Co-Founder Agreement (Hong Kong)

Co-Founder Agreement in Hong Kong is a legally binding contract between two or more co-founders of a startup or early-stage company, defining each founder's equity ownership, vesting schedule, role and responsibilities, intellectual property assignment obligations, decision-making authority, and exit provisions. Governed by Hong Kong law under the Companies Ordinance (Cap. 622) and the common law of contract, a properly drafted Co-Founder Agreement is the single most important founding document a Hong Kong startup can execute — more protective, in many respects, than the company's Articles of Association alone.

Without a Co-Founder Agreement, co-founders of a Hong Kong company operate under the default rules of the Companies Ordinance (Cap. 622) — specifically, the Model Articles in Schedule 2 — which are designed for generic corporate governance rather than the specific needs of early-stage startups. The Model Articles are silent on equity vesting, founder buyout rights, IP assignment, and what happens when a co-founder departs after six months while holding 30% of the company's equity. A Co-Founder Agreement fills these critical gaps before conflicts arise.

Hong Kong's startup ecosystem — centred on Cyberport, the Hong Kong Science and Technology Parks Corporation (HKSTP), and deep-tech incubators in Kowloon Bay and Wong Chuk Hang — has produced growing companies across fintech, insurtech, biotech, and proptech. Investors from InvestHK programmes, venture capital firms such as Horizons Ventures and MindWorks Ventures, and angel investors affiliated with the Hong Kong Business Angel Network (HKBAN) routinely require a signed Co-Founder Agreement before committing seed or pre-Series A funding.

The agreement is governed primarily by the Companies Ordinance (Cap. 622) for the corporate mechanics — share issuance, transfer restrictions, and Articles alignment — the Employment Ordinance (Cap. 57) where founders are also employees, the Copyright Ordinance (Cap. 528) and Patents Ordinance (Cap. 514) for intellectual property assignment, and the common law of contract for the enforceability of non-compete and non-solicitation covenants.

Co-Founder Agreements used in Hong Kong typically incorporate Silicon Valley-derived vesting conventions — the 4-year schedule with a 1-year cliff — adapted for the Hong Kong corporate context. Reverse vesting (shares issued upfront subject to a company buyback right at nominal consideration for unvested shares) is the preferred structure in Hong Kong companies, as it avoids triggering Hong Kong stamp duty on incremental share issuances that would arise from forward vesting. The Stamp Duty Ordinance (Cap. 117) imposes ad valorem duty on share transfers, so structuring choices have real cost implications.

The Co-Founder Agreement interacts with and should be read alongside the company's Articles of Association, any shareholders' agreement, and investment term sheets. Key provisions — including share transfer restrictions, drag-along and tag-along rights, and deadlock resolution mechanisms — should be replicated in the Articles of Association under Cap. 622 to bind the company itself and not merely the founders personally.

From a tax and employment standpoint, founder relationships with the company evolve over time. During the pre-incorporation phase, founders may contribute work without salary — documenting these contributions in the Co-Founder Agreement protects against later valuation disputes. Once incorporated, founders who become employees of the company are subject to the Employment Ordinance (Cap. 57), including Section 6 (notice periods), Section 9 (written employment terms), and Section 33 (sick leave). Founders providing services in a non-employee capacity may be treated as contractors, which has implications under the Mandatory Provident Fund Schemes Ordinance (Cap. 485) and the Inland Revenue Ordinance (Cap. 112) for salaries tax and profits tax respectively. The Inland Revenue Department (IRD) applies a substance-over-form test to determine whether a service provider is an employee or contractor — founders should seek tax advice early to structure their arrangements appropriately.

Co-Founder Agreement in Hong Kong is needed at the earliest possible stage of a startup — ideally before the company is incorporated, or at the moment of incorporation. The following specific circumstances each make a signed Co-Founder Agreement essential.

Before incorporation: When two or more people are planning to co-found a Hong Kong company, a Co-Founder Agreement should be signed to govern their relationship during the pre-incorporation period and to specify the equity split, roles, and IP ownership that will apply once the company is formed under the Companies Ordinance (Cap. 622). Pre-incorporation agreements are enforceable as contracts between the parties even before the company exists.

At incorporation: When incorporating through the e-Registry system or the Companies Registry counter at Queensway Government Offices, the founding shareholders should simultaneously execute a Co-Founder Agreement. The equity split agreed in the Co-Founder Agreement must match the shareholding structure reflected in the incorporation documents.

Before adding a new co-founder: When an existing startup brings in an additional co-founder — for example, a technical co-founder joining a business-focused team — the new co-founder should execute the Co-Founder Agreement (or a deed of adherence) before receiving any equity. The vesting schedule for the new co-founder's shares should start from the date of joining, not be backdated.

Before seeking investment: Investors — whether from InvestHK programmes, the Hong Kong Science and Technology Parks Corporation (HKSTP) technology venturing arm, or private venture capital firms active in Hong Kong's fintech ecosystem — will review founding documents during due diligence. A missing or poorly drafted Co-Founder Agreement is a significant red flag. Most Series A investors require a signed Co-Founder Agreement as a condition precedent to closing.

When a co-founder's role changes: If a co-founder transitions from a full-time role to an advisory capacity, or changes function (e.g. CTO to product lead), the Co-Founder Agreement should be formally amended, particularly regarding vesting and equity allocation adjustments.

When a co-founder departs: When a co-founder wishes to leave the company — whether voluntarily or involuntarily — the good leaver / bad leaver provisions and buyback mechanism in the Co-Founder Agreement are triggered. Having clear, pre-agreed terms prevents expensive disputes before the District Court or through HKIAC arbitration and allows the company to manage the departure cleanly.

Co-Founder Agreement in Hong Kong should contain the following key elements to protect each founder's interests, align incentives, and provide clear governance for the company's formative period under the Companies Ordinance (Cap. 622).

Founder Identification: Full legal names, Hong Kong Identity Card or passport numbers, and residential addresses of each co-founder. For founders who are also corporate entities, company registration numbers under Cap. 622 should be included.

Equity Allocation: The agreed percentage ownership of each co-founder, expressed as a number of shares of a specified class at a specified par value. The equity split should reflect each founder's relative contribution — capital, intellectual property, experience, and sweat equity — documented with rationale to avoid later disputes. The total equity allocated to founders should leave adequate room for an employee option pool (typically 10-15% of fully diluted equity for a Hong Kong Series A company).

Vesting Schedule: The vesting period (typically 4 years with a 1-year cliff), the vesting mechanism (reverse vesting with buyback right at nominal consideration for unvested shares under the Stamp Duty Ordinance, Cap. 117), acceleration provisions (single trigger or double trigger on a change of control), and what constitutes a vesting trigger event. Reverse vesting avoids stamp duty complications on incremental share issuances.

Roles and Responsibilities: Each founder's designated role (CEO, CTO, COO, etc.), their primary responsibilities, the expected time commitment (full-time or part-time), and the process for changing roles. Decision-making authority allocated to each role should be specified — for example, the CEO has operational spending authority up to a specified HKD threshold without board approval.

Intellectual Property Assignment: A broad IP assignment clause under which each founder assigns to the company all intellectual property rights — including copyright under the Copyright Ordinance (Cap. 528), patents under the Patents Ordinance (Cap. 514), trade marks under the Trade Marks Ordinance (Cap. 559), and confidential information — in any work, invention, or creation relating to the company's business, whether developed before or after incorporation. This clause is critical because copyright in works created by a non-employee vests in the individual creator under Cap. 528, not in the company.

Confidentiality: Each founder's obligation to maintain confidentiality regarding the company's business, technology, customers, and strategy during the agreement and for a specified period after departure. The obligation survives termination of any employment or service arrangements.

Non-Compete and Non-Solicitation: Restrictions on each departing founder's ability to compete with the company or solicit its customers and employees for a defined post-departure period. Under Hong Kong common law, non-compete covenants must be reasonable in scope, duration, and geography to be enforceable — an overbroad covenant will be struck down entirely. A period of 12-24 months is typically considered reasonable for senior startup founders in Hong Kong.

Good Leaver / Bad Leaver Provisions: Definitions of good leaver (e.g. resignation due to disability, death, or mutual agreement) and bad leaver (e.g. resignation in breach of notice obligations, termination for cause). Good leavers typically retain vested shares and receive fair value for unvested shares. Bad leavers forfeit unvested shares and may receive only nominal consideration.

Drag-Along and Tag-Along Rights: Drag-along rights allow majority founders to compel minority founders to sell their shares in an acquisition on the same terms. Tag-along rights allow minority founders to participate in any sale by majority founders on the same terms. Both rights should be replicated in the Articles of Association under Cap. 622.

Deadlock Resolution: A mechanism for resolving fundamental disputes between co-founders of equal standing — for example, a buy-sell (shotgun) clause, escalation to an agreed mediator under the Hong Kong Mediation Ordinance (Cap. 620), or HKIAC arbitration.

Governing Law: Hong Kong law as the governing law, and HKIAC arbitration or Hong Kong court proceedings for dispute resolution. Forms-legal.com provides a free Co-Founder Agreement template for Hong Kong startups alongside the related hk-partnership-agreement and hk-non-disclosure-agreement.