You can demote anyone who is equal or lower than you in terms of rank (so town founders can demote other town founders and all other players). You can also promote players to any rank as high as your own. [When I say rank here I mean town management status.]
To do this, click on your town hall, click on residents, click on the resident you want to promote or demote, and it will give you the options available for that player. It won't let you go straight from nothing to founder status, so you need to promote someone to councillor first then you can promote them again to founder.