Founder Agreement (Kenya)

A Founder Agreement (Kenya) in Kenya a Founder Agreement in Kenya is a legally binding contract between the co-founders of a new business — typically a private limited company registered under the Companies Act No. 17 of 2015 — that governs the relationship between those founders from the earliest stage of the venture, setting out equity allocation, roles and responsibilities, vesting schedules, intellectual property assignment, decision-making rights, and the procedures for a founder to exit the business.

The Companies Act No. 17 of 2015, which replaced the former Companies Act (Cap. 486), is administered by the Business Registration Service (BRS) under the eCitizen portal. Section 15 of the Companies Act permits two or more persons to form a private company limited by shares. A Founder Agreement operates alongside the company's Memorandum and Articles of Association — the constitutional documents filed with the BRS at incorporation — but is typically a private document between the founders rather than a public filing. Where the Founder Agreement conflicts with the Articles of Association, the Articles generally prevail as a matter of company law, so founders should align both documents.

Equity vesting provisions in a Kenyan Founder Agreement commonly follow a four-year vesting schedule with a one-year cliff — the standard adopted by early-stage investors and venture capital funds active in Kenya, including the Nairobi-based ecosystem funds that deploy capital under the Capital Markets Authority (CMA) Act No. 17 of 1989. A vesting schedule protects co-founders from one founder departing early while retaining a full equity stake. Unvested shares are typically subject to a right of first refusal or compulsory transfer at nominal consideration to the remaining founders or the company upon departure.

Intellectual property assignment is a critical element of every Kenya Founder Agreement. Any intellectual property — software code, inventions, trade marks, creative works, business methods — created by founders in connection with the business must be assigned to the company at incorporation. Without an express assignment, Section 28 of the Industrial Property Act No. 3 of 2001, administered by the Kenya Industrial Property Institute (KIPI), vests ownership of employee inventions in the employer, but this protection does not extend to founders who are not employed by the company before incorporation.

A Founder Agreement is distinct from a Shareholders' Agreement, which is entered into after the company is incorporated and typically involves external investors. The Founder Agreement is the pre-incorporation or early post-incorporation document that establishes the founders' mutual obligations before professional investors join the cap table. Once a VC fund or angel investor subscribes for shares, the Shareholders' Agreement (and associated Investment Agreement) will supersede or supplement the Founder Agreement on many commercial terms. A Founder Agreement may be amended or restated at that stage.

The Capital Markets Authority (CMA) and the Nairobi Securities Exchange (NSE) do not regulate Founder Agreements for private companies, but where a startup eventually pursues a listing on the NSE Growth Enterprise Market Segment (GEMS) or the NSE Main Board, the founder vesting terms and equity structure documented in the Founder Agreement will be scrutinised during the due diligence process.

A Founder Agreement in Kenya is required at the very start of any multi-founder business venture, and several specific circumstances make executing a written agreement before or immediately after incorporation particularly urgent.

When two or more individuals agree to incorporate a company under the Companies Act No. 17 of 2015 via the Business Registration Service (BRS) eCitizen portal and split ownership of the new venture, a Founder Agreement should be signed before or simultaneously with the filing of the company's Memorandum and Articles of Association. Delaying the Founder Agreement until after the company is operating creates a risk that founders will have divergent recollections of agreed equity splits, roles, and exit terms.

When one founder contributes technical expertise — such as software development — and another contributes capital or business relationships, a Founder Agreement is needed to record the value attributed to each contribution, establish an equity ratio that reflects those contributions, and assign any pre-existing intellectual property to the company under the Industrial Property Act No. 3 of 2001. Without a written record, disputes about the value of non-cash contributions are common and difficult to resolve.

When a Kenya startup is seeking angel investment, seed funding, or a grant from the Kenya ICT Authority (KICA), the Kenya Climate Innovation Centre (KCIC), or a private impact fund, the investor's due diligence process will require production of a Founder Agreement. Investors will check that equity vesting schedules are in place and that all intellectual property has been assigned to the company before committing capital.

When a co-founder leaves the startup — whether voluntarily or following a dispute — a Founder Agreement with clear vesting and buyout provisions allows the remaining founders to determine the leaver's equity entitlement and execute a share transfer without extended litigation before the High Court (Commercial Division) or the Business Disputes Tribunal.

When founders wish to restrict each other from competing with the company or soliciting its clients during or after their involvement, a Founder Agreement containing non-compete and non-solicitation clauses — enforceable in Kenya subject to reasonableness under the Law of Contract Act Cap. 23 — provides a contractual basis for enforcement.

A Founder Agreement for a Kenya company under the Companies Act No. 17 of 2015 must contain the following essential elements to govern the founders' relationship effectively and protect the company's interests.

Parties and Company Details: Full legal names, National Identity Card (NIC) or passport numbers, and addresses of each founder; the company name and Business Registration Service (BRS) registration number (or a placeholder if the company is not yet incorporated); and the date of the agreement. Where the company is a Limited Liability Partnership registered under the Limited Liability Partnership Act No. 42 of 2011, the registration details should reflect that structure.

Equity Allocation and Vesting: The percentage of shares allocated to each founder; the total authorised and issued share capital of the company; and a vesting schedule for each founder's shares — typically a four-year schedule with a one-year cliff, meaning no shares vest in the first 12 months and the remaining shares vest monthly or quarterly thereafter. Good leaver and bad leaver provisions should specify the price at which a departing founder's unvested shares are bought back — nominal value for bad leavers and fair market value for good leavers.

Roles and Responsibilities: Each founder's designated role (e.g., Chief Executive Officer, Chief Technology Officer), the scope of their responsibilities, the time commitment expected, and whether the role is full-time or part-time. Decision-making thresholds should specify which decisions require majority founder approval and which require unanimity — for example, issuing new shares, taking on debt above a specified KES threshold, or entering into a material contract.

Intellectual Property Assignment: An express assignment of all intellectual property created by each founder — including software, algorithms, brand identity, trade marks, domain names, and copyrighted materials — to the company, consistent with the Industrial Property Act No. 3 of 2001 administered by the Kenya Industrial Property Institute (KIPI) and the Copyright Act (Cap. 130). Founders should represent that they are the sole owners of the assigned IP and that no third-party rights exist.

Confidentiality: Mutual obligations to maintain the confidentiality of the company's business plans, financial information, customer data, and technical know-how, both during and after the founders' involvement, consistent with the Data Protection Act No. 24 of 2019 administered by the Office of the Data Protection Commissioner (ODPC).

Non-Compete and Non-Solicitation: Post-departure restrictions on founders engaging in competing businesses or soliciting the company's clients, employees, or contractors — drafted to be reasonable in scope, duration (typically 12 to 24 months), and geographic area to be enforceable under the Law of Contract Act Cap. 23. Kenyan courts will not enforce restraints that are disproportionate to the legitimate interests being protected.

Dead-lock and Dispute Resolution: Procedures for resolving founder disputes — including escalation steps, casting vote mechanisms, and ultimately referral to the Nairobi Centre for International Arbitration (NCIA) under the Nairobi Centre for International Arbitration Act No. 26 of 2013 or mediation before an advocate admitted by the Law Society of Kenya (LSK). An unresolved deadlock provision may include a buy-sell (shotgun) mechanism.

Forms-legal.com provides this Kenya Founder Agreement template as a starting point for founders establishing a new venture. Legal advice from an advocate registered with the Law Society of Kenya is recommended for founders raising external capital or operating in regulated sectors. Under Kenya law, Section 3 of the Companies Act 2015 (No. 17 of 2015) and Section 35 of the Employment Act 2007 (No. 11 of 2007) govern the core requirements for this type of document.