Shareholders’ Agreement, Articles of Association, Founder Service Agreements, and IP assignments, so the document is mainly useful in the early stages and as a record of initial intent.

See our article on this topic - including a free template: Why a founder collaboration agreement is vital.

What happens if a founder leaves the business?

Leaver provisions are set out in the Articles of Association. Your FSA doesn’t override these, but it will govern your employment terms until your departure.

Can my salary or role change after the FSA is signed?

Yes. Any changes are formalised via a 'Change to Terms and Conditions' letter, which should also be disclosed in future funding rounds.

How do IP rights work if I’ve created something before the funding round?

Any existing IP should be assigned via the IP Assignment. The FSA covers IP created going forward. Both documents are standard and expected by investors.

What if an investor asks for vesting to be reset in a new funding round?

This is handled via a side letter rather than changing your FSA or employment start date. 100% resets are rare; more commonly a partial reset is agreed.

Can a non-director co-founder be treated as a founder on the platform?

No. Only those treated as executive directors in the legal paperwork should be assigned the Founder role. Non-director co-founders should use employment contracts and IP assignments instead.

Do I need to have a salary to be considered a founder?

No. You can be a founder without taking a salary immediately. The FSA formalises your employment, and it is common to set the salary to £0 initially or defer payment until the company hits a funding milestone or business target. You can also operate a parallel service agreement if needed.