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I am in the process of producing a Founders Agreement for myself and my team working on a startup. I've read in many places that specifying the roles of each founder (CEO, CTO, etc.) is highly recommended, and it's in fact mandatory in a template I'm using.

My question is this: does the specification of these roles have any legal implications? Does having the role of the CEO assigned to you in the contract, for example, give you certain legally binding responsibilities/limitations, or are these roles just symbolic?

Thanks!

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Are the roles specified in a Founders Agreement (contract) legally binding?

Yes, like pretty much everything that is provided in a contract. Information about roles is useful for ascertaining the rights and duties to which parties/partners knowingly and willfully agreed.

Does having the role of the CEO assigned to you in the contract, for example, give you certain legally binding responsibilities/limitations, or are these roles just symbolic?

It is too risky to assume that something in a contract is symbolic. An assumption of that sort is indicative that one might not fully understand what the contract entails (and consequently the vulnerabilities inherent thereto).

Although some labels and acronyms of roles are self-explanatory as to hierarchy and scope, it is in the parties' best interest to ensure that the contract is detailed enough to preempt conflicting interpretations (ambiguities). For instance, the Technology and Information departments are likely to overlap (the extent to which that happens depends on the type of entity being founded), whence it makes sense to include sufficient information in the contract so that a reasonable person can ascertain from the Founders Agreement what issues correspond to a CTO and which ones to a CIO.

it's in fact mandatory in a template I'm using.

Besides unlikely, it is unclear whether statutory law in your jurisdiction requires you to use that template. Templates are inevitably generic and might be inadequate for reflecting the parties' intent. Trying to fit a template is likely to distract the parties from the intent they would otherwise memorialize with the clarity and specificity they need.

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  • Thank you. Where is it specified what rights and duties each role entail? Is it even specified anywhere, or are the rights and duties of a role ambiguous and open to interpretation? I would like the understand as fully as possible what each role means for the party to which it is given. – Ben Shabtai Oct 5 '20 at 19:00
  • @BenShabtai "Where is it specified what rights and duties each role entail?" It is up to the draftsman to determine where it is most appropriate to outline the rights and duties (or responsibilities & limitations, as you mention) of each role. My point is that your contract ought to be specific enough so that there is no room for [material] ambiguity. – Iñaki Viggers Oct 5 '20 at 19:09
  • I understand, but what if only the roles are specified, but not their corresponding rights and duties? What legal implications would that have? – Ben Shabtai Oct 5 '20 at 19:29
  • @BenShabtai "what if only the roles are specified, but not their corresponding rights and duties?" If by "roles are specified" you mean there is reasonable clarity on their scope and limitations, the rights and duties are implied therefrom and need not be defined again (outlining these rights and duties elsewhere in the contract would be redundant, if not detrimental). But absent that clarity, a legal dispute would be harder to solve because it would require an assessment of --and stronger reliance on-- the circumstances in trying to fill the gaps of that contract. – Iñaki Viggers Oct 5 '20 at 20:14
  • What I meant was that each of the three founders is given a role, for example, CEO, CTO, CFO, and nothing more is said about the subject. In that case, how is it determined (in a court, for example) which rights and duties each role has? It seems that the answer would be "it's debatable". – Ben Shabtai Oct 5 '20 at 23:27
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"Does having the role of the CEO assigned to you in the contract, for example, give you certain legally binding responsibilities/limitations, or are these roles just symbolic?"

This looks to be a false dichotomy. The roles are definitely not symbolic. But there's no enumerated list of exact responsibilities. For instance, your agreement may define a Chief Legal Officer role, which is unusual. That would imply the CEO is not primary responsible for those matters. This shows that specific circumstances matter.

Next up, it's important to note that these agreements matter most, when there's a conflict. At that point, it might be necessary to look at what the agreement says, but that interpretation will be done in the light of the conflict that needs to be resolved. The question is less likely to be "what roles did the CEO have?", but more "who's responsible for the purchasing role?".

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