Founder / Co-Founder Agreement
Don't let legal paperwork stress you out. Get a professionally drafted founder / co-founder agreement prepared by experienced Supreme Court & High Court advocates. Customized to your specific situation.
Typically ₹1,500 – ₹5,000+ from a brick-and-mortar law firm. Get the same court-ready quality online — with no office visit.
Need it urgently? Call us now for express delivery within 24 hours.
Secure & Confidential
Get Your Founder / Co-Founder Agreement Drafted
Just your name + phone is enough. We'll confirm the details on WhatsApp — no long forms, no obligation.
Drafted within 24-48 Hours — order now, pay after review.
What is a Founder / Co-Founder Agreement?
A founder or co-founder agreement (often called a founders' agreement) is a contract among the people who start and operate a company, typically executed alongside the incorporation of a private limited company or LLP in India. It records the fundamental ground rules of the founding team: each founder's role, equity ownership, capital contribution, the division of responsibilities, vesting of shares, and what happens if a founder leaves, underperforms or passes away.
Although the phrase is often used loosely, in practice a founders' agreement works hand in hand with the Articles of Association and a Shareholders' Agreement. Under the Companies Act, 2013, the internal governance of a company is governed by its constitutional documents, so the founders' agreement must be drafted to be consistent with those documents and with the Companies (Incorporation) Rules. Getting this right at the start prevents the disputes that destroy a large share of early-stage startups.
Key Clauses & What's Included
- Founder Details and Roles — the identity, designation and specific responsibilities of each founder, and the committed time (full-time or part-time) each will devote.
- Equity Split and Capital Contribution — the percentage holding of each founder, based on value contributed and not merely headcount, with clarity on cash versus sweat equity.
- Vesting Schedule — shares that vest over time (typically four years with a one-year cliff) so that a founder who leaves early returns their unearned shares; the right of the company or other founders to buy back unvested shares.
- IP and Inventions Assignment — assignment to the company of all intellectual property, code, branding and work created by any founder, including before incorporation, which investors will insist upon in due diligence.
- Confidentiality and Non-Solicitation — protection of the company's ideas, client lists and employees, and reasonable post-departure restrictions.
- Decision-Making and Deadlocks — how major decisions are taken, which matters require what majority, and a deadlock-resolution mechanism (mediation, arbitration or a buy-sell trigger).
- Good and Bad Leaver Provisions — different treatment (and often reduced or forfeited equity) for a founder who leaves on good terms versus one who leaves in breach or is terminated for misconduct.
- Non-Compete — restrictions on a departing founder starting a directly competing business for a reasonable period, drafted in a manner consistent with Section 27 of the Contract Act and market norms for founders.
- Termination and Board Matters — grounds for removing a founder or director, and rights to board seats for higher-holding founders.
- Dispute Resolution and Governing Law — courts and arbitration seat, typically aligned to the company's registered office.
Who Needs This & When to Use
A founders' agreement is essential whenever two or more people start a business together, regardless of whether they are friends, family or strangers. It is also recommended when a solo founder brings in a co-founder later, when a key early employee is being granted meaningful equity, or before a startup raises its first institutional round, when investors will expect founder equity to be vested and IP to be cleanly assigned.
The document is not just for protection during disputes — it sets professional expectations about commitment and accountability. A clear agreement also significantly smooths the investor due-diligence process, because it demonstrates that ownership, roles and intellectual property are properly documented.
How We Draft It & Process
We begin by understanding your startup: the number of founders, their backgrounds, the contributions and cash invested, the current or proposed shareholding, and your plans for future hiring and funding. We separately check whether the company is already incorporated so that the agreement aligns with your existing Articles of Association.
We then draft a bespoke founders' agreement with a fixed-fee quote issued at the outset. We explain each clause — particularly vesting, good-leaver/bad-leaver treatment and IP assignment — in plain English, so the team understands real consequences before signing. If any founder has comments, we facilitate the redline negotiation. Finally, we deliver the executed agreement in editable format alongside a short checklist of the incorporation and governance steps you should complete promptly.
FAQ
Q1. Is a founders' agreement the same as a Shareholders' Agreement?
No, though they overlap. A Shareholders' Agreement (SHA) governs the rights of all shareholders, including investors, with provisions like board seats, veto rights and exit rights. A founders' agreement specifically governs the relationship among founders, most importantly equity split, vesting and departure terms. Most well-structured startups have both, and we can coordinate the two documents.
Q2. How does vesting work and why does it matter?
Vesting means shares are earned over time rather than owned outright on day one. A common pattern is a four-year vesting schedule with a one-year cliff: a founder who leaves in the first year keeps nothing, and thereafter earns shares monthly. This protects the company when a founder quits early, and is effectively mandatory before most venture capital investment.
Q3. Can founders change the equity split later?
Yes, with mutual consent, typically effected by transferring shares and amending the agreement and, where required, the articles. However, changing an equity split becomes increasingly difficult once the company has issued shares to employees or investors, which is another reason to lock down the split and vesting early. Any transfer of shares must comply with the Articles of Association and the Companies Act.
Co-Founder Agreement: A Complete Guide for Indian Startups
A Co-Founder Agreement (often called a Founders Agreement) is the foundational contract that governs the relationship between the people who start a company together. While incorporation documents register the company with the Ministry of Corporate Affairs, the co-founder agreement defines how the founders actually work together, how ownership is shared, who decides what, and what happens when paths diverge. For Indian startups in particular, where venture funding depends on a clean cap table and clear governance, this document is not optional \u2014 it is the first thing any investor or accelerator will ask to see during due diligence.
Many founders postpone this conversation to avoid an awkward discussion about equity and control. That is a mistake. Disputes over ownership and roles are among the leading causes of startup failure in India, and resolving them without a written agreement almost always ends in litigation under the Companies Act, 2013 or the Indian Contract Act, 1872. A well-drafted co-founder agreement converts informal trust into enforceable obligations and turns ambiguity into clarity from day one.
Key Clauses Every Co-Founder Agreement Must Contain
A comprehensive co-founder agreement drafted under Indian law should address the following essential clauses:
- Parties & Company Details \u2014 names and addresses of each founder, the company name, registered office, and whether it is a private limited company, LLP or partnership.
- Equity Split & Shareholding \u2014 the percentage of ownership and number of shares each founder holds, the consideration paid, and the rationale for the split (capital, time, IP, network). Read more on shareholders agreements for how this interacts with investor rounds.
- Vesting Schedule \u2014 a time-based vesting mechanism (typically four years with a one-year cliff) so that equity is earned over time and a departing founder does not walk away with a large permanent stake.
- Roles, Responsibilities & Authority \u2014 who handles product, technology, sales, fundraising and operations, plus the decision-making thresholds for major and day-to-day matters.
- Intellectual Property (IP) Assignment \u2014 confirmation that all IP created for the business is assigned to the company, protecting it under the Copyright Act, 1957 and the Patents Act, 1970.
- Time Commitment & Non-Compete \u2014 whether the role is full-time or part-time, and restrictions on competing ventures (drafted carefully given Section 27 of the Indian Contract Act, 1872).
- Decision-Making & Deadlock Resolution \u2014 voting rights, board composition, quorum, and a tie-breaking mechanism to avoid gridlock.
- Dispute Resolution \u2014 a staged clause moving from negotiation to mediation to binding arbitration under the Arbitration and Conciliation Act, 1996.
- Exit, Termination & Buy-Back \u2014 the process if a founder resigns, is terminated, dies or becomes incapacitated, including how vested and unvested shares are handled.
- Confidentiality \u2014 protection of trade secrets and business information, often paired with a separate Non Disclosure Agreement (NDA).
- Governing Law & Jurisdiction \u2014 the state whose laws apply and the seat of arbitration.
Equity Split: Getting It Right
Equity is the most contested element of any co-founder agreement. A reflexive 50/50 split is dangerous because it creates a deadlock risk with no tie-breaker; equally, an arbitrary split can demotivate a key contributor. The right approach is to weigh each founder\u2019s capital contribution, opportunity cost (foregone salary), intellectual property, network and customers brought in, and the ongoing role they will play. The agreement should record the agreed percentage, the number of equity shares or partnership units, and whether a portion is subject to vesting. Splits should also anticipate future dilution from an employee stock option pool (ESOP) and incoming investors, so founders are not surprised when a funding round reduces their stake.
Share Vesting: Protecting the Company Over Time
Vesting is the mechanism that earns a founder their equity over a set period rather than granting it all upfront. The standard structure is a four-year vesting period with a one-year cliff: no equity vests during the first year, after which one-quarter vests, followed by monthly vesting for the remaining three years. If a founder leaves before the cliff, they forfeit all unvested shares, which the company or remaining founders can buy back. The clause should also address acceleration \u2014 whether vesting speeds up on an acquisition (single trigger) or only on acquisition plus termination (double trigger) \u2014 and how unvested shares are treated on death, disability or termination without cause. Proper vesting protects the startup from "free rider" scenarios and is a standard requirement in term sheets.
Intellectual Property Assignment
Investors will not fund a company whose IP is owned by a founder personally rather than the entity. The co-founder agreement must contain an express IP assignment clause transferring all present and future IP \u2014 source code, algorithms, branding, domain names, designs, customer lists and trade secrets \u2014 created in connection with the business to the company. Under Indian law, while the Copyright Act, 1957 and the Patents Act, 1970 provide frameworks for ownership, an express written assignment removes all doubt and is essential for due diligence. The clause should also cover moral rights waivers where appropriate and confirm that pre-existing IP contributed by a founder is licensed or assigned on defined terms.
Dispute Resolution & Deadlock
Even the closest co-founders disagree. The agreement should set out a clear escalation path: first, good-faith negotiation between the founders for a defined period (often 15\u201330 days); second, mediation by a neutral third party; and third, binding arbitration under the Arbitration and Conciliation Act, 1996, with a named seat (such as Mumbai, Bengaluru, Delhi or Kolkata), the number of arbitrators and the language of proceedings. For board-level deadlocks, the clause can require a casting vote for a designated lead founder, a requirement for unanimous consent on reserved matters (capital raise, sale, hiring C-suite), or a "shotgun" buy-sell clause as a last resort. Choosing arbitration over civil court litigation keeps disputes confidential and fast \u2014 critical for a startup\u2019s reputation.
Termination and Founder Exit
A founder\u2019s departure is the single most disruptive event a startup faces. The agreement should distinguish between a voluntary exit (resignation), an involuntary exit (termination for cause, such as breach, misconduct or prolonged incapacity), and a good leaver / bad leaver framework. For each, it should define the notice period, how vested shares are treated (often retained, sometimes with a buy-back right at fair value), how unvested shares are forfeited or accelerated, and any post-exit restrictions including non-compete (enforceability limited by Section 27 of the Indian Contract Act, 1872) and non-solicitation of employees and clients. Pairing this with a vesting and a consultancy or employment arrangement ensures continuity of service.
Related Agreements You May Also Need
A co-founder agreement rarely stands alone. As the company grows, founders typically require a suite of connected documents:
- Non Disclosure Agreement (NDA) \u2014 one-way or mutual, to protect confidential information shared with co-founders, employees and vendors.
- Shareholders Agreement (SHA) \u2014 governs the rights of founders and incoming investors once external capital is raised.
- Employment Agreement / Offer Letter \u2014 formalises each founder\u2019s employment terms with the company.
- Joint Venture Agreement \u2014 when two or more entities collaborate on a specific venture.
- Franchise Agreement and Master Services Agreement \u2014 for expansion and ongoing commercial relationships.
You can explore our full range of corporate, business & commercial contracts drafted by experienced Indian advocates.
Frequently Asked Questions About Co-Founder Agreements
What is a co-founder agreement and why do Indian startups need one?
A co-founder agreement is a binding contract between the founders of a company that sets out each person\u2019s role, equity share, responsibilities, IP rights and the rules for resolving disputes or handling a founder\u2019s exit. For Indian startups it is essential because, without it, the Companies Act, 2013 and the LLP Act, 2008 leave sensitive questions like equity dilution and deadlock to default provisions that rarely match the founders\u2019 intentions. A written agreement prevents costly litigation and gives investors confidence that the cap table and governance are settled.
How should founders split equity in a co-founder agreement?
Equity split should reflect each founder\u2019s contribution \u2014 capital, time commitment, intellectual property, network and the value they bring over time \u2014 rather than a default 50/50 split. Most Indian co-founder agreements record the agreed percentage, the number of shares each founder receives, the consideration paid, and whether a portion is subject to a vesting schedule. Avoid equal splits that can create deadlocks; instead, agree a clear majority or tie-breaking mechanism for board decisions.
What is share vesting and how does it protect the startup?
Vesting is a schedule (commonly 4 years with a 1-year cliff) under which a founder earns their equity over time. If a founder leaves before the cliff, they forfeit unvested shares, protecting the company and remaining founders from a situation where a departed co-founder holds a large permanent stake. The vesting clause in the co-founder agreement should specify the schedule, acceleration triggers (e.g., acquisition or termination without cause), and how unvested shares are handled on exit.
How does a co-founder agreement handle intellectual property (IP) assignment?
The agreement should include an IP assignment clause confirming that all IP \u2014 software code, branding, trade secrets, designs and know-how \u2014 created by a founder in connection with the business is assigned to the company, not retained personally. Under Indian law this is reinforced by the Copyright Act, 1957 and the Patents Act, 1970, but an express assignment clause avoids ambiguity about ownership and is a prerequisite for most investor due diligence.
What happens if a co-founder wants to leave or is removed?
The agreement should define a clean and defined exit process: how a founder can resign, the notice period, how their vested and unvested shares are treated (often a buy-back right for the company or remaining founders), any non-compete and non-solicitation restrictions enforceable under Section 27 of the Indian Contract Act, 1872, and the handling of confidential information after departure. This is typically paired with a vesting and a "leaver" clause.
How are disputes between co-founders resolved under the agreement?
Most co-founder agreements in India adopt a staged dispute-resolution clause: first good-faith negotiation between the founders, then mediation, and finally binding arbitration under the Arbitration and Conciliation Act, 1996 with a specified seat (e.g., Mumbai, Bengaluru or Delhi) and governing law. Choosing arbitration over court litigation is faster, confidential and well-suited to startup disputes, and the clause should name the number of arbitrators and the language of proceedings.
Is a co-founder agreement legally valid and enforceable in India?
Yes. A co-founder agreement is a valid contract under the Indian Contract Act, 1872 provided it is executed by competent parties for lawful consideration with free consent. To be fully enforceable it should be stamped and executed on appropriate stamp paper as per the Stamp Act, 1899 of the relevant state, signed by all founders, and ideally notarized. For a private limited company it should be consistent with the Articles of Association and the Companies Act, 2013.
Ready to Get Started?
Get your founder / co-founder agreement drafted by an expert advocate today.
Scroll to Order FormRelated Articles & Insights
Frequently Asked Questions
Need Expert Legal Advice?
Chat directly with a verified lawyer for just ₹99. Get personalized guidance on your founder / co-founder agreement.
Stop Worrying About Legal Paperwork
Let our expert advocates handle your founder / co-founder agreement. Professional, confidential, and delivered to your inbox.
100% Confidential • Attorney-Client Privilege • No Obligation