Organizational founder

Last updated November 18, 2023

An organizational founder is a person who has undertaken some or all of the formational work needed to create a new organization, whether it is a business, a charitable organization, a governing body, a school, a group of entertainers, or any other type of organization. If there are multiple founders, each can be referred to as a co-founder. If the organization is a business, the founder is usually an entrepreneur. If an organization is created to carry out charitable work, the founder is generally considered a philanthropist.

Issues arising from the role

A number of specific issues have been identified in connection with the role of the founder. The founder of an organization might be so closely identified with that organization, or so heavily involved in its operations, that the organization can struggle to exist without the founder's presence.^[1] "One practical way to cope with overreliance on a founder is to distribute management duties so that others are clearly responsible for important operations. If the founder is on the nonprofit's board, part of the solution is to make sure that the board is diverse, balanced, and regularly infused with new blood".^[1]

Legal status

The language of securities regulation in the United States considers co-founders to be "promoters" under Regulation D. The U.S. Securities and Exchange Commission's definition of "Promoter" includes: (i) Any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer;^[2] however, not every promoter is a co-founder. In fact, there is no formal, legal definition of what makes someone a co-founder.^[3]^[4] The right to call oneself a co-founder can be established through an agreement with one's fellow co-founders or with permission of the board of directors, investors, or shareholders of a startup company. When there is no definitive agreement, like a shareholders' agreement, disputes about who the co-founders are, can arise.

Founder emeritus

Some organizations maintain a connection with their founder by establishing a position of founder emeritus , either as an entirely symbolic post, or as a position with some power, such as a permanent position on the board of directors. A drawback to such an arrangement is the possibility that the founder will clash with the person who has replaced them as leader of the organization, and that such a conflict will affect the performance of the founder emeritus as a board member.^[5]

Founder's dilemma

In some instances, the desire of the founder to maintain control over the organization becomes a problem because, when an entrepreneurial organization is successful, "[i]t outgrows the ability of the founder, or even of a small team around the founder, to control".^[6] The Harvard Business Review identified this problem as the founder's dilemma, noting that in most successful companies, the founder is pushed out of control by investors within the first few years after the formation of the company.^[7] In some cases, a company may have multiple founders, and a prominent source of conflict can be disagreements between these founders as the company evolves.^[8] There are factors beyond the personality and professional accolades of a startup founder that impact the ability of a company to succeed, like trouble in funding, sudden market shutdown, not having the right team or poor scaling plan.^[9]

Forgotten founder

Another problem that can arise is that of the forgotten founder, a person who participates early on in the formation of an enterprise, but leaves or is ousted before it achieves success, and then returns to claim a legal right to equity, intellectual property, or some other fruits of that success.^[10] To avoid this problem, it is advised that the entity "incorporate early and issue shares that are subject to vesting over time".^[10]

Related Research Articles

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Business is the practice of making one's living or making money by producing or buying and selling products. It is also "any activity or enterprise entered into for profit."

A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship includes all new businesses, including self-employment and businesses that do not intend to go public, startups are new businesses that intend to grow large beyond the solo founder. At the beginning, startups face high uncertainty and have high rates of failure, but a minority of them do go on to become successful and influential.

A nonprofit organization (NPO) or non-profit organization, also known as a non-business entity, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in contrary with an entity that operates as a business aiming to generate a profit for its owners. A nonprofit is subject to the non-distribution constraint: any revenues that exceed expenses must be committed to the organization's purpose, not taken by private parties. An array of organizations are nonprofit, including some political organizations, schools, business associations, churches, social clubs, and consumer cooperatives. Nonprofit entities may seek approval from governments to be tax-exempt, and some may also qualify to receive tax-deductible contributions, but an entity may incorporate as a nonprofit entity without securing tax-exempt status.

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A foundation is a type of nonprofit organization or charitable trust that usually provides funding and support to other charitable organizations through grants, while also potentially participating directly in charitable activities. Foundations encompass public charitable foundations, like community foundations, and private foundations, which are often endowed by an individual or family. Nevertheless, the term "foundation" might also be adopted by organizations not primarily engaged in public grantmaking.

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<span class="mw-page-title-main">Community interest company</span> UK company using their profits and assets for the public good

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A private foundation is a tax-exempt organization that does not rely on broad public support and generally claims to serve humanitarian purposes.

The Jumpstart Our Business Startups Act, or JOBS Act, is a law intended to encourage funding of small businesses in the United States by easing many of the country's securities regulations. It passed with bipartisan support, and was signed into law by President Barack Obama on April 5, 2012. Title III, also known as the CROWDFUND Act, has drawn the most public attention because it creates a way for companies to use crowdfunding to issue securities, something that was not previously permitted. Title II went into effect on September 23, 2013. On October 30, 2015, the SEC adopted final rules allowing Title III equity crowdfunding. These rules went into effect on May 16, 2016; this section of the law is known as Regulation CF. Other titles of the Act had previously become effective in the years since the Act's passage.

References

1 2 Pakroo, Peri (2015). Starting & Building a Nonprofit: A Practical Guide (6th ed.). Berkeley, Calif: Nolo. p. 87. ISBN 978-1413320886.
↑ Securities and Exchange Commission (September 12, 2008), "Guide to Definitions of Terms Used in Form D", SEC.GOV, retrieved July 1, 2014
↑ Lora Kolodny (April 30, 2013). "The Other Credit Crisis: Naming Co-Founders". Wall Street Journal. Retrieved July 1, 2014.
↑ Katie Fehrenbacher (June 14, 2009). "Tesla Lawsuit: The Incredible Importance of Being a Founder". Giga Om. Retrieved July 1, 2014.
↑ Atkins, Betsy (2019). Be Board Ready: The Secrets to Landing a Board Seat and Being a Great Director. NEWTYPE Publishing. p. 84. ISBN 978-1949709339.
↑ White, Colin (2004). Strategic Management. Basingstoke, Hampshire: Palgrave Macmillan. p. 445. ISBN 9781403904003.
↑ Noam T. Wasserman, "The Founder's Dilemma", Harvard Business Review (February 2008).
↑ Shah, Dharmesh (2019) [2010]. "Avoid Co-Founder Conflict". In Cohen, David; Feld, Brad (eds.). Do More Faster: Techstars Lessons to Accelerate Your Startup. Hoboken, New Jersey: John Wiley & Sons. p. 67. ISBN 9781119583288.
↑ Kronenberger, Craig (2021-08-20). "The Top 10 Entrepreneurial Mistakes that Startup Studios Help Address". Startup Studio Insider. Retrieved 2022-02-27.
1 2 Constance E. Bagley, Managers and the Legal Environment: Strategies for the 21st Century (2012), p. 650.