Co-Founder Agreement India — Free Template & Generator

Why a founders' agreement matters more than it feels like it does

A founders' agreement records what the founders have agreed between themselves: who owns what, who does what, what happens if someone leaves, and how decisions get made. It is the document founders are most likely to skip, because at the point it should be signed everyone is aligned, working hard and getting on well.

That is exactly why it is worth signing then. The agreement does its work in the situation nobody is imagining on day one — a co-founder leaving after eight months with a quarter of the company, a disagreement about whether to accept an offer, a founder who has quietly gone part-time. Negotiating those terms while the disagreement is live is a different and much worse conversation.

It is also the first thing a serious investor asks for. A cap table with no vesting and no agreement behind it is a red flag in diligence, because it means the company's most valuable asset — its founders' commitment — is undocumented and its equity may be sitting with someone who left.

Founder vesting: the clause that saves the company

Vesting means a founder earns their shares over time rather than owning them outright from day one. Four years with a one-year cliff is the market standard in Indian startups, and it is what investors expect to see: nothing vests in the first twelve months, and the remainder accrues monthly or quarterly thereafter.

The scenario it exists for is specific and common. Two founders split equity equally, one leaves after six months, and without vesting they walk away owning half the company forever — a 'dead equity' problem that makes the company close to unfundable, because no investor wants to fund a business half-owned by someone who is not working on it, and the remaining founder is left carrying all the work for half the upside.

Founders often resist vesting on their own shares, reasoning that they are the ones building the company. The argument is backwards: vesting protects the founder who stays. It is worth agreeing while everyone still expects to stay, because after someone has one foot out of the door there is no version of this conversation that goes well.

Consider also what happens on an acquisition. Acceleration clauses — single-trigger (vesting accelerates on a sale) or double-trigger (on a sale plus termination) — determine whether a founder's unvested equity survives an exit. Double-trigger is the more common compromise, and an acquirer will look closely at it.

Splitting the equity

There is no formula, but there are two failure modes worth naming. The first is the reflexive equal split: it is fast, it feels fair, and it ignores real differences in commitment, capital contributed, prior work and opportunity cost. An equal split is right when the inputs are genuinely equal, and a source of resentment when they are not.

The second is splitting on the basis of an idea rather than execution. Contribution is overwhelmingly forward-looking — the person who will spend four years building matters far more than the person who had the thought — and a split that heavily rewards origination tends to look wrong within a year.

Whatever you decide, make sure the percentages actually total 100%. That sounds trivial, and it is one of the most common defects in founders' agreements written from templates, because the numbers are typed in prose and nobody adds them up. The tool above totals them for you and flags it when they do not reconcile.

Leave room for an ESOP pool. Most early-stage companies set aside somewhere in the region of ten to fifteen per cent for employees, and investors will generally require a pool to exist before a round. Deciding whether that pool comes out of the founders' holding before or after the investment is a real negotiation, so it is better understood early.

Non-competes in India: know the limit before you rely on one

Section 27 of the Indian Contract Act, 1872 voids agreements in restraint of a lawful profession, trade or business. Indian courts have consistently held that a restraint operating AFTER the end of an engagement is generally unenforceable, with narrow exceptions such as the sale of goodwill of a business.

The practical consequence is that a post-termination non-compete in a founders' agreement is largely a deterrent rather than a remedy. Restrictions that operate DURING the engagement — a duty of exclusivity while a founder is with the company — stand on much firmer ground, as do non-solicitation clauses protecting employees and customers, and confidentiality obligations, which are protected on a different basis entirely.

That is why the generated agreement leads with non-solicitation and confidentiality and expressly flags the Section 27 position on competition, rather than presenting a broad non-compete as though it were straightforwardly enforceable.

This agreement, your articles, and a shareholders' agreement

A founders' agreement binds the founders as between themselves. It does not, by itself, bind the company or third parties. Where it conflicts with the company's articles of association, the articles prevail as against the company — so a transfer restriction that lives only in the founders' agreement may not stop a transfer being registered.

The practical answer is to align the two: reflect the key provisions, particularly the transfer restrictions and the buy-back of unvested shares, in the articles. That is a corporate action requiring shareholder approval and a filing, and it is the step most often left undone.

When you raise an institutional round, a shareholders' agreement will supersede much of this document, and the investor's counsel will draft it. A founders' agreement remains worth having beforehand: it is what governs the years before the round, and its vesting terms are usually carried into the SHA rather than invented there.

What goes wrong

No vesting at all

The single most expensive omission. A departing co-founder keeps their full stake, and the company becomes hard to fund and demoralising to run.

Percentages that do not total 100%

Common in prose templates where nobody adds up the numbers. The tool above totals them and says so when they do not reconcile.

Equal equity, unequal commitment

One founder full-time and one part-time on the same percentage is the most reliable predictor of a founder dispute. If commitments differ, say so in the document and reflect it in the split or the vesting.

No IP assignment from the founders

Founders often build the first version before incorporating, which means the IP sits personally with them rather than with the company. Without an express assignment this surfaces in diligence, and by then a departed co-founder has every reason to be difficult.

Silence on deadlock

Two founders with fifty per cent each and no deadlock mechanism means a genuine disagreement can paralyse the company entirely. Agree the tie-break before you need it.

Never reflecting it in the articles

The agreement binds the founders, the articles bind the company. Leaving them inconsistent undermines exactly the protections you signed up for.

Co-founder agreement format: the clauses, in order

Most Indian founders' agreements follow the same running order. The generator above builds a draft along these lines, and you can switch clauses off or rewrite them in place.

Parties and background

Who the founders are, the company (or the company to be formed), and what you are building.

Equity split

Each founder's shareholding, adding up to 100%, and whether a pool is set aside for employees.

Vesting

How founder shares vest over time, the cliff, and what happens to unvested shares when someone leaves.

Roles and time commitment

Each founder's title and responsibilities, and whether they work full-time.

Intellectual property

Everything founders create for the business — including before incorporation — belongs to the company.

Confidentiality and non-solicit

Keeping company information confidential, and not poaching staff or customers after leaving.

Leavers

Good-leaver and bad-leaver definitions and what each means for vested and unvested shares.

Decisions and deadlock

Which decisions need every founder to agree, and how a tie gets broken.

Transfers

Limits on selling or transferring shares, which should also be written into the articles.

Disputes and governing law

Indian law, and whether disputes go to arbitration or the courts, and where.

Founders' agreement vs shareholders' agreement vs articles

Founders often ask which of these they actually need. Early on, the founders' agreement and the articles do most of the work; a shareholders' agreement usually arrives with your first institutional investor.

IP built before the company existed

Code, designs and content a founder created before incorporation belong to that founder, not the company. Under Section 17 of the Copyright Act, 1957 the author is ordinarily the first owner, and the employer exception cannot apply to a company that did not yet exist. Investors check for exactly this in diligence.

The fix is simple and cheap now, expensive later: an express assignment of all pre-incorporation work relating to the business, in the founders' agreement or a separate IP assignment deed, signed by every founder.

Good leavers and bad leavers

Leaver clauses decide what a departing founder keeps. There is no statutory definition — these are market conventions you write into the agreement — so spell them out rather than relying on the labels.

Good leaver

Typically leaving because of death, serious illness, or being removed without cause. Usually keeps vested shares, and unvested shares may be bought back at fair value.

Bad leaver

Typically resigning early, or being removed for fraud, serious misconduct or a material breach. Often loses unvested shares and may have vested shares bought back at a lower price.