Corporate agreements

Founders' Agreement

A Founders' Agreement is a contract that governs the relationship among the co-founders of a company. It sets out the foundational understanding on equity ownership, roles, intellectual property assignment, and the consequences of a founder's departure.

This agreement is typically executed before or around the time of incorporation. It is a contract under the Indian Contract Act, 1872, read with the Companies Act, 2013, and is designed to protect the venture's stability during its earliest stage.

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Governing law
Indian Contract Act, 1872 + Companies Act, 2013
Sections
s. 27

When this is the right filing

  • To define the equity split among co-founders before or shortly after incorporating a company.
  • To assign specific roles and responsibilities to each founder.
  • To establish a vesting schedule for founder shares, ensuring commitment over time.
  • To secure the company's ownership of all intellectual property created by the founders for the venture.
  • Do not use this document to govern the relationship with external investors; a Shareholders' Agreement is the appropriate instrument once investment is received.

What the court looks for

  • A clear and unambiguous record of the agreed equity split among the founders.
  • Defined roles and responsibilities for each founder, demonstrating a clear operational structure.
  • Robust intellectual property assignment clauses that transfer all relevant IP to the company.
  • Leaver provisions that detail a fair buy-back mechanism, as a post-association non-compete clause is void under Section 27 of the Indian Contract Act.
  • Consistency with the company's Articles of Association, particularly regarding share vesting and transfer restrictions.

The structure the court expects

The components of the filed format, in the order they appear. LexPilot fills every one of them from your facts and papers.

  1. 1Recitals
  2. 2Schedule 1 — equity split
  3. 3Schedule 2 — roles
How it opens
WHEREAS the Founders [intent] a business under the name [venture name] engaged in [business] (the "Business"/"Company"); AND WHEREAS the Founders wish to record their understanding regarding their respective equity, roles, contributions, and the terms governing their association.

Bracketed items are filled from your case.

Frequently asked questions

Why does this agreement not contain a non-compete clause for after a founder leaves?

Under Section 27 of the Indian Contract Act, 1872, any agreement that restrains a person from exercising a lawful profession, trade, or business is void. Therefore, a post-association non-compete clause is unenforceable. The agreement instead uses vesting schedules, leaver buy-back provisions, and confidentiality clauses to protect the company's interests.

How does a Founders' Agreement interact with a future Shareholders' Agreement (SHA)?

A Founders' Agreement is an early-stage contract that is typically superseded or expanded upon by a SHA when external investors come in. It is critical to keep the terms of both agreements consistent. Provisions on vesting and share transfers in the Founders' Agreement should be mirrored in the company's Articles of Association and the eventual SHA.

Is it necessary to register a Founders' Agreement?

No, a Founders' Agreement is a contract under the Indian Contract Act, 1872, and does not require registration. Stamp duty is payable as per the applicable State stamp act, and the amount is generally nominal.

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