3 Things Needed in a Founders’ Agreement in Hong Kong

Published September 16, 2020 · Updated October 25, 2026

Who owns the code, the brand and the shares if a co-founder walks away eight months after launch? Setting up a founders' agreement before incorporation is how Hong Kong startup teams answer that question early, while trust is highest.

In this blog, we discuss how to set up a founders' agreement in Hong Kong and what the document is. We also explain how it differs from articles of association, a shareholders' agreement and an employment contract. We cover the three essentials: equity and vesting, decision rights, and intellectual property. We also compare the documents founders need before incorporation and answer five practical FAQs. This guide reflects Companies Registry fees current as at October 2026. It is general information, not legal advice; have a Hong Kong solicitor review your final agreement.

Why Do Hong Kong Founders Set Up a Founders' Agreement Before Incorporating?

A founders' agreement is a private contract among a Hong Kong company's founding shareholders that settles equity, control and asset rights before the first dispute can arise.

No Hong Kong statute requires a founders' agreement, and that freedom is exactly why teams that skip one regret it. The document sits outside the public register, is governed by ordinary contract law, and binds only the people who sign it.

Under the Companies Ordinance (Cap. 622), every Hong Kong company must register articles of association with the Companies Registry, and those articles bind the company and its members. Articles are public and usually drafted broadly. A founders' agreement covers the specifics founders prefer not to publish: the share split, exit terms, and who owns what was built.

A shareholders' agreement is the wider, later-stage contract among shareholders, typically introduced once investors arrive. A founders' agreement is simply the earliest version, signed among the founding team before or at incorporation. An employment or consultancy agreement is different again — it governs a founder's services, salary and notice period, not their rights as a shareholder.

Founders who engage our Hong Kong company incorporation services usually sign the agreement alongside the incorporation filing, so the share terms in both documents match from day one. The comparison table below shows how the four documents differ.

How Should the Agreement Handle Equity Ownership and Vesting Schedules?

Record each founder's shareholding in writing, attach vesting conditions to founder shares, and agree buy-back terms that protect the team if anyone exits early.

Equity is the most sensitive item on the founders' list, and the one most often left vague because 'we are all friends here'. Hong Kong courts enforce a clear, signed contract far more readily than a handshake. Put the numbers on paper while goodwill is highest, then make them meaningful over time with vesting.

1. Initial Share Allocation

Base the split on a sober assessment of cash contributed, full-time commitment, skills and prior work — not an unexamined 50-50 default. The agreed percentages must match Form NNC1 and the register of members. Founders should also anticipate dilution. Leave room for an employee option pool and future investors. Later funding rounds may use instruments such as convertible notes rather than fresh shares.

2. Time- and Milestone-Based Vesting

Startup practice commonly uses four-year vesting with a 12-month cliff, so a founder who leaves inside year one keeps nothing. Milestone vesting tied to product or revenue goals suits part-time founders. Hong Kong imposes no statutory vesting rules; the schedule is whatever the contract says, and investors expect to see one.

3. Founder Exit and Buy-Back Terms

Define a good leaver (death, disability or an agreed exit) against a bad leaver (breach, competition or abandonment). Unvested shares are typically bought back at nominal or subscription cost. Vested shares fetch fair value under a pre-agreed formula. If the company repurchases its own shares, the clause must comply with the Companies Ordinance. That includes applicable member approvals, permitted funding and, for payment out of capital, solvency requirements. Add pre-emption rights so departing founders must offer shares to the team before outsiders.

What Roles and Decision Rights Should the Agreement Set?

Name each founder's operating lane, reserve major decisions for supermajority consent, and build a formal process for breaking deadlock.

A Hong Kong private company can legally run with a single director, but no founding team should blur who decides what. The Companies Ordinance (Cap. 622) gives directors day-to-day management powers and lets shareholders act by resolution; a founders' agreement then allocates the seats and thresholds. For reference, an ordinary resolution needs a simple majority, and a special resolution — required to alter the articles — needs a 75% majority.

1. Roles and Responsibilities

Assign clear lanes — who leads product, sales, finance and operations — and set boundaries so not every founder co-manages everything. Founder employment should sit in a separate employment or consultancy agreement. Director's fees are taxed under Hong Kong salaries tax. Founders drawing them often arrange individual personal income tax services in Hong Kong alongside the agreement.

2. Reserved Matters and Voting Thresholds

List the decisions that need supermajority or unanimous founder consent: issuing new shares, taking material debt, changing the business, appointing or removing founder-directors, and selling the company. Without this list, a 51% founder can lawfully do almost anything. The agreement is where founders decide they should not.

3. Deadlock and Dispute Resolution

Set an escalation ladder: a fixed window of senior negotiation, then mediation, then binding arbitration or the Hong Kong courts. Many teams add a 'shotgun' buy-sell clause — one founder names a price and the other must buy or sell at it — as the last resort for irreconcilable deadlock.

How Does the Agreement Protect Intellectual Property and Confidentiality?

Assign every venture-related creation to the company in writing, then wrap the whole team in confidentiality duties and reasonable restrictive covenants.

Investor due diligence starts with a simple question: does the company own what it sells? In Hong Kong, ownership can depend on the asset and the relationship. Copyright is generally first owned by its author. However, an employer generally first owns copyright in a work made by an employee in the course of employment unless agreed otherwise. Statutes such as the Copyright Ordinance (Cap. 528) and the Trade Marks Ordinance (Cap. 559) define the rights. The founders' agreement should include written assignments that transfer venture rights to the company.

1. IP Assignment to the Company

Use a present assignment of existing venture-related IP. Include a future-works clause for anything created later. Under Hong Kong copyright rules, an employer generally first owns copyright in a work made by an employee in the course of employment unless agreed otherwise. Work done before incorporation — code, brand assets, designs — should be formally assigned or novated to the company once it exists. Trade marks can then be registered with the Intellectual Property Department. Written assignments survive founder exits and satisfy acquirers.

2. Confidentiality Obligations

Define confidential information broadly: customer lists, pricing, source code and plans. Set duties that last for the covenant period, or indefinitely for trade secrets. Apply the clause to founders and staff alike; it complements the confidentiality terms in employment contracts rather than replacing them.

3. Non-Compete and Non-Solicitation Covenants

Hong Kong courts enforce restrictive covenants only so far as they reasonably protect legitimate business interests, so keep duration (commonly six to 24 months), scope and geography narrow. Add non-solicitation of customers and employees, and make every covenant survive the founder's exit.

What Should Founders Prepare Before Incorporating in Hong Kong?

Settle the agreement, confirm the company name, and gather the filings — the whole package usually reaches the Companies Registry in one batch.

Founders should settle the agreement first, choose and search the proposed name, then file Form NNC1 with the articles and IRBR1 for simultaneous business registration before opening the corporate bank account. Teams that check company name availability early avoid the most common filing delay: a rejected name.

At October 2026 rates, incorporating a company limited by shares costs HK$1,545 electronically and HK$1,720 in hard-copy form, per the Companies Registry fee guide, plus a business registration fee and levy collected by the Inland Revenue Department. For a private company limited by shares, electronic certificates are normally issued within one hour, while hard-copy certificates are normally issued within four working days.

After incorporation, the annual return becomes a standing corporate compliance requirement: HK$105 when filed within 42 days of each incorporation anniversary, rising to between HK$870 and HK$3,480 when late, as at 2026. Reference these duties in the agreement so every founder knows who owns them.

Conclusion

Three provisions carry most of the weight: a written equity split with vesting, clear roles with reserved matters, and an IP assignment wrapped in confidentiality and covenants. Everything else — timing, thresholds, leaver definitions — is refinement around those pillars. None of it is filed with any authority, so a founders' agreement lives or dies on its drafting and signatures.

Because the document is a binding legal instrument, have a Hong Kong solicitor draft or review the final version. The figures in this guide reflect Companies Registry fees current as at October 2026.

As a Corporate Services Provider, 3E Accounting Hong Kong handles the surrounding machinery: incorporation filings, company secretarial services, registered address, bank account introductions and ongoing compliance. Founders keep the vision; we keep the records straight. Talk to us before you file.

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