As a founder or CEO, you pour everything into your business; I know I have and still do, this is your time, money, energy, and often, your health. But what happens when burnout strikes, or unforeseen circumstances force you to take a step back? Too often, founders realise too late that their rights, shares, and financial security are not as protected as it should be.

The problem is how do you spot the warning signs of burnout, take proactive steps, and secure your position legally. It’s never too late.

Spotting the Signs of Burnout

Burnout often creeps in unnoticed. Long hours, constant pressure, and high stakes can lead to:

• Physical exhaustion
• Difficulty focusing or making decisions
• Loss of motivation or passion
• Strained relationships with co-founders, investors, or your team
• Relationship breakdown at home due to guilt and late hours
• Worse symptoms can arise

Recognising these signs early is crucial. Ignoring them can have severe consequences, not just for your health but also for your business or relationships. We all need to take time off, reflect and even seek medical support depending on the level of symptoms, but do we need further support?

Why is Legal Protection Essential, as my Co-founder is my mate you say!

When burnout or illness strikes, your legal documents can either save you or leave you vulnerable. Many founders use template agreements that favour investors or fail to account for the founder’s long-term wellbeing. This doesn’t seem to be of concern when the company isn’t making money or of value yet, the shareholders are full of energy, and the founders were friends and having fun.

This can change when you scale or times are tough, and so can friendships and promises. We have seen too many broken relationships end in disputes, loss of shares or the company’s folding and worse is, the wellbeing and health often impacted by the anxiety of this.

So why risk it, a legal framework to build upon makes good commercial sense and if it offers future protection, all the better. This should include:

1. Shareholders’ Agreements

• Protecting Your Shares: Without specific clauses, founders may lose their shares if they need time away from the business for sickness or any other reason. Perhaps they need to step down as MD or CEO or, worse, need to leave the business altogether. What if the company can’t pay you immediately, or there are restrictions or clauses where you have agreed to fixed minimum periods of work?
• Bad Leaver or Early Leaver Clauses: Some agreements strip you of shares or reduce their value if you leave before a fixed period for capacity or other reasons. Ensure your agreement requires fair buyout terms at full value where reasonable and by a means where the company can actually afford to pay you.
• Conflict Protection: Safeguard against investor or co-founder disputes over your role during illness or absence; protecting yourself as a director is essential, not just something to consider for employees.

2. Directors’ Service Agreements

• Unlike employees, directors don’t have automatic sick pay or benefits. In addition, even if you have a potential claim of unfair dismissal after 2 years, this isn’t always enough. A tailored service agreement can include:
  • Paid leave for illness or recovery
  • Clear terms for alternative roles or remote working
  • Protections against unfair removal by investors protecting your shareholding
  • Affording you benefits and protections of notice pay, garden leave, annual leave and other benefits
  • Cross references to your shareholding – defines bad leaver and good leaver so you can protect your shareholding and avoid unfair dismissal or breach of contract disputes forcing you out and taking your shareholding.

3. Employment Rights Cross-Referenced with Shareholder Rights

• Founders often overlook the overlap between employment and shareholder rights. Proper documentation strengthens your position and ensures:
  • Protection under the Equality Act for long-term illness or disability
  • Unfair dismissal protections tied to your directorship and your shareholding
  • Capacity and alternative roles
  • Sickness pay and other employee benefits

4. Steps to Protect Yourself

1. Plan Ahead:

• Draft or review your shareholders’ agreement to include fair exit and buyout terms.
• Ensure your service agreement provides financial and role security during illness or absence.
• Make sure you consider the future – if you want to exit, have a divorce, suffer long-term sickness or have a dispute with another founder or investor, what protection and rights have you secured for yourself?

2. Understand Restrictive Covenants:

• Know what you’ve agreed to in terms of garden leave, paid sick leave, or payment in lieu. What restrictions have you agreed to if you leave the company? Can you still work in the same sector?

3. Document and Communicate:

• Record health concerns with a doctor. In case these are needed during any dispute over next steps or reasonable adjustments which are to be made
• Communicate with co-founders or investors to find workable solutions.

4. Consider Insurance:

• Policies for long-term illness can provide financial stability when you need it most. Keyman Insurance, for example, and/or
• Cross-option insurance, should a founder/shareholder pass away, can pay the estate the share value.

5. Review Staff Policies:

• A staff handbook or internal policies may offer additional rights or benefits. These don’t have to only apply to staff but can also be applied to directors/founders.

Don’t Wait Until It’s Too Late

Every founder will face challenges potentially with health or burnout at some point. The key is being prepared. By taking the right steps and seeking advice early, you can protect your health, business, and financial future. Hindsight can be painful, proactive preparation is invaluable. However, it’s never too late to consider these aspects, be it as a start-up or if operational and established.

If you’re a founder or CEO worried about burnout or the gaps in your legal protection, we’re here to help. At A City Law Firm, we specialise in drafting bespoke agreements and policies to ensure you’re secure, no matter what happens. Visit www.acitylawfirm.com to learn more and book a consultation today.

A City Law Firm Limited is a leading entrepreneurial law firm in the city of London, with a dynamic and diverse team of lawyers. It has been awarded many accolades for his innovative work with emerging technologies, founders initiatives and scale-up support. They specialise in tech law, scaling and investment ready business law, IP and commercial litigation. They offer bespoke, specialist, friendly advice and support at competitive prices.