Founders Agreement HK: Companies Ordinance Cap. 622

A founders agreement is a contract between individuals, not a company filing. Nothing goes to the Companies Registry, nothing appears on a public company search, and no consent is needed to sign it. That is the point. The bargain between founders is too specific, and usually too personal, to belong in a constitutional document anyone can order online. The articles of association are the company's constitution and take effect under section 86 of the Companies Ordinance (Cap. 622) as a contract under seal binding the company and each member. They deal with share classes, transfer mechanics and board procedure. The founders agreement sits underneath them and answers different questions: why one founder holds a majority, how much of that holding is earned rather than granted, and what the others can do when the holder stops turning up.

Practitioners here treat this document and the shareholders agreement as one species at two stages. The first is signed when the register of members contains only founders, so its centre of gravity is contribution, commitment and departure. The second arrives with the first institutional investor and carries board seats, reserved matters and liquidation preference, supported by the shareholders agreements and board resolutions used by Hong Kong companies. Skip to the second and you lose your bargaining position, because vesting is then imposed by an investor rather than agreed between equals.

No single ordinance governs founders agreements. The document is a commercial contract enforced under Hong Kong's common law of contract, and its clauses are read against the statutory scheme that governs the company itself. That scheme starts with the Companies Ordinance (Cap. 622), in force since 3 March 2014, which abolished par value, imposes no minimum share capital and requires at least one shareholder, one director who is a natural person, a registered office in Hong Kong and a company secretary. Section 11 obliges a private company to restrict the right to transfer its shares, so pre-emption rights belong in the articles first and are mirrored in the contract second. The Companies Registry publishes the consolidated text in its statutory provisions page for the Companies Ordinance and its subsidiary legislation, the authority to check before citing any section number.

Three statutory limits shape what founders can promise each other. Under section 122 a contract made before incorporation binds the person who signed it until the company ratifies it, so founders sign in their own names and the board adopts the document at its first meeting. Under section 462 the members may remove a director by ordinary resolution despite anything in the articles or in any agreement, with special notice of at least 28 days under section 578. No private arrangement can make a director irremovable. A buy-back of a departing founder's shares falls under Part 5 and needs a solvency statement and a special resolution, so the leaver mechanism has to work in a company short of cash.

Two further regimes bite. An assignment of copyright is ineffective under the Copyright Ordinance (Cap. 528) unless it is in writing signed by or on behalf of the assignor, and under section 15 a commissioned work leaves first ownership with its author while the commissioner takes only an exclusive licence. Share transfers attract stamp duty under the Stamp Duty Ordinance (Cap. 117), assessed on the higher of the consideration and the value shown by the accounts.

The classic moment comes before there is a company at all. Two or three people are building a product at nights and weekends, one writing code, another talking to customers, and everyone assumes the split is even. Sign then, while the assumption still holds. The second trigger is unequal contribution: one founder puts in capital, another puts in eighteen months of unpaid work, and a written bargain turns that asymmetry into a defensible cap table rather than a grudge. A third is the part-time founder who keeps a job at a bank or a law firm. That founder's own employment contract may already assign intellectual property to the employer, so the two documents have to be read together before any code is contributed.

Investor pressure supplies the fourth trigger. Accelerators and seed funds here ask for the founding papers in their first diligence request, and a founders agreement with vesting already running signals a team that has thought about failure. Two edge cases deserve flagging. Where a founder is resident in the mainland or overseas, execution, service of notices and the stamping deadline all shift. Where a founder contributes an asset rather than cash, a domain name, a customer list, a prototype, that asset must be transferred expressly, because contributing it in spirit transfers nothing at law.

• The share allocation clause records the number of shares each founder subscribes for, the amount paid up and the date the allotment is entered in the register of members. Shares carry no par value under Cap. 622, so the subscription price is a commercial figure, and fixing it gives the Inland Revenue Department a documented starting point for any later valuation.
• The vesting and cliff clause turns a headline shareholding into shares earned over time, typically four years with a one year cliff, and states the mechanism that claws back the unvested portion. That mechanism is usually a compulsory transfer at nominal value to the continuing founders, drafted to sit inside the transfer restrictions the articles impose.
• The roles and time commitment clause names each founder's function and sets a minimum weekly commitment. Most founder disputes begin as a disagreement about effort rather than equity, and a written commitment gives the leaver test something objective to bite on.
• The intellectual property assignment transfers present and future copyright, designs, source code and know-how to the company, with the written signature Cap. 528 requires and a further assurance undertaking so a trade mark filing can be perfected later. Work done before incorporation is captured expressly, which is where most start-ups have a gap.
• The leaver and transfer clause separates the good leaver from the bad leaver, sets a valuation basis for each and gives the remaining founders a right of first refusal. Founders who spend long periods abroad often pair it with a general power of attorney deed valid in Hong Kong so signature never blocks completion.
• The confidentiality, restrictive covenant and deadlock provisions protect trade secrets and customer connections, draw the non-compete narrowly by duration and geography, and give equal shareholders an escalation route before litigation.

The private company limited by shares is the vehicle this template assumes. An individual company secretary must ordinarily reside in Hong Kong, and a sole director cannot also act as secretary, so a two founder team decides early who takes which office. The founders agreement records those appointments and ties them to vesting, so a founder who leaves also resigns the office. Since 1 March 2018 every company must keep a Significant Controllers Register, and each founder crossing the control threshold is identified in it.

An offshore holding structure changes the drafting entirely. Venture investors here often ask for a Cayman or BVI holding company above the operating entity, and terms written only at the Hong Kong level then govern a subsidiary that no longer carries the economics. Vesting and leaver provisions must be replicated at holding company level when the flip happens.

Founders on the payroll create a parallel relationship. Once a founder works at least eighteen hours a week for four consecutive weeks, the continuous contract rules of the Employment Ordinance (Cap. 57) apply, with the paid leave, sickness allowance and provident fund contributions that follow. Each working founder should hold one of the Hong Kong employment contracts and appointment letters that document the role separately from the shareholding.

Social ventures incorporated as a company limited by guarantee have members rather than shareholders and no equity to vest, so the founders agree on roles, decision making and intellectual property alone and their constitutional terms move into the governance papers for Hong Kong companies limited by guarantee.

You begin by naming each founder as they appear on their Hong Kong identity card or passport, since the register of members and every later instrument of transfer must match. The form then asks for the company: its name, its Companies Registry number if incorporation has already happened, and its registered office. Where the company does not yet exist, you complete the document in the founders' own names and the board adopts it by resolution once the certificate of incorporation issues. If the business takes its own premises rather than a service address, the Hong Kong tenancy agreement templates cover the lease separately.

Next comes the cap table. You enter each holding, the subscription amount, the vesting period and the length of the cliff, and the template adjusts the compulsory transfer language to match. The most consequential field is the good leaver and bad leaver definition, because it decides whether a departing founder keeps vested shares or surrenders everything. You then set the time commitment, the limits of the restrictive covenants and the deadlock route.

The most expensive error is the handshake split with no vesting. A founder who leaves after four months keeps a third of the company, contributes nothing further, and blocks the next round because no investor will price a cap table carrying a passive holder that size. The second is a founders agreement that contradicts the articles. Where the contract grants a right of first refusal and the articles give the board unfettered discretion to refuse a transfer, the company is bound by its articles under section 86 and the founders are left suing each other. The third is the intellectual property gap: code written before incorporation stays with its author unless a written assignment says otherwise, and section 15 of Cap. 528 gives a commissioning company only an exclusive licence, not ownership.

Two more mistakes surface late. Founders draft a two year non-compete covering all of Asia, and the court enforces none of it, because a restraint is prima facie void unless the party relying on it proves the restriction reasonable and no wider than necessary. Hong Kong judgments have upheld a six month restraint limited to Hong Kong and refused a twelve month worldwide one. The last mistake is treating a share transfer as a private matter between founders: the instrument of transfer and contract notes must be stamped within the statutory deadline and the register of members updated, or the transfer sits unrecorded when diligence begins.