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- Founders' Agreements
Founders' Agreements
A founders’ agreement is a contract between the co-founders of a business that records who owns how much, who does what, how decisions are made and what happens to a founder’s shares if they leave. It is signed early, ideally before or at incorporation, while the founders still agree on everything.
It is governed by the Indian Contract Act, 1872, and its share-related terms should be carried into the company’s articles of association so that they bind the company. Investors read it during due diligence, and their shareholders’ agreement later builds on it or replaces it.
When you need it
Before or at incorporation
The equity split and each founder’s commitment are easiest to settle before the company has value.
When one founder is part-time
Unequal time, money or risk should be reflected in equity, vesting or both.
When work started before the company existed
Code, designs and brand created earlier belong to the individuals until assigned to the company.
Before the first funding round
Investors expect founder vesting, IP assignment and full-time commitment to be documented.
When a founder is leaving
Without agreed terms, a departing founder keeps all their shares and their vote.
How the process works
Four stages. Timings are typical, not promised.
- 1
The founders’ conversation
One or two meetingsWork through the questions founders often avoid: equity, roles and titles, time commitment, salaries, who has the final say, and what each expects if the business is sold or fails.
Documents
- The current or proposed shareholding
- A list of what each founder has contributed so far
- 2
Settle vesting and leaver terms
Part of the same discussionAgree the vesting period and any cliff, what happens to unvested and vested shares when a founder leaves, and the price at which shares are bought back in different circumstances.
- 3
Draft the agreement
Commonly one to two weeksSet out equity, roles, vesting, assignment of intellectual property to the company, confidentiality, restrictions on outside activities, decision-making, deadlock, transfer of shares and dispute resolution.
- 4
Sign and align the articles
At signingStamp and sign the agreement, sign the IP assignments, and amend the articles of association so that the transfer restrictions and leaver provisions bind the company.
Common questions
No. But without one, each founder owns their shares outright from the first day, with no obligation to stay or to return them on leaving, and the only rules are those in the Companies Act and the standard articles.
An arrangement under which a founder earns their shares over time, commonly four years with a one-year cliff. In India the shares are usually issued at the start, and the agreement gives the company or the other founders the right to buy back the unearned part if the founder leaves.
They set what a departing founder receives. A good leaver, for example one who leaves through illness, usually keeps vested shares or is paid fair value. A bad leaver, for example one dismissed for misconduct, may have to sell at a lower price.
The founder, until it is assigned. Copyright in code, content and designs belongs to the person who created it, and passes to the company only by a written assignment. Investors check for this.
While they are a founder and employee, yes. A restriction after they leave faces section 27 of the Indian Contract Act, which makes restraints of trade void. Confidentiality and non-solicitation terms give more reliable protection.
A founders’ agreement is between the founders, before outside investors. A shareholders’ agreement includes the investors and adds their rights. When a round closes, the shareholders’ agreement usually absorbs or replaces the founders’ agreement.
There is no legal rule. Equal splits are simple but can cause deadlock. Many founders weigh the idea, capital put in, time commitment and future role, and use vesting so that equity follows the work actually done.
Related
To discuss a founders’ agreement, write to info@ireniclegal.com or call +91 96547 47331. Written by Adv. Kanika Marwaha Bindal; last updated 7 October 2026.