The documents that decide who owns your company.
Upload a shareholders agreement, founder agreement, term sheet or ESOP letter and get vesting, transfer restrictions, investor vetoes and IP assignment checked against Indian company law.
What people are surprised to learn
A transfer restriction that is not in the articles may not bind the company.
Companies Act Section 58 addresses transferability, and restrictions agreed only in a shareholders agreement are the classic Indian gap. We flag the restriction and name the provision so you can raise it with your advocate.
What this review checks
- Share transfer restrictions, and whether the articles carry them
- Founder vesting, cliffs, and good-leaver versus bad-leaver terms
- Buy-back valuation and forfeiture at nominal value
- Founder non-compete, and the goodwill exception under Section 27
- IP assignment to the company, including pre-incorporation work
- Investor vetoes, board composition and information rights
- Related-party transactions and loans under Sections 188 and 185/186
- Foreign investment under FEMA, and LLP versus company drafting
Quick answer
What should I check in a shareholders or founder agreement in India before signing?
Check how founder shares vest and what happens to unvested shares if you leave, including the good-leaver and bad-leaver price; whether transfer restrictions are also in the articles; which decisions need investor consent; how board seats are allocated; what IP you assign to the company, including work done before incorporation; any non-compete after you exit; and how disputes are resolved and where.
Who this review is for
- Co-founders setting out equity, roles and vesting between themselves
- Founders signing a term sheet or shareholders agreement with angel or seed investors
- Early employees reviewing an ESOP grant letter
- Angel investors checking the rights they are actually getting
- Founders whose co-founder is leaving and who need to read the exit terms
How it works
- 1
Upload the agreement
PDF, Word, a photo or pasted text, with its schedules and annexures.
- 2
Choose your State
Stamp duty on the agreement varies by State, so the report tells you exactly what to confirm locally.
- 3
Read the report
Vesting, leaver terms, transfer restrictions, investor rights, IP and restraints, each explained in plain English with the clause quoted.
- 4
Raise the points
A suggested redline and a polite email to the other side, phrased as questions rather than demands.
8 red flags to look for
Bad-leaver terms that cover resignation for any reason
A founder who simply chooses to leave can be forced to sell vested shares at a nominal price.
Transfer restrictions that appear only in the shareholders agreement
They generally bind the signatories to each other as a contract (Companies Act s.58 says so expressly for public companies), but binding the company or a new shareholder usually means writing them into the articles.
A long list of investor vetoes over day-to-day decisions
Hiring, budgets or small contracts can stall until an investor signs off.
IP assignment with no duration, territory or list of works
Under Copyright Act s.19 an assignment silent on duration is deemed to be for five years and one silent on territory is presumed to cover India only.
A founder non-compete that runs for years after exit
Section 27 of the Contract Act makes restraints of trade void, with a narrow exception for a seller of goodwill within reasonable local limits.
A guaranteed exit or fixed return for a foreign investor
Assured returns and pre-agreed exit prices sit uneasily with the pricing rules under FEMA and need checking.
Loans or guarantees between the company and founders
Companies Act s.185 and s.186 restrict and condition these; the arrangement may need approvals it does not mention.
Arbitration where one side appoints the sole arbitrator
Open to challenge under Arbitration Act s.12(5) read with the Seventh Schedule.
Terms explained
- Shareholders agreement (SHA)
- The contract among shareholders, and usually the company, on control, transfers and exits.
- Articles of association
- The company’s constitution. Rights meant to bind the company itself are usually written into it.
- Founder vesting
- An arrangement under which a founder’s shares are earned over time, often through a right to buy back unvested shares on exit.
- Good leaver and bad leaver
- Categories that decide the price a departing founder receives for their shares, usually fair value against a nominal or lower price.
- Reserved matters
- Decisions that need investor consent, such as new share issues, borrowing or changing the business.
- Right of first refusal (ROFR)
- A right for existing shareholders to buy shares before they are sold to an outsider, on the same terms.
- Tag-along and drag-along
- Tag-along lets minority holders join a sale; drag-along lets the majority force them to sell on the same terms.
- Liquidation preference
- An investor’s right to be paid first, often its investment back, when the company is sold or wound up.
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Founder & Startup FAQs
What should I check in a shareholders or founder agreement in India before signing?
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Check how founder shares vest and what happens to unvested shares if you leave, including the good-leaver and bad-leaver price; whether transfer restrictions are also in the articles; which decisions need investor consent; how board seats are allocated; what IP you assign to the company, including work done before incorporation; any non-compete after you exit; and how disputes are resolved and where.
Do I need a founder agreement if we already have a shareholders agreement?
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Often the two overlap, but a founder agreement usually covers what investor documents leave out: roles, time commitment, vesting between co-founders and IP created before incorporation. If co-founders hold shares with no vesting and one leaves early, they may keep their full stake. The report shows which of these points your documents cover and which they do not.
How does founder vesting work in India?
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Shares, once issued, do not simply “unvest”. Founder vesting is usually set up as a right for the company, the other founders or a nominee to buy back or take a transfer of unvested shares if a founder leaves. That mechanism has to work under company law and the articles, so the report checks who buys, at what price, and whether the articles support it.
Can investors remove me as a founder or director?
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That depends on how board seats are allocated, which reserved matters need investor consent, and whether your role is tied to employment terms that can be ended. A shareholders agreement often gives investors a strong say over the CEO. The report lists every clause that affects your board seat, your job and your shares, and shows how they connect.
What is a liquidation preference and should I worry about it?
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It decides who is paid first when the company is sold or wound up. A simple preference returns the investor’s money before others share. A participating preference lets the investor take its money back and also share in the rest, which can leave founders far less in a modest sale. The report explains the type and works through what it means in words.
Does my ESOP grant letter give me shares?
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No. An ESOP grant is an option to buy shares later at the exercise price, once the options vest. Check the vesting schedule, how long you have to exercise after leaving, what happens if the company is sold, and whether the letter matches the scheme the company adopted. Tax on exercise and sale depends on your situation, so confirm it with your chartered accountant.
Who owns the code and designs I created before we incorporated?
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Generally whoever created it, unless it has been assigned. Work made before the company existed was not made in the course of employment by it, so the company needs a written, signed assignment under Section 19 of the Copyright Act that identifies the work. A brand name or logo may need a separate trade mark assignment. Without one, investors may find the company does not own its core product. The report flags IP clauses that leave this gap.
Does it matter if our investors are foreign?
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Yes. Investment by a non-resident is subject to FEMA and the foreign investment rules, including sectoral conditions, pricing guidelines and reporting. Some terms common in offshore term sheets, such as assured returns or exit at a fixed price, may not fit those rules. These requirements change often, so the report flags the clauses and suggests you confirm them with your advisers.
Related India reviews
ClauseAudit provides information and analysis, not legal advice, and does not create an advocate–client relationship. Findings use calibrated language because enforceability depends on facts and forum. Consult a qualified advocate before acting on any finding. See India pricing.
Founder & Startup guides for India
- Your Shareholders Agreement Says ROFR. Your Articles Do Not. That Is a ProblemTransfer restrictions agreed only in a shareholders agreement are the classic Indian gap. Here is why the articles of association matter.
- Founder Vesting in India: Cliffs, Reverse Vesting and What Happens If You LeaveFounder vesting decides who keeps equity when a co-founder leaves. Here is how cliffs, reverse vesting and leaver provisions work in Indian companies.
- Your Startup May Not Own Its Own Code. Here Is WhyFounders, contractors and agencies do not automatically transfer IP to your company under Indian law. Here is where the ownership gaps usually sit.
- Assigning IP to Your Company: The Formalities Most Founders MissSection 19 of the Copyright Act sets requirements for assignment, including a five-year default where no term is stated. Here is how to get it right.
- Investor Veto Rights: When Protective Provisions Become Operational ControlAffirmative vote items are standard in Indian term sheets. Here is how to tell a reasonable protective provision from a veto over running your company.
- Term Sheet Red Flags for Indian FoundersA term sheet is mostly non-binding, which is exactly why founders under-read it. Here are the terms that decide outcomes later.