The Founder Governance Stack: What to Have in Place Before Month Six
A practical framework for the corporate-legal infrastructure that every well-run Canadian startup should have built‚ quietly‚ within its first six months.
Founders ask a version of the same question often enough that it’s worth answering properly.
At what point does a startup actually need real corporate legal infrastructure, and what should be in place?
The honest answer is that there’s a stack‚ six things, in roughly this order‚ that most well-run Canadian startups have in place by month six. None of it is the work founders enjoy. All of it is the work that compounds: quietly when it’s done, expensively when it isn’t.
What follows is the framework we use when a founder asks where to start. It isn’t the only way to think about early-stage corporate hygiene, but it reflects what we’ve consistently seen survive investor diligence, acquirer due diligence, and the slower test of time.
1. A clean incorporation, with the right share structure
The filing itself is the cheap part. Anyone can incorporate a Canadian corporation in an afternoon ‚ federally under the CBCA or provincially under the OBCA ‚ and the mechanical cost is in the hundreds of dollars.
The decisions underneath the filing are not the cheap part. They are the decisions that quietly constrain or enable everything that follows.
The questions that need real answers before the articles are filed include the choice of federal versus provincial incorporation (which matters for residency requirements, name protection, and where the company will be doing business); the design of the share structure (whether to have a single class of common shares, multiple classes for flexibility, or a more layered structure anticipating future equity issuances); the number of authorized shares (and the related question of whether to authorize unlimited shares, which is conventional but has implications); and the initial share issuance ‚ who gets shares, how many, at what price, and on what conditions.
That last question is where most founders make their first expensive mistake. Issuing founder shares at a nominal price (a fraction of a cent per share) is conventional and sensible at incorporation, when the company has no value. Issuing the same shares at the same nominal price to an early hire six months later, when the company has begun to develop something of value, creates a tax problem the founder didn’t know they had ‚ and a diligence question that surfaces later, in front of an investor who will not enjoy the explanation.
A clean incorporation is a filing plus a set of decisions documented in writing: articles, by-laws, the initial directors’ organizing resolutions, the initial shareholder resolutions, share subscription documents that match the share register, and a digital minute book that exists from day one. Anything less is technically a corporation but practically a problem in waiting.
More on how we handle this: Launch Incorporation Package
2. A founders’ agreement
The second layer is the one founders most often defer, and the one whose absence creates the most expensive disputes.
A founders’ agreement ‚ sometimes structured as a unanimous shareholders’ agreement among the founders, sometimes as a standalone founders’ agreement supplementing the corporate documents ‚ is the working framework that addresses what the corporate documents alone don’t: ownership, decisions, departure, IP, and disputes.
Ownership. How the equity is allocated among the founders, on what conditions, and what happens to that equity over time. Most founders’ agreements include vesting ‚ usually a four-year schedule with a one-year cliff, mirroring what investors will eventually require ‚ and the document specifies what happens to unvested shares if a founder leaves.
Decisions. How the founders will make decisions during the period when they are the entire board and the entire shareholder base. This includes which decisions require unanimous agreement, which require majority, and how tie-breaks are resolved when the founders are evenly split.
Departure. What happens when a founder leaves the company. The most important distinction here is between a “good leaver” and a “bad leaver” ‚ a founder who leaves on good terms (death, disability, resignation in good faith) typically keeps more of their vested equity than a founder who is terminated for cause or who leaves under disputed circumstances. The definitions matter. They are also the definitions founders are least comfortable negotiating with each other, which is part of why doing the work early is materially easier than doing it late.
IP. A confirmation that everything the founders have built ‚ code, designs, brand assets, customer relationships, contracts ‚ belongs to the company rather than to the founders personally. This is foundational and often missing. We address it separately as the third layer below because the IP assignment is its own document, but the founders’ agreement is where the principle gets established.
Disputes. A process for resolving the disagreements no one expects to have. Most founders’ agreements include some combination of mandatory negotiation, mediation, and arbitration, and they typically include a buy-sell mechanism ‚ a shotgun clause or a comparable structure ‚ that gives the founders a path to separating if the relationship genuinely breaks down.
A common founder objection at this stage is that the document feels premature. We trust each other. We don’t need this yet. The frame is wrong. Investors don’t care whether the founders trust each other. Acquirers don’t care. Diligence counsel don’t care. They care whether the company can prove its ownership, decision-making, and dispute-resolution structures in writing. The trust between the founders is one thing; the company’s records are another. Confusing the two is the most common mistake we see, and the most expensive one to fix later.
More on how we structure founders’ agreements: Founders’ Agreement and Startup Kit
3. Founder IP assignments
This is the layer most founders are surprised to discover they need.
The intuition is that whatever the founders built before incorporating the company is somehow already “the company’s”‚ because they built it for the company, because they intend it to belong to the company, because they wouldn’t have built it otherwise. Legally, none of that is true. Intellectual property created by an individual before the company existed belongs to that individual unless and until it is formally assigned to the company. Intellectual property created by a founder after incorporation, in their personal capacity, also belongs to the founder unless assigned ‚ and the assumption that founders are automatically working “for” the company without an employment or service relationship documenting that fact is exactly the kind of assumption that does not survive diligence.
The fix is straightforward: each founder signs an IP assignment confirming that all relevant intellectual property‚ code, designs, prototypes, trade secrets, know-how, customer data, brand assets, anything they’ve built that’s connected to the business‚ is hereby assigned to the company. The document also typically includes a forward-looking assignment confirming that anything they create in the future, in connection with the company’s business, will also belong to the company.
The cost of doing this at incorporation is the time it takes to sign a single document.
The cost of doing it later‚ particularly when a founder has already left and is no longer cooperative, or when the founder is asked to assign IP they now realize has commercial value they hadn’t appreciated‚ is materially higher. Sometimes prohibitively so.
This is a document that takes ten minutes to sign and prevents problems that take years to fix.
4. Signed board and shareholder approvals for every material decision
The fourth layer is the one that distinguishes a company that is being run from a company that can prove how it is being run.
Every share issued by a Canadian private corporation requires authorization. Every option promised requires authorization. Every material contract beyond ordinary course typically requires authorization. Every appointment of an officer, every change to the corporate records, every step that affects the company’s capital structure or its governance‚ all of it is supposed to be authorized by the directors, the shareholders, or both, depending on what the by-laws and the corporate statute require.
Most early-stage companies do the underlying work but skip the authorization. The founders decide to issue shares to a new hire over a coffee. The shares get added to the cap table. No board resolution is signed. No shareholder consent is obtained. Six months later, when a diligence lawyer asks for the document trail, there isn’t one.
The fix at the time of decision is a single resolution that takes minutes to prepare and sign. The fix late‚ reconstructing the authorization trail retroactively, often years after the original decision, sometimes with parties who are no longer involved is a workstream most founders don’t know they’re signing up for when they skip the original step.
The discipline that matters here is small and constant: every material decision is documented in a signed approval at the time it’s made, filed in the minute book, and reflected in the underlying records. The discipline itself is unremarkable. Its absence, accumulated over months and years, becomes the single biggest source of cleanup work we see in pre-financing diligence.
More on the governance layer: Governance & Shareholder Structuring.
5. A minute book that’s current
The minute book is the central record of the corporation’s existence. It contains the articles, by-laws, share register, director and officer registers, all board and shareholder resolutions, and the supporting documents for each material corporate action.
A minute book that is current ‚ meaning every share issuance is recorded, every resolution is filed, every register reflects the actual state of the company ‚ is the difference between a company that can answer diligence questions in a day and a company that needs three weeks of remediation before it can answer them at all.
Most early-stage companies operate with a minute book that exists in some form but is consistently behind the actual state of affairs. The share register doesn’t reflect the most recent issuance. The director register hasn’t been updated since the second director joined eighteen months ago. The most recent annual resolutions weren’t filed because no one remembered to file them.
None of this is dramatic at the time. It becomes dramatic when an investor’s counsel asks for the minute book and the answer is “we’re cleaning it up.”
Cleaning up a minute book during a financing is the single most common ‚ and most predictable ‚ source of unbudgeted legal cost in an early-stage round. The work itself is mechanical. The problem is that it absorbs time and attention precisely when the founders should be focused on closing the round, not on reconstructing the historical record of decisions they took years earlier.
The discipline of keeping the minute book current is small and recurring. The discipline of cleaning it up under pressure is neither.
6. A cap table that reconciles to the documents
The sixth and final layer is the one that ties the previous five together.
A cap table is a record of who owns what. In most early-stage companies, the cap table exists as a spreadsheet ‚ usually owned by one of the founders, sometimes shared with a couple of others, occasionally maintained on Carta or a comparable platform.
The question that matters is not what the spreadsheet says. It’s whether the spreadsheet matches the underlying documents.
A cap table that says a founder holds 4,000,000 common shares should be supported by share subscription documents for those shares, a share certificate (or its electronic equivalent), an entry in the share register matching the certificate, a board resolution authorizing the issuance, and any related approvals required by the by-laws or shareholders’ agreement.
A cap table that says an advisor holds 50,000 options should be supported by an option plan that has been adopted by the board and approved by the shareholders, a board resolution authorizing the specific grant, an option agreement signed by the advisor, a grant notice setting out the terms, and an entry in the option ledger matching the agreement.
When the spreadsheet matches the documents, the cap table is a record. When it doesn’t, it’s an aspiration.
The pattern we see most often is that the cap table starts accurate, then drifts. A grant gets made but not formally approved. A founder’s share count gets adjusted to reflect a vesting calculation that wasn’t documented anywhere else. A SAFE gets signed but never approved by the board. The spreadsheet updates in real time; the underlying documents don’t.
By the time the company is preparing for its first priced round, the cap table and the documents have meaningfully diverged, and reconciling them is its own workstream‚ often one that produces uncomfortable conversations with people who were promised things that were never formally authorized.
The discipline of cap table hygiene is the discipline of treating the spreadsheet as a reflection of the documents, not a substitute for them. Every change to the cap table corresponds to a documented event. Every documented event is reflected in the cap table. The two move together.
This is the layer where the previous five layers compound. A clean incorporation, a signed founders’ agreement, executed IP assignments, current approvals, and a maintained minute book together produce a cap table that reconciles. The absence of any one of them produces a cap table that doesn’t.
The compounding effect
The reason we describe this as a stack rather than a checklist is that the six layers reinforce each other. The founders’ agreement references the shares issued at incorporation. The IP assignment confirms what the founders’ agreement assumes. The board and shareholder approvals authorize what the founders’ agreement contemplates. The minute book records all of it. The cap table reflects the resulting state.
When the layers are built carefully, in order, in the first six months, the work that supports each one is incremental and unremarkable. None of it is hard. None of it is expensive. None of it is the kind of work that takes a founder away from product, customers, or hiring.
When the layers are skipped, the cost is rarely visible in real time. It surfaces later ‚ during a financing, during diligence, during an acquisition, during a dispute between founders who no longer agree. At that point the cost is meaningful, and it falls due at exactly the moment when the founders’ attention is most needed elsewhere.
There is no version of this work that disappears. There are only versions where it’s done early, quietly, and cheaply ‚ or done late, under pressure, and expensively.
The choice between those versions is the choice the founder governance stack is designed to make easy.
Where to go from here
If you’re a founder thinking about where your company sits against this stack‚ what’s in place, what’s drifted, what was never documented to begin with‚ we work with founders on this through a structured founder setup process and through ongoing corporate counsel where the matter is more complex.
Start with the Startup Kit, or reach out directly if you’d like to talk through where you actually are.
Further reading
- Founders’ Agreement‚ how we approach the document itself, in more detail.
- Equity Structuring‚ for companies issuing equity that should be subject to vesting or contribution.
- Venture Financing‚ for companies preparing to raise.
- Governance & Shareholder Structuring‚ for growth-stage companies realigning ownership and control.
Fauri Law is a Toronto-based corporate and business law firm advising founders, investors, growth companies, and cross-border businesses. The firm combines partner-led advisory counsel with structured legal infrastructure for repeatable company lifecycle events.
This article is general information and not legal advice. Whether any of the layers above apply to a specific company depends on the company’s facts, structure, jurisdiction, and stage. For advice on a specific matter, please contact us.