A founders agreement is the contractual foundation of a startup, governing the rights, responsibilities, equity ownership and exit mechanisms of co-founders. While not mandatory under Indian company law, it is a critical risk-mitigation document that prevents disputes as the company grows.
A well-drafted founders agreement addresses: equity allocation and vesting schedules (typically four-year vesting with a one-year cliff), IP assignment (ensuring all intellectual property created by founders vests in the company), roles and responsibilities, decision-making and deadlock resolution, non-compete and non-solicitation obligations (subject to Section 27 of the Indian Contract Act 1872, which voids post-employment non-compete clauses but allows reasonable during-employment restrictions and confidentiality obligations), exit mechanisms including voluntary departure, bad-leaver and good-leaver provisions, drag-along and tag-along rights, and dispute resolution.
AMLEGALS advises founders at the formation stage on structuring the co-founder relationship, drafting and negotiating founders agreements, IP assignment frameworks and early-stage governance. The practice integrates company law, employment law, IP and tax advisory to provide comprehensive startup formation counsel.
Advising on equity splits, vesting schedules, cliff periods and acceleration triggers.
Drafting IP assignment and technology-transfer agreements to ensure all founder-created IP vests in the company.
Defining founder roles, reserved matters, deadlock mechanisms and board constitution.
Drafting enforceable non-compete (during employment), non-solicitation and confidentiality provisions.
Structuring good-leaver and bad-leaver clauses, buyback mechanisms and compulsory transfer triggers.
Incorporating mediation and arbitration clauses tailored to founder disputes.
Yes, a founders agreement is a legally binding contract between co-founders, enforceable under the Indian Contract Act 1872. However, certain provisions — particularly post-employment non-compete clauses — are subject to Section 27, which voids agreements in restraint of trade. Non-solicitation and confidentiality provisions are generally upheld.
Equity vesting is a mechanism by which a founder's equity ownership is earned over time rather than being fully owned from day one. The standard structure is four-year vesting with a one-year cliff: the founder earns no equity during the first year, vests 25% at the end of the first year (the cliff), and the remaining 75% vests monthly or quarterly over the next three years. If a founder leaves before the cliff, they forfeit all equity.
Absolutely. A critical provision of any founders agreement is the assignment of all intellectual property — code, designs, inventions, trade secrets, content — created by the founders to the company. Without this, the IP may remain the personal property of the founder, creating valuation, due-diligence and enforcement problems for the company and its investors.
A founders agreement is typically executed at the formation stage between co-founders before external investment. A shareholders agreement (SHA) is executed when external investors come in and governs the broader relationship between all shareholders — founders and investors — including board rights, information rights, anti-dilution, pre-emption and exit rights. The SHA typically supersedes the founders agreement on conflicting terms.
The founders agreement should specify leaver provisions. A good leaver (departure due to death, disability, or termination without cause) typically retains vested equity. A bad leaver (voluntary departure, termination for cause, breach of the agreement) may forfeit all or a portion of vested equity, with the company having a buyback right at nominal or fair value depending on the clause.
No. No engagement is treated as accepted until conflicts, scope and terms are confirmed in writing.
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