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A co-founder agreement prepares founders for potential challenges and aims to maintain amicable relationships even if the partnership dissolves. It functions similarly to a pre-nuptial agreement, outlining essential terms for co-founders. In this video, startup lawyer Feijo explains the significance of a co-founder agreement, its key terms, and its lifecycle, highlighting that conflicts among co-founders often lead to startup failures. He describes the agreement as a short form of a shareholders agreement, particularly relevant for startups that use funding mechanisms like YC SAFE, where shares are not issued until a significant event occurs. Understanding these elements is crucial for co-founders.