Founders Agreement

Most Indian startups die not from market failure but from a co-founder break-up that destroys the cap table — and almost always because there was no Founders Agreement, or one signed off the internet that did not survive thirty seconds of investor scrutiny. By 2026, every credible Indian investor — from angel networks and family offices to Peak XV, Accel, Blume, Chiratae, Lightspeed and Elevation — asks for the Founders Agreement on the very first DD checklist. If it is missing, or if it is a 4-page template, the round is either re-priced downwards or quietly dropped. The equity number is rarely where the dispute happens. Vesting, IP ownership, leaver outcomes and decision deadlock — that's where the cap table either survives or implodes.

A Founders Agreement is not a friendship contract. It is the operating constitution of the company — drafted while everyone is still aligned, before there is anything meaningful to fight over. The legal architecture: Indian Contract Act 1872 (offer, acceptance, consideration, free consent, Section 27 — restraint of trade), Specific Relief (Amendment) Act 2018 (injunction the default remedy for breach of restrictive covenants and IP), Companies Act 2013 (Section 56 share transfers, Section 62 rights issues / preferential allotments, Section 188 related-party transactions, AOA alignment), Copyright Act 1957 Section 19 (written assignment of IP), Income-tax Act (Section 56(2)(x) and Section 17(2) — sweat equity / share-issuance tax), FEMA (where any founder is non-resident), DPDP Act 2023 (founder access to user data) and Indian Stamp Act + State Schedule (stamping of share-transfer / vesting / leaver instruments).

We draft Founders Agreements that pass the Series A diligence test on day one — for tech startups, D2C brands, fintech, healthtech, AI / SaaS, services firms turning into companies, and family-business spin-outs. Not a template. A negotiated, board-ready instrument that aligns with the eventual SHA, the ESOP plan, and the IP assignment deeds.

What a Real Founders Agreement Locks Down

• Equity Split & Reverse Vesting:: 4-year vest with a 1-year cliff is the market standard in India in 2026; we tune the schedule for full-time vs part-time founders, technical vs commercial roles, and pre-incorporation vs post-incorporation contribution. Unvested shares clawback to the company at a defined formula price (par / book / fair value depending on leaver category).

• Roles, Time Commitment & Title:: Defined founder titles, full-time exclusivity, KPI-linked role expectations. No 'we'll figure it out later'. Where one founder is part-time or advisory, the equity is calibrated explicitly.

• Reserved Matters & Decision Protocols:: Which decisions need unanimity, which need a majority, which the CEO can take alone. Drafting around the inevitable 50-50 deadlock — Russian roulette / Texas shoot-out / mediation-first / casting-vote chair — is the most under-rated clause in Indian founder agreements.

• IP & Inventions Assignment:: All pre-incorporation and during-tenure IP assigned to the company in a separate IP Assignment Deed under Section 19 Copyright Act 1957 — without this, the company does not own its product, and the seed round does not close.

• Good Leaver / Bad Leaver Clauses:: Founder exits before vesting completes — unvested shares clawback. Bad leaver (breach of agreement, fraud, voluntary exit before cliff, termination for cause) — even vested shares may be repurchased at par. Good leaver (death, disability, mutual separation) — vested stays, often with extended exercise window. Repurchase price formula explicit.

• Non-Compete, Non-Solicit & Confidentiality:: During tenure: full non-compete enforceable. Post-exit: drafted to the legitimate-business-interest test under Section 27 ICA (Niranjan Shankar Golikari, Percept D'Mark) — narrow, time-bound (12-24 months), geography-bound, sector-specific. Non-solicit of employees / customers / investors stands more durably and is treated separately.

• ESOP Pool Pre-Allocation:: A 10-15% ESOP pool carved out before fundraising, with defined vesting and cliff, so the dilution is from the founders' own pre-money — not from incoming investors. Done right, this protects valuation by 1-2x at term sheet.

• Dispute Resolution:: Arbitration seat (typically Mumbai / Bengaluru / Delhi), governing law Indian, escalation hierarchy (mediation first), Arbitration & Conciliation Act 1996 — designed to keep cap-table fights out of public court.

Why Templates Off the Internet Get Founders Killed at DD

They miss IP assignment (so the founders, not the company, own the code). They miss reverse vesting (so an early exit walks with full equity). They are signed without ROC and AOA alignment (so the cap table on the register doesn't match the contract). They use US-style 'work for hire' boilerplate that has no statutory anchor in Indian copyright law. They miss leaver triggers and price formulas. Investor counsel spots all of this in twenty minutes — the round either re-prices or dies. We draft to close every one of these gaps before the first conversation with a VC.