Co-Founder Agreement
A co-founder agreement for Indian startups covering roles, equity, vesting with good and bad leaver terms, IP assignment, decisions, deadlock and exit.
A co-founder agreement records how founders split equity, vest shares, divide roles, own IP and handle a founder leaving. Sign one at the start, ideally before incorporation or before raising any outside money.
What to watch when you use this
- A co-founder agreement binds the founders personally. Restrictions on share transfer and vesting bind the company only once they are reflected in its Articles of Association, so amend the Articles promptly.
- Vesting in an Indian private company is usually done as reverse vesting: founders hold shares from day one and agree to transfer unvested shares on exit. Check tax and, for any non-resident, foreign exchange pricing rules before setting the transfer price.
- An assignment of copyright must be in writing and should identify the work, rights, duration and territory under Section 19 of the Copyright Act, 1957. Assign pre-incorporation work to the company once it exists.
- Section 27 of the Indian Contract Act, 1872 makes most post-exit non-competes unenforceable. Rely on confidentiality, IP assignment and non-solicitation instead.
- Keep the bad leaver definition narrow. Courts look at forfeiture-type clauses carefully, and a founder pushed out without cause should not lose vested shares.
Stamping and registration. Stamp duty is a State subject, and an unstamped or insufficiently stamped instrument is generally inadmissible in evidence under Section 35 of the Indian Stamp Act, 1899 until the duty and penalty are paid. Registration requirements are separate and depend on the instrument and the State. Confirm both for your State before executing this document.
CO-FOUNDER AGREEMENT
This Co-Founder Agreement is made on [DATE] between:
1. [FOUNDER 1 NAME], residing at [ADDRESS], PAN [PAN];
2. [FOUNDER 2 NAME], residing at [ADDRESS], PAN [PAN];
[ADD FURTHER FOUNDERS AS NEEDED]
(each a "Founder", together the "Founders"); and
[COMPANY NAME] Private Limited, CIN [CIN], having its registered office at [ADDRESS] ("Company") [DELETE IF NOT YET INCORPORATED].
1. PURPOSE
The Founders are building a business of [DESCRIBE BUSINESS] ("Business") through the Company. This Agreement records how they will work together, hold equity and deal with a Founder leaving.
2. ROLES AND COMMITMENT
2.1 The Founders' initial titles and responsibilities are set out in Schedule 1. Roles may be changed by the Board.
2.2 Each Founder will work on the Business [full-time from [DATE] / at least [NUMBER] hours per week until [MILESTONE], and full-time after that].
2.3 While a Founder, no Founder will engage in any other business that competes with the Business, or take up other paid work, without the written consent of the other Founders.
3. EQUITY
3.1 The Founders hold, or will hold on incorporation, the shares set out in Schedule 1.
3.2 An employee stock option pool of [PERCENTAGE]% of the fully diluted share capital may be created by the Board, diluting all Founders proportionately.
4. VESTING
4.1 Each Founder's shares vest over [48] months from [VESTING START DATE], with [25]% vesting on completion of [12] months ("Cliff") and the balance vesting in equal monthly instalments after that.
4.2 Unvested shares carry full voting and economic rights while held, but are subject to clause 5.
4.3 All unvested shares of a Founder vest immediately if the Company is acquired and the Founder's role is terminated without cause within [NUMBER] months of the acquisition.
5. LEAVING THE BUSINESS
5.1 If a Founder stops working on the Business for any reason ("Leaver"), the Leaver will, on written request by the Board within [NUMBER] days, transfer the Leaver's unvested shares to the remaining Founders in proportion to their holdings, or to a nominee of the Board, at the lowest price permitted by law.
5.2 A Leaver keeps all vested shares, except a Bad Leaver, who will, on request, also transfer vested shares at the lower of fair market value and the price the Leaver paid for them.
5.3 A "Bad Leaver" is a Founder who is removed for fraud, wilful misconduct causing serious harm to the Company, conviction for an offence involving moral turpitude, or material breach of clauses 6 or 7 not remedied within [NUMBER] days of notice. Every other Leaver is a "Good Leaver".
5.4 Each Founder will sign the documents needed to complete a transfer under this clause.
6. INTELLECTUAL PROPERTY
6.1 Each Founder assigns to the Company all copyright, inventions, designs, code, trade marks, domain names and other intellectual property created by that Founder, alone or jointly, for the Business, whether before or after the date of this Agreement. The assignment is worldwide, for the full term of the rights, and in all media.
6.2 Each Founder will sign any confirmatory assignment the Company reasonably requests, including on incorporation for work created earlier.
6.3 Intellectual property a Founder created before [DATE] unrelated to the Business, listed in Schedule 2, remains that Founder's.
7. CONFIDENTIALITY AND NON-SOLICITATION
7.1 Each Founder will keep the Company's confidential information secret during and after the Founder's involvement.
7.2 For [12] months after ceasing to be a Founder, a Founder will not solicit any employee or customer of the Company with whom that Founder dealt, to leave or reduce business with the Company.
8. DECISIONS
8.1 Day-to-day decisions are taken by the Founder responsible for that area.
8.2 The following require the written consent of Founders holding at least [PERCENTAGE]% of the Founders' shares: issuing shares or options; taking on debt above ₹[AMOUNT]; hiring or removing a Founder or a person paid more than ₹[AMOUNT] per year; approving the annual budget; selling the Company or its main assets; and changing the Business.
9. DEADLOCK
If the Founders cannot agree on a matter under clause 8.2 after [NUMBER] days of good-faith discussion, they will appoint a mutually agreed mentor or mediator. If the deadlock continues for [NUMBER] days after that, any Founder may refer it to arbitration under clause 13.
10. FOUNDER REMUNERATION
Founders will draw salaries only as approved under clause 8.2. Any salary will be paid under an employment or service agreement with the Company.
11. TRANSFER OF SHARES
11.1 No Founder may transfer shares for [NUMBER] months from the date of this Agreement without the consent of the other Founders, except under clause 5.
11.2 After that, a Founder wishing to sell shares must first offer them to the other Founders on the same terms, who will have [NUMBER] days to accept.
12. ARTICLES OF ASSOCIATION
The Founders will vote to amend the Articles of Association to include clauses 4, 5 and 11 within [NUMBER] days of the date of this Agreement or of incorporation. If this Agreement conflicts with the Articles, the Founders will vote to amend the Articles to remove the conflict.
13. DISPUTES
Disputes will be referred first to mediation and, if unresolved within [NUMBER] days, to a sole arbitrator appointed by mutual agreement under the Arbitration and Conciliation Act, 1996, with the seat at [CITY].
14. GENERAL
This Agreement is governed by the laws of India. It ends for all Founders on a listing of the Company or on execution of a shareholders agreement with investors that replaces it, and for a Founder when that Founder holds no shares, except that clauses 6 and 7 survive.
_______________________ _______________________
[FOUNDER 1 NAME] [FOUNDER 2 NAME]
For [COMPANY NAME] Private Limited
_______________________
[NAME], Director
SCHEDULE 1: ROLES AND EQUITY
Founder | Title | Responsibilities | Shares | % of share capital
[FOUNDER 1] | [TITLE] | [AREAS] | [NUMBER] | [%]
[FOUNDER 2] | [TITLE] | [AREAS] | [NUMBER] | [%]
SCHEDULE 2: EXCLUDED PRE-EXISTING INTELLECTUAL PROPERTY
[List for each Founder, or state "None".]
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This free template is provided by ClauseAudit as general information, not legal advice, and using it does not create an advocate-client relationship. Replace every [BRACKETED] placeholder. Stamp duty and registration requirements vary by State and are your responsibility. Have the final document reviewed by a qualified advocate before use.When to use this template
- You are starting a company with one or more co-founders and have agreed an equity split only verbally.
- You are about to incorporate, or have just incorporated, and want vesting in place from day one.
- A co-founder is reducing commitment and you need clear leaver rules.
- An investor has asked whether founder shares are subject to vesting and IP has been assigned to the company.
How to fill it in
- List each founder's details and, if incorporated, the company's name and CIN.
- Complete Schedule 1 with titles, responsibilities and shareholdings, and Schedule 2 with any excluded pre-existing IP.
- Set the vesting period, cliff, consent threshold for key decisions, lock-in and non-solicitation period.
- Pay stamp duty under your State's stamp law, usually by e-stamping, before or at signing.
- All founders sign, and the company signs through a director once incorporated.
- Amend the Articles of Association to include vesting and transfer restrictions, pass the special resolution and file it with the Registrar of Companies.
- Have each founder sign a separate IP assignment to the company covering work done before incorporation.
Key clauses explained
- Vesting with cliff (clause 4)
- Vesting protects everyone if a co-founder leaves early. Without it, someone who leaves after three months can keep a large stake earned by others.
- Good and bad leaver (clause 5)
- Separating unvested and vested shares, with a narrow bad leaver definition, is fair to a founder who leaves for genuine reasons and deters misconduct.
- IP assignment to the company (clause 6)
- Investors and acquirers will check that the company owns its code, brand and designs. Work done before incorporation is a common gap.
- Reserved decisions and deadlock (clauses 8 and 9)
- Founders fall out over hiring, money and direction. Agreeing in advance which decisions need consent, and how a deadlock is broken, avoids paralysis.
- Articles alignment (clause 12)
- Transfer restrictions and vesting that exist only in a private agreement may not bind the company. Putting them in the Articles makes them effective against the company and transferees.
Frequently asked questions
Is a co-founder agreement legally binding in India?
Yes. It is a contract under the Indian Contract Act, 1872 and binds the founders who sign it. Provisions about share transfers and vesting generally bind the company only if they are also in its Articles of Association. That is why this template requires the founders to amend the Articles. Stamping the agreement under your State's stamp law also matters for using it as evidence.
How does founder vesting work in a private limited company?
Founders usually receive all their shares upfront. Vesting is then created by contract: if a founder leaves before the shares vest, the founder must transfer the unvested shares to the remaining founders or a nominee at a nominal or lowest permissible price. Buy-back by the company itself is restricted under the Companies Act, 2013, so transfers to other shareholders are more common.
What is a reasonable vesting schedule?
Four years with a one-year cliff is the most common startup schedule, meaning a quarter vests after twelve months and the rest monthly. Founders who worked on the idea for a long time before signing sometimes take credit for prior service by starting the vesting clock earlier. Whatever you choose, apply it consistently to all founders.
Can I stop a co-founder from starting a competing business after leaving?
Usually not through a non-compete. Section 27 of the Indian Contract Act, 1872 makes agreements in restraint of trade void, and courts have generally applied it to restrictions after the relationship ends. What you can protect is confidential information, the company's IP and, to a reasonable extent, employees and customers through non-solicitation.
Should we sign a co-founder agreement before incorporating?
Signing early is better, because disputes about equity and IP usually come from what was said before the company existed. If you sign before incorporation, have the company adopt or confirm the agreement after it is incorporated, and get a fresh IP assignment from each founder in favour of the company.
Do we still need a shareholders agreement later?
When outside investors come in, they will usually require a shareholders agreement that covers board seats, reserved matters, investor protections and exit rights. That agreement often replaces the co-founder agreement or absorbs its vesting and leaver terms. Clause 14 of this template provides for that hand-over.
Been handed the other side's version instead?
Upload it and get every clause checked against Indian law, with the provision each finding rests on.
Review a founder & startup contractRead before you sign
- 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.
This free template is general information about Indian law as at 2026-10-10, not legal advice, and using it does not create an advocate–client relationship. Replace every bracketed placeholder and have the final document reviewed by a qualified advocate before use.