“If you don’t define each founder’s role, the business will define it for you - usually in the middle of your first major disaster.”

Matt Glynn - Director, GLS Group

In startups, everyone’s a “co-founder” - but beyond the title, what are you actually doing? What’s your role? What authority do you have? What are you responsible for? If you can’t answer these questions, you’re sitting on a ticking time bomb.

Failing to clearly define the ongoing roles of each founder is a guaranteed path to misunderstanding, mismanagement, and mission drift. One founder thinks they're the CEO, the other assumes joint decision-making - and before long, the business is paralysed or pulling in two directions.

Legal issues like this are easy to overlook. Founders are busy building the product, closing early sales, and pitching to investors - not having long chats about job descriptions. But when roles and decision rights aren’t formalised, that omission becomes a massive legal and operational risk.

In this “start up stage review”, we’re going to flag up some considerations to help you better prepare to tackle this part of your start up journey - before it tackles you.

“Your title says ‘Founder’ - but your contract, your cap table, and your decision rights say nothing.”

The Founder Roles stage is an important stage of the start-up journey because:

◼️Authority Clarity: it defines who has the legal and practical authority to make decisions

◼️Operational Efficiency: it prevents duplication of effort and internal conflicts over responsibilities

◼️External Representation: it ensures the right founder is authorised to bind the company in contracts

◼️Equity Justification: it aligns equity splits with actual contribution to the business

◼️Performance Expectations: it sets a clear baseline for what each founder is expected to deliver.

◼️Board Accountability: it provides a basis for board oversight and performance review

◼️Exit Scenarios: it helps determine who stays, who goes, and what compensation is owed

◼️Investor Transparency: it shows maturity and reduces due diligence friction

◼️Team Morale: it creates a sense of structure and accountability for the wider team

◼️Legal Risk Management: it helps avoid disputes and legal challenges over authority or obligations

The consequences of not attending to this issue may include the following: 

Legal Implications

◼️Unauthorised Acts: founders may enter into contracts without proper authority, exposing the company to liability

◼️Contractual Confusion: external parties may not know who has signing rights, leading to unenforceable deals

◼️Employment Disputes: without defined roles, disagreements over termination, salary, and duties become flashpoints

Founder Relationship Issues

◼️Power Struggles: unclear leadership causes internal politics, mistrust, and resentment

◼️Burnout & Imbalance: one founder ends up carrying more than others, creating long-term tension

◼️Exit Fallout: lack of role clarity makes buyouts or step-downs messy and emotionally charged

Commercial Implications

◼️Investor Concerns: vague leadership structure is a red flag for institutional investors

◼️Credibility Damage: external stakeholders question who’s running the business - and how decisions get made

◼️Strategic Drift: no clear responsibility for strategy execution slows progress and weakens competitiveness

Operational Implications

◼️Decision Paralysis: overlapping roles cause slow or inconsistent decision-making

◼️Execution Gaps: critical functions (e.g. compliance, finance, HR) fall between the cracks

◼️Scaling Failures: undefined founder roles delay hiring and confuse reporting lines

Biz Valuation Issues

◼️Leadership Risk Discount: buyers or investors apply discounts where leadership gaps are apparent

◼️Key Person Uncertainty: unclear founder roles make business continuity hard to assess

◼️Exit Disruption: valuation events (e.g. M&A) stall if internal roles can’t be explained or justified

The above lists are indicative issues – the relevance of which will depend on your circumstances, including the nature of business undertaken by your start up.

“Build the founder team like a football squad - not a group chat.”

We’ve identified quite a number of potential issues that the start-up needs to consider and below are some examples of the types of steps you might want to consider taking to address these issues considered above. 

Assign Formal Job Titles and Responsibilities

◼️Define who is CEO, COO, CTO, etc. - and what each role entails

◼️Document key responsibilities and areas of decision-making authority

Reflect Roles in Employment Contracts or Service Agreements

◼️Include clear position descriptions, reporting lines, and deliverables

◼️Ensure contracts align with the founder’s actual day-to-day involvement

Clarify Board Representation and Reporting Duties

◼️Ensure founders understand who reports to whom - and who the board holds accountable

◼️Tie authority to measurable metrics and performance obligations

Link Roles to Equity Vesting and Remuneration

◼️Align ongoing equity grants and compensation with the level of responsibility taken on

◼️Use vesting to protect the business from inactive or underperforming founders

Agree on Role Review Milestones

◼️Set review points to reassess each founder’s role as the business scales

◼️Adjust titles, duties, or compensation to match company evolution

Document Everything in Writing

◼️Use internal role charters or annexes to the Founders Agreement

◼️Keep the paper trail - verbal understandings won’t protect you

The above suggestions are just a few of the steps you can consider taking.
There are many more things that need to be done to ensure the associated risks are effectively and pragmatically dealt with.

We’re not trying to be alarmists and go so far as to say that some of the legal risks we have flagged may never materialise for your business - but others can hit like a freight train.

The key point is awareness – just have a think about the issue – know that it exists and decide for yourself what you want to do.

Yes, we know you're juggling limited time, money, and human bandwidth. Sometimes ignoring a legal risk might even make sense – providing doing so is not illegal.

However, “Knowledge” has always been your greatest asset and know you have the GLS Knowledge Centre to help fill in details about the start up journey.

Let’s look at how things can go sideways:

Case Study 1: “The Invisible CTO”
Two co-founders split equity 50/50. One built the product, the other contributed ‘strategic insight’ but had no defined role. After a year, the CTO demanded more equity due to imbalance - sparking a dispute that took six months and two lawyers to settle.

Case Study 2: “The Unauthorised Contract”
A founder with no clear authority signed a partnership agreement with a vendor. The board later rejected it, and the vendor sued for breach - costing the startup $40k in damages.

Case Study 3: “The Leadership Black Hole”
During a funding round, investors couldn’t determine who was truly leading the business. Job titles overlapped, and founders contradicted each other in meetings. The round fell apart - and so did the team.

As a start-up operator you may not be familiar with legal jargon. As you navigate this stage of your start-up journey – you might encounter the following legal definitions:

◼️Executive Role: A formal position in the company with operational responsibilities (e.g. CEO, COO, CTO), typically set out in a service agreement or employment contract

◼️Actual Authority: The legal power granted to a person to bind the company through their actions or decisions

◼️Fiduciary Duty: A legal obligation that directors and officers owe to the company to act in its best interests

Watch out for the legal jargon and refer to the knowledge hub for more detailed explanations and resources.

Your startup isn’t just your product - it’s your team. And the founders are the most critical part of that team. But titles like “co-founder” mean nothing unless you’ve defined what that actually means in your business.

Without clearly defined roles, founders fight, staff get confused, investors walk, and decisions stall.

The good news is that these are avoidable problems - and GLS can help you align founder responsibilities in a way that supports your growth, protects relationships, and keeps your business legally safe.