# Completion guide — Cofounder Agreement v2

Version 2.0 — Public Review Draft | Prepared September 19, 2026

This guide is educational and non-operative. It is not part of the agreement. The package is an unapproved review draft, not a signing-ready legal opinion. Version 1 remains available; this public review draft does not amend existing agreements. Read DISCLAIMER.md and obtain California/Delaware company counsel and tax advice.

## 1. Intended structure

Two original cofounders share a California LLC, taxed as a partnership, which holds their operating-company shares. The Delaware corporation operates and raises money. The LLC is a holding/governance vehicle, not the operating business. Later founders normally receive separately issued Company securities directly or through their own vehicles. Admission to the shared LLC is a different decision requiring unanimous consent.

The purpose is to align the minority and majority original cofounders within the shared block. If their internal split is 30/70 and external financing leaves their LLC with 60% of the corporation, their indirect stakes are 18/42 while their relative split stays 30/70. Company dilution and LLC membership dilution are different transactions.

Separate holdings for later participants do not authorize either original founder to bypass the shared block. Clause 6.6 addresses personal equity, nominees, affiliated entities, revenue participation, and successor businesses. Legitimately approved compensation remains possible. The LLC does not guarantee equal after-tax outcomes.

## 2. Complete the fields and companion documents

Complete every REQUIRED field, select every SELECT ONE alternative, and remove unused options and instructions from a signing copy. Preserve a copy of the completed schedules and all authorized updates. A blank is not an affirmative election.

Schedule A: repeat the member record for each actual LLC member, reconcile percentages to 100%, document consideration and recipient, identify background IP, and select no vesting or complete vesting terms. Later participants holding only Company stock do not appear as LLC members. Additional members need approval and a deed of adherence.

Schedule B: select the supermajority and board-right thresholds and financial limits; reconcile them with the defined protected minority consent. The ordinary vote does not override a reserved matter. A qualifying drag remains governed by its specific threshold and safeguards. The expert cannot create missing consent under the revised deadlock clause.

Schedule C: assign company and holding-vehicle duties separately; appoint the tax coordinator, preparer, advisers, and backups. Set the issuance-review dates and personal-election register. Responsibility for filing a personal election stays with the taxpayer.

Schedule D: maintain an entity file, one record per corporate stock lot, actual acquisition-date tax ownership, annual reviews, advances, and transaction comparisons. Administrative corrections do not amend rights. Maintain a confidential preparer file for private tax information and circulate only needed conclusions.

Before issuance, coordinate California LLC formation and this operating agreement; Delaware charter/bylaws; board and stockholder consents; stockholders’/voting agreements; membership and stock purchase documents; securities exemptions and notices; IP assignments; employment and contractor documents; vesting and repurchase terms; capitalization ledgers; and tax registrations/elections. This agreement is not a replacement for that package. In particular, the corporation and incoming holders must execute appropriate instruments for protected corporate rights; an agreement between LLC members alone does not bind strangers or supersede directors’ duties.

## 3. QSBS: statutory rules versus contractual precautions

Section 1202(g) permits qualifying pass-through stock gain for eligible owners. The member generally must own the LLC interest when the LLC acquires the stock and continuously afterward; eligible gain is limited by the interest held at acquisition. The holding LLC does not automatically create corporate double taxation or a single shared exclusion cap. Separate qualifying taxpayers apply their own limits.

For qualifying stock acquired after July 4, 2025, the federal exclusion tiers are 50% after at least three years, 75% after four, and 100% after five. The fixed eligible-gain base is $15 million per taxpayer/issuer, coordinated with prior gains, with a ten-times-qualifying-basis alternative. The percentage applies to capped eligible gain; the partial exclusion can consume the full eligible-gain amount against fixed capacity. The gross-asset ceiling for stock issued after July 4, 2025 is $75 million under special tax measures. New dollar amounts are indexed after 2026. Older shares have different vintage rules. Do not treat these figures as a guarantee or write them into a permanent contractual warranty. [26 USC 1202](https://www.law.cornell.edu/uscode/text/26/1202).

The issuer must meet original-issuance, C-corporation, gross-assets, active-business, and other conditions. Industry exclusions, working-capital limits, and repurchases can matter. Later founders can use new original issuances, but issuer eligibility must still be tested then. A single-member LLC without a corporate election is generally disregarded federally; a multi-member LLC brings its own pass-through conditions. [IRS single-member LLC guidance](https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies); [redemption regulation](https://www.law.cornell.edu/cfr/text/26/1.1202-2).

The agreement’s annual reviews, approval gates, stock-lot schedule, seven-year post-disposition retention floor, and deadlines for professional information are contractual precautions. They are not IRS certification requirements or safe harbors. Reasonable efforts do not guarantee exclusion or prohibit an approved superior commercial exit.

California does not conform to the QSBS exclusion or Section 1045 rollover. Compute state consequences separately. An excluded federal gain can still require significant California tax cash. [FTB Schedule D instructions](https://www.ftb.ca.gov/forms/2025/2025-540-d-instructions.html).

## 4. Vesting and issuance responsibilities

No vesting is applied by default. A possible negotiated schedule is four years with a one-year cliff and monthly vesting thereafter, but acceleration and repurchase terms must be chosen explicitly. Schedule A and separate issuance documents must agree.

For membership vesting, establish the founder’s tax partner status and economic interest when the LLC acquires each stock lot. An LLC-interest Section 83(b) election does not elect on underlying corporate stock or by itself establish QSBS eligibility. Stock issued for services, contributions of IP, and differing dates at the two levels need advice before transfer. A Section 83(b) election generally has a 30-day deadline measured from property transfer; obtain filing evidence and furnish required copies. [IRS Form 15620](https://www.irs.gov/pub/irs-pdf/f15620.pdf).

Repurchase or forfeiture can change percentages and eligible gain in existing stock and may implicate stock-redemption rules depending on the transaction. Clause 6.4 now expressly accommodates the agreed vesting mechanism while preserving its limits. Do not backdate membership, stock issuance, or elections.

## 5. Common tax advances and accounting

Clause 7.4 uses a common assumed federal/California rate set by income category, rather than paying each member’s actual tax. It uses highest applicable marginal individual rates and only reduces the federal base for QSBS to the extent the preparer supports the exclusion for every member for that gain. This conservative liquidity convention preserves pro rata cash sharing; it can overfund a member with lower actual tax and does not assure full coverage for a member with different tax allocations or other circumstances.

Example: a 30/70 LLC has cumulative assumed tax of $100,000 and has already distributed $40,000 of cash that year. Its additional advance target is $60,000, paid $18,000/$42,000 if lawful cash is available. Cumulative distributions are $30,000/$70,000. If total cumulative distributable economics later equal $200,000, the prior $100,000 is counted once and the remaining $100,000 is $30,000/$70,000. Advances do not create an additional $100,000 entitlement.

If the estimate later falls, reduce future payments; no ordinary personal repayment obligation arises merely from overestimation. Document settlement before ownership changes and final liquidation. Statutory withholding is attributed to the relevant member and reconciled with economic entitlements; it is not authority for an elective entity-level tax. Cash constraints or statutory restrictions can delay advances. Reserves and methodology changes require unanimous consent, while mandatory law applies regardless of agreement. [California Corporations Code 17704.04–17704.06](https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=CORP&division=&title=2.6.&part=&chapter=&article=4.).

The common advance model is intentionally not a full bespoke partnership tax allocation appendix. Counsel/preparer must supply any additional capital-account, Section 704(c), varying-interest, regulatory allocation, liquidation, and audit provisions required for actual contributions and economic arrangements before the affected transaction. These cannot be used to amend minority economics silently. [26 USC 704](https://www.law.cornell.edu/uscode/text/26/704); [26 USC 706](https://www.law.cornell.edu/uscode/text/26/706).

## 6. Exits, transfers, and deadlock

An LLC sale of qualifying corporate shares can pass eligible gain through. A member’s sale of their LLC interest generally cannot claim QSBS on that interest. Corporate asset sales can leave corporate-level tax even if shareholder liquidation gain qualifies. Clause 12.7 requires a written comparison before binding approval and a ten-business-day review period, reducible only by every affected member. It is not a tax veto beyond existing consent rights or a promise of equal after-tax proceeds.

Section 1045 may defer qualifying early-sale gain through replacement QSBS when its holding, reinvestment, election, and 60-day requirements are met; partnership rules need particular attention. [26 USC 1045](https://www.law.cornell.edu/uscode/text/26/1045); [partnership regulation](https://www.law.cornell.edu/cfr/text/26/1.1045-1).

Underlying-stock distributions need unanimous consent, tax analysis, pro rata economics unless affected members agree otherwise, and corporate protections effective at transfer. Section 1202(h) may preserve qualifying distributions to eligible partners; it is not a general guarantee. Gifts of LLC interests and contributions of personal stock to a partnership require separate analysis.

The original fair-value buy-sell mechanism remains for its specified existential deadlocks. It can still compel a sale under its express terms and poses liquidity and funding tradeoffs; counsel should assess those before signing. The expert’s authority is now limited to factual questions and cannot override protected consent or amend rights. Operational departure should also be coordinated with California dissociation law; leaving a job and ceasing to be a legal member are not interchangeable.

## 7. Specific legal-review priorities

Confirm California nonwaivable LLC rules, fiduciary duties, information rights, lawful distributions, member dissociation, and remedies. Confirm Delaware charter and stockholder-agreement implementation, director duties, investor acceptance, and enforceability of protective rights. [California Corporations Code 17701.10](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP&sectionNum=17701.10.); [Delaware corporate governance provisions](https://delcode.delaware.gov/title8/c001/sc04/index.html).

The prior general post-exit restraint language has been replaced with loyalty and trade-secret protection. A passive holding LLC’s existence does not establish a statutory noncompete exception. Any proposed sale/exit restraint requires separate fact-specific drafting and current employment-law review. Also review IP assignment exclusions and third-party rights. [California Business and Professions Code 16600](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16600.); [Section 16602.5](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16602.5.).

Ohio remains a future alternative, not an option within this California draft. A different formation state requires a separate internal-governance rewrite and analysis of actual management and California nexus. It does not change California-resident members’ personal taxation by itself. [FTB doing-business guidance](https://www.ftb.ca.gov/file/business/doing-business-in-california.html).

## 8. Review and release checklist

Reconcile all fields, percentages, definitions, approvals, schedules, vesting documents, tax calculations, and corporate rights. Confirm real formation and transfer dates, not template dates. Verify every personal filing deadline and assign backups. Obtain counsel/preparer sign-off for the actual venture and collect all required member, board, stockholder, and counterparty approvals.

The guide, change summary, and research memo are not operative agreement terms. This package remains Version 2.0 — Public Review Draft. Any future public release should receive a fresh source check, format reconciliation, and recorded review status; it does not amend already signed agreements automatically. DAF design is outside this package.

## 9. September 19 revision — services, awards, and closing

Complete service terms in Schedule C before work begins: compensation and its start, time and availability, authority, resources, expenses, outside activities, and optional severance. A title or equity award does not establish a wage-law exemption. No-cash and deferred arrangements need individualized review; do not infer unpaid service from a blank. [California wage guidance](https://www.dir.ca.gov/dlse/FAQ_MinimumWage.htm).

Milestones are optional and separate from base founder equity. Complete every selected award record before approval or issuance. Identify the denominator: a percentage of a founder LLC is not the same as that percentage of the operating company. State both achievement and any subsequent service vesting, company-controlled dependencies, delay relief, partial-credit choice, and each exit event. The independent expert resolves factual acceptance, not missing commercial terms or consent. Incomplete proposals neither create awards nor forfeit existing interests. Do not impose a sales/customer outcome on a technical founder without expressly allocating its dependencies and risk.

Select acceleration and severance explicitly; the template supplies no universal additional benefit. Existing removal protections remain. The template still permits specified buyout, drag and deadlock events: no-minority-discount valuation is not a guarantee of indefinite ownership. Complete payment provisions in the operative clauses and reconcile every schedule. Do not replace a separately negotiated cash closing with installments inadvertently.

The prior blanket Background IP license in Clause 14.2 has been replaced by an explicit inventory and executed licensing requirement. This is a substantive change. Document the actual owner, permitted use, fees, sublicensing, transfer/change-of-control rights and post-departure continuity. Investor-ready ownership does not mean claiming ownership of open-source, customer data or affiliate technology. An existing assignment is not automatically unwound by this revision. [California Labor Code 2870](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=2870.).

Use Clause 5.4 and Schedule D to coordinate equity and asset steps. If work starts early, sign a lawful interim arrangement with the responsible parties, dates, compensation, IP terms and remedies. NewCo must obtain rights from actual owners; formation alone moves neither assets nor contracts. An agreed service-credit date is not a property-transfer date. Have advisers identify each taxpayer and actual transfer for any election; the statutory 83(b) deadline is generally 30 days after transfer. [26 USC 83](https://www.law.cornell.edu/uscode/text/26/83).

Public review status does not imply independent counsel approval. The agreement, guide and schedules need venture-specific completion and coordinated corporate implementation before signing.