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HomeDocumentsDocument Guides › Co-founder Agreement

Co-founder agreement — the conversation founders should have before it costs money

Three friends from an engineering college in Delhi start a food-delivery app. One writes the code on his laptop over six months, one puts in ₹8 lakh of savings, one gets the first restaurants on board. They incorporate with equal shares. Eleven months later the coder takes a job in Bengaluru, keeps his third of the company, and the repository is still in his personal account. Nothing illegal happened, and nothing can easily be undone. A co-founder agreement is the document that would have decided all of this in advance, when it was cheap to decide. This page explains what it should say, how Indian company law shapes it, and where it has to be backed up by other documents.

From ₹3,999 2 – 5 days Two or more founders, company or LLP Nothing payable in advance
What is a co-founder agreement, and what should it contain?A co-founder agreement is a contract among the people starting a business that settles, while they still agree, the questions that later divide founders: how the ownership is split, how each founder earns it over time, what each will contribute and do, who decides what, how founders are paid, what happens to the work each has created, and what happens when someone leaves, dies or is asked to go. In India it is usually signed shortly before or after a private limited company is incorporated; for an LLP the same terms go into the LLP agreement. The key clauses are the equity split; vesting, usually over four years with a one-year cliff, structured as an obligation on a departing founder to transfer unvested shares because a company cannot freely buy back its own; good and bad leaver terms and the price for each; a written assignment to the company of code, designs, domain names and brand assets created before incorporation; roles and a decision-making matrix; salaries and founder loans; confidentiality and non-solicitation; and a way to resolve deadlock. Clauses that must bind the company and future shareholders, particularly transfer restrictions, should also be written into the articles of association. When investors arrive, the terms are usually carried into a shareholders agreement.

What a co-founder agreement does

When two or three people start something together, they begin with trust, a shared idea and very little paperwork. The company, if there is one, gets incorporated with a standard set of articles, shares are divided in whatever proportion felt fair that evening, and everyone gets to work. The law then fills the silence with its own default rules, and those defaults were not designed for startups. Under them, a founder who stops working keeps every share he was issued; the code he wrote before incorporation stays his; a director cannot be made to resign just because the others want him to; and a tie between two equal shareholders has no tie-breaker at all.

A co-founder agreement replaces those defaults with rules the founders have chosen. It does four jobs:

It is also a document that investors look for. In early due diligence the questions are nearly always the same: is there a founders’ agreement, are the founders’ shares subject to vesting, and has everything the founders built been assigned to the company? A startup that can answer yes to all three moves through a funding round much faster.

Signing before the company exists

Founders often ask whether they need to incorporate first. They do not. There is a good argument for signing before incorporation: it is the moment when nothing has yet been issued, nobody has yet been disappointed and the questions are still hypothetical.

A pre-incorporation agreement is signed by the founders personally. It records that they will form a company (or LLP) with an agreed name, capital and constitution; that they will subscribe for shares in the agreed proportions; who the first directors will be; that each will assign his or her existing work to the company once it exists; and that the key terms will be written into the articles.

Indian law has long dealt with contracts made by promoters for a company that is yet to be formed. The Specific Relief Act, 1963 allows a company, after incorporation, to obtain specific performance of a contract its promoters made before incorporation for its purposes, where the contract is warranted by the terms of incorporation, and allows the other party to enforce it against the company once the company has accepted it. In practice, the neatest route is simpler: after incorporation, the board passes a resolution adopting the agreement, and the company signs a short deed of adherence, becoming a party in its own right.

If the company already exists, the agreement is signed by the founders and the company together. Nothing is lost by signing late, except that some questions have by then become real, and are harder to discuss calmly.

Company, LLP or partnership?

The choice of vehicle shapes what the agreement can do.

Swipe to see the full table
Private limited companyLLPPartnership firm
Founders holdSharesContribution and profit shareShare in the firm
LiabilityLimited to unpaid share capitalLimited to contribution, as a ruleUnlimited, joint and several
Founders’ documentCo-founder agreement plus articlesLLP agreementPartnership deed
Equity investors and stock optionsStraightforwardDifficult; no shares or optionsNot practical
ComplianceHighestModerateLowest

Founders who expect to raise equity from angels or funds, or to give stock options to employees, almost always choose a private limited company; our private limited company registration service handles the incorporation. Founders of a professional practice, a consultancy or a family trading business often prefer an LLP, and those who want the least compliance sometimes start as a partnership. Our partnership deed guide explains how an LLP differs from a firm. This page is written mainly for companies; the section on LLPs explains what changes.

Four documents, and what goes where

Founders are sometimes told that the co-founder agreement is all they need, and sometimes that it is unnecessary because the articles cover everything. Neither is right. In a private company, the founders’ relationship is usually spread across four documents, each doing something the others cannot.

Swipe to see the full table
DocumentWho is boundWhat belongs in it
Co-founder agreementThe founders, and the company if it signsSplit, vesting, leaver terms, roles, contributions, IP undertakings, founder-to-founder promises
Articles of associationThe company and every shareholder, present and futureTransfer restrictions, compulsory transfer on leaving, pre-emption, board appointment rights, casting vote
Founder employment or service agreementEach founder and the companyDuties, salary, working time, leave, confidentiality, IP created during service, notice
IP assignment deedEach founder and the companyTransfer of pre-incorporation code, designs, content, domains, handles and marks

A fifth document, the shareholders agreement, usually arrives with the first outside investor and absorbs much of the co-founder agreement at that point. Our employment agreement service can prepare the founder service agreements, and our employment agreement guide explains what the IP and confidentiality clauses in them should say.

The founder conversation

The drafting is the easy part. The hard part is the conversation that has to come before it, and many founders avoid it because it feels like planning for failure. It is better seen as planning for change: people’s lives change, and a startup that lasts five years will almost certainly see at least one founder’s circumstances change.

We ask each founder to answer the same questions separately, before any joint meeting, and then compare the answers. The gaps are usually the most useful part of the exercise. The questions include:

Splitting the equity

There is no correct formula. Founders use one of three broad approaches:

A few practical observations from the agreements we prepare. First, the idea alone is rarely worth much in equity; execution is what is being rewarded. Second, cash is better rewarded separately — as a loan or at a price per share — than folded into the founder split, as the next section explains. Third, vesting reduces the stakes of the split: a founder who leaves early will not keep the full percentage anyway, so there is less reason to fight over a few per cent on day one.

With two founders at 50:50, the agreement should also contain a way of breaking deadlock, and the articles may give one of them a casting vote as chair on defined matters. Our shareholders agreement guide discusses fifty-fifty companies in more detail.

Cash, work, ideas and assets

Founders contribute in different currencies, and the agreement should treat each on its own terms.

Cash. A founder who puts in substantially more money than the others can be rewarded in one of three ways: by subscribing for more shares at the same price, which increases his percentage; by lending the money to the company, to be repaid before anything else; or by a combination, part as capital and part as a loan. Each has different effects if the company fails or succeeds, and the agreement should say which was intended. The section on founder money covers loans.

Work before incorporation. Months of unpaid work before the company exists are usually recognised through the equity split itself, and through the assignment of that work to the company. It is not normally paid for separately.

Assets. A founder may bring a laptop, a vehicle, stock, a domain, a registered trademark, or an existing sole proprietorship’s business. If shares are to be issued in exchange for an asset rather than cash, company law treats this as an allotment for consideration other than cash, which must be properly approved and supported by a valuation report, and disclosed in the return of allotment. It is often simpler for the founder to subscribe for shares in cash and sell the asset to the company for an agreed price, or to assign intangible assets for a nominal sum as part of the founder bargain.

Sweat equity. Company law allows shares to be issued to directors or employees, at a discount or for no cash, in recognition of know-how or intellectual property, subject to a special resolution, a valuation and the limits the rules set. It is a formal process and is more often used for key employees after incorporation than for founders at the start; our ESOP guide compares it with stock options.

Ideas and networks. These matter, but are the hardest to value and the easiest to overstate. They are best reflected in the split and in the role a founder takes, rather than in a separate allocation.

Vesting under Indian company law

Vesting is the single most important clause in most co-founder agreements. The principle is that a founder’s shares are earned over the period during which he or she works for the company. A founder who leaves after a year should not walk away with the same stake as one who stays for five.

The common pattern is a four-year schedule with a one-year cliff: nothing vests in the first twelve months, a quarter vests at the end of the first year, and the rest vests in equal monthly or quarterly instalments over the next three years. Some founders credit time already spent before incorporation, so that part of the shares vests immediately. Others use a shorter schedule, particularly where the founders have already worked together for a long time. None of this is required by law; it is a commercial choice.

The mechanics are where India differs. In many countries, founders’ unvested shares are simply repurchased by the company at the price paid. An Indian company cannot do that freely: section 67 of the Companies Act restricts a company from buying its own shares, and a buyback under section 68 requires conditions, approvals and filings that make it unsuitable for taking back a departing founder’s few thousand shares at face value. Indian agreements therefore usually provide that, on leaving, the founder must transfer the unvested shares:

The price for unvested shares is normally their face value or the price the founder originally paid, whichever is lower, so that the leaver does not profit from shares not yet earned. The transfer is completed through a share transfer form, the stamp duty on it, board approval and updating of the register of members, and our share transfer documentation service prepares these papers. The shareholders agreement guide explains how investors look at the same structure in its section on founders’ obligations.

Two refinements are worth considering. Acceleration provides that some or all unvested shares vest immediately on an event, most often a sale of the company (single trigger) or a sale followed by the founder’s job being terminated (double trigger). Double trigger is more common, because buyers want founders to stay after a sale. And a power of attorney from each founder, or a clause allowing the board to execute the transfer if the leaver refuses, prevents an obstructive leaver from blocking the mechanism simply by not signing.

Good leavers, bad leavers and the price

Vesting answers how much a founder has earned. Leaver clauses answer what happens to those earned shares, and to the unearned ones, depending on why the founder left.

Swipe to see the full table
CategoryTypical triggersUnvested sharesVested shares
Good leaverDeath, permanent incapacity, removal without cause, leaving after an agreed minimum periodTransfer at the lower of cost and face valueKept, or bought at fair value at the others’ option
Intermediate leaverResignation for personal reasons before the minimum periodTransfer at the lower of cost and face valueKept, sometimes with a partial call at fair value
Bad leaverFraud, serious breach, criminal conviction, joining a competitor, breach of non-solicitTransfer at the lower of cost and face valueTransfer at a discount to fair value, or at cost

Three points need care. First, the definitions. “Cause” and “serious breach” should be defined by listing specific conduct, not left to general words that invite argument. Second, the price for bad leavers. A clause forcing a founder to give up vested shares for almost nothing can be attacked as a penalty or as unconscionable, especially where the misconduct is minor; a discount to fair value, rather than forfeiture, is safer. Third, fair value. The agreement should say how it is determined — by an agreed formula, by a registered valuer appointed by the board, or by the last funding round price — and who bears the cost.

Leaver terms should also say what counts as the leaving date: the date of resignation, the end of the notice period, or the date the board records the departure. A founder who resigns in month eleven and serves two months’ notice may otherwise argue that the cliff has been crossed.

Making the clauses stick: the articles

A co-founder agreement is binding on those who sign it. But the obligation to transfer shares on leaving, the restrictions on selling to outsiders and the right of founders to nominate directors are all matters that affect the company and its future shareholders, and Indian courts have historically been cautious about enforcing, against a company, restrictions on shares that are not found in its articles. The Supreme Court’s decision in V.B. Rangaraj is the case usually cited; our shareholders agreement guide explains it in the section on why the articles matter.

The practical rule is simple: every clause in the co-founder agreement that restricts or compels a transfer of shares, or that gives a founder rights over the board, should also appear in the articles. The articles of a private company must in any event restrict the right to transfer shares, so they are the natural home for pre-emption, compulsory transfer and approval clauses. Amending them requires a special resolution of shareholders and a filing with the Registrar.

We therefore deliver every co-founder agreement with a schedule of the clauses to be carried into the articles, in the form they should take there. Founders who incorporate with the standard model articles and never amend them are the ones who most often find that their agreement cannot easily be enforced against the company.

Moving the work into the company

Almost every startup begins with something one founder made before the company existed: code on a personal laptop, a prototype, a logo, a pitch deck, a set of recipes, a domain name registered in his name, social media handles on her phone, sometimes a trademark application filed as an individual. The company does not own any of this unless it is transferred.

The Copyright Act makes the author the first owner of a work, and the exception for employers applies to works made under a contract of service — which no one had before incorporation. An assignment must be in writing and signed, and the Act supplies default terms for duration and territory if the document is silent, which can quietly limit what the company receives. Our freelance agreement guide explains who owns a work and the assignment defaults in detail; the same rules apply to founders.

A founder IP assignment should therefore:

Our trademark assignment service records the change of ownership of a mark, and our trademark registration service files new applications in the company’s name. For work created after incorporation, the founder’s service agreement should contain its own assignment clause, because a founder who is a director but not an employee may not fall within the employer exception.

A founder’s previous employer

Many founders build the first version of their product while still employed. That is common and often unavoidable, but it carries a risk that investors check for: the previous employer may claim the work.

Employment contracts in technology, pharma, finance and consulting frequently contain clauses assigning to the employer anything the employee invents or creates during employment, sometimes whether or not it relates to the job or was done in the employee’s own time. They also contain confidentiality obligations, and sometimes non-solicitation of clients and colleagues. A restriction on working elsewhere after leaving is generally void in India, but an assignment of work created during employment, and a duty not to use the employer’s confidential information, can be enforced.

Before signing the co-founder agreement, each founder who is or recently was employed should:

The co-founder agreement should contain a warranty from each founder that his or her contribution does not infringe anyone else’s rights or breach any obligation to a current or former employer, and an obligation to disclose any such issue. That warranty does not solve the problem, but it puts the risk on the right person and forces the question to be asked.

Roles, titles and the three hats

Every founder of a company can wear three different hats, and confusion between them causes a surprising number of disputes.

Swipe to see the full table
HatSource of rightsHow it ends
ShareholderShares held; articles; co-founder agreementOnly by transfer of the shares
DirectorAppointment under the Companies Act and articlesResignation, removal by shareholders, disqualification
Employee or executiveService or employment agreementResignation or termination under that agreement

The co-founder agreement should say, for each founder, which hats he or she wears, and what title and responsibilities go with the executive role: for example, chief executive responsible for fundraising, hiring and overall direction; chief technology officer responsible for the product and the engineering team; chief operating officer responsible for customers, vendors and finance. It should say who reports to whom, if anyone, and what each founder can decide alone.

Titles should match reality. A founder with the title of CEO is often assumed by outsiders to have the last word; if the founders actually intend to decide major questions jointly, the agreement should say so. Our director appointment and resignation service handles the filings when directors change.

Full time, part time and side projects

A startup where one founder works eighty hours a week and another works weekends will eventually argue about it. The agreement should record the commitment each founder has made, in terms that can be checked:

If a founder is part time, vesting can be adjusted: a lower share vests until he or she moves to full time, or vesting begins only from that date. If a founder fails to move to full time by an agreed date, the agreement can treat this as leaving. Tying the commitment to vesting makes it self-enforcing, which is much better than relying on an argument about whether someone has been working hard enough.

Founder salaries and deferred pay

In the early months most founders take nothing or very little. The agreement should record what was agreed, because silence here is a common source of claims later.

Points to settle include: whether founders are paid at all before funding; whether all founders are paid the same; whether any salary forgone accrues as a debt of the company to be paid when funds allow, or is simply forgone; when salaries will be reviewed; and who decides founder pay once there are investors. A promise of deferred salary that is recorded but never paid can become a claim against the company that a later investor has to deal with, so founders should think carefully before creating one.

Company law does not cap the remuneration of directors of a private company in the way it does for public companies, but payments to directors should be approved by the board and properly recorded. Expenses incurred by founders before incorporation — incorporation costs, a laptop, early marketing — can be reimbursed by the company if they are documented and approved. The tax treatment of founder salaries and reimbursements is a question for your chartered accountant.

Founder money: capital or loan

When a founder puts money into the company beyond the initial share capital, the agreement should say whether it is equity or debt.

As equity, the founder subscribes for further shares. This increases his or her percentage, requires an allotment with board and sometimes shareholder approval and a return of allotment, and must respect the rules on pricing. The money is at risk and comes back only if the company does well.

As a loan, the founder is a creditor. Company law restricts the acceptance of deposits, but the deposit rules exclude an amount received from a person who, at the time, is a director of the company, provided he or she gives a written declaration that the amount is not given out of funds acquired by borrowing or accepting loans or deposits from others. For a private company, the exclusion has also extended to money received from a director’s relative. The company should record the loan in a board resolution and a loan agreement stating interest, if any, repayment and whether it is subordinated to other creditors. Our loan agreement guide lists the clauses, and our board resolution service prepares the approval.

As a convertible instrument, the loan converts into shares later. Startups recognised under the Government’s scheme have been allowed to accept convertible notes of a minimum amount per tranche within a period after incorporation, without their counting as deposits, subject to the conditions in the rules. Recognition itself comes through our Startup India registration service.

Whichever route is chosen, the others should know about it and agree. A founder who quietly funds salaries from his own pocket for six months and then asks to be repaid before anyone else, or to receive extra shares, has created a dispute even if his claim is fair.

How founders decide, and deadlock

Most decisions in a young company are made informally, by the founders talking. The agreement is not meant to change that. It is meant to say what happens when they do not agree.

A decision matrix is the clearest way to do it. It lists categories of decision and, for each, who decides:

For a genuine deadlock on a matter that must be decided, the agreement can provide a cooling-off period, then escalation to a mutually trusted mentor or adviser, then mediation. Some agreements give the chief executive a casting vote on operational matters but not on fundamental ones. A shotgun or buy-sell clause — where one founder names a price and the other must either buy or sell at it — is available as a last resort, but it favours the founder with more money and should be used with care. The shareholders agreement guide describes a fuller deadlock ladder.

Confidentiality, non-solicit and non-compete

Each founder should promise to keep the company’s confidential information confidential, during and after his or her time with the company, and to return or delete it on leaving. Our NDA service prepares standalone confidentiality agreements for others the company deals with.

Restrictions on competition need more care. While a founder remains a founder, a promise not to be involved in a competing business is generally valid. After a founder has left, section 27 of the Contract Act makes agreements in restraint of trade void, and our NDA guide explains how strictly courts apply it. The exception for a person who sells the goodwill of a business may help where the departing founder is selling his or her shares, and our share purchase agreement guide discusses it in the section on non-compete clauses. A founder who is forced to transfer only unvested shares at face value is not obviously selling goodwill, so a founder non-compete after exit should be treated as uncertain.

The more reliable protections after exit are: confidentiality; non-solicitation of employees and customers for a reasonable period; a promise not to use the company’s name, marks or materials; and, above all, a clean IP assignment, so that the departing founder simply does not own anything he or she could take to a competitor.

When a founder leaves or is asked to leave

A founder’s departure has to be handled on all three hats at once.

As an executive, the founder resigns or is terminated under the service agreement, serves or is paid in lieu of notice, and hands over accounts, passwords, devices and documents. An exit checklist attached to the agreement saves a great deal of trouble.

As a director, the founder may resign by notice to the company, with the company and the director making the required filings. If the founder will not resign, shareholders can remove a director by ordinary resolution under section 169 of the Companies Act, after special notice, and the director has the right to be heard. The co-founder agreement can require a leaver to resign as director, but the statutory route remains available if he or she does not.

As a shareholder, the founder keeps the shares unless the agreement and articles require a transfer. This is where vesting and leaver clauses operate: unvested shares go back at a nominal price, and vested shares are kept or bought depending on the leaver category.

The agreement should say who can decide that a founder is to be removed — usually the other founders unanimously, or the board — and on what grounds. It should also allow for the most common situation, which is neither dramatic nor anyone’s fault: a founder simply decides the startup is not for him or her and wants to move on. Founders who have agreed in advance what happens in that case usually part as friends.

Death, incapacity and family

On a founder’s death, his or her shares pass by transmission to the nominee or legal heirs. A shareholder can nominate a person under section 72 of the Companies Act, and every founder should do so. Nomination, however, decides who receives the shares from the company’s point of view; it does not always settle who ultimately owns them among the heirs, and a will is the better way to make that clear — our will drafting guide explains how.

The co-founder agreement should decide in advance what the company and the surviving founders will do. A common approach treats death and permanent incapacity as good leaver events: unvested shares return to the others at a nominal price; vested shares stay with the family, or the others have an option to buy them at fair value within a set period. Some founders take out key-person insurance on each other to fund such a purchase. Incapacity should be defined — for example, inability to perform the role for a continuous period of several months, certified by a doctor.

Family questions also arise when founders are spouses, siblings or parent and child. The agreement should treat each as an individual founder, with the same vesting and leaver terms, and should say what happens to the shares if a marriage ends or a family relationship breaks down. It is easier to agree this when everyone is on good terms.

Early advisers and promised equity

Startups collect helpers: a senior professional who opens doors, a professor who reviews the technology, a friend who builds the first website for free. Many are promised “some equity” in a conversation or a message. Those promises need to be dealt with in writing before they become claims.

The co-founder agreement should list any equity already promised to anyone other than the founders, and state how each promise will be honoured — through a small allotment, a transfer from the founders, stock options if the person becomes an employee, or not at all. Advisers usually receive a small percentage vesting over one or two years under a short advisory agreement with defined duties. Employees should be given stock options under a proper scheme rather than shares, and our ESOP documentation service prepares one; the ESOP guide explains why promoters are treated differently under the option rules.

Co-founders in an LLP

In an LLP, the founders are partners, and the LLP agreement is their co-founder agreement. It is filed with the Registrar after incorporation, and changes to partners are also filed. Our LLP registration service covers incorporation and the first agreement.

The same questions arise, but the tools differ. An LLP has no shares, so ownership is expressed as each partner’s contribution and share of profits. Vesting is done by providing that a partner’s profit share or entitlement on exit grows over time, or that an outgoing partner receives only his or her contribution and a proportion of undistributed profits if leaving before an agreed date. Admission and cessation of partners, the rights of an outgoing partner’s estate, decisions requiring all partners, and restrictions on competing while a partner, all belong in the LLP agreement. Where the agreement is silent, the LLP Act supplies default rules, and those defaults — such as equal sharing — may not be what the founders intended.

If the founders expect to convert to a company before raising equity, the LLP agreement should say how partners’ interests will translate into shares, so that the conversion does not reopen the split.

An NRI or foreign co-founder

Indian startups increasingly have one founder abroad, either an Indian who has moved overseas or a foreign national. This is possible, but adds a layer of rules.

Foreign exchange questions should be confirmed with a chartered accountant or your bank’s authorised dealer before any shares are issued.

When investors arrive

The first priced round usually replaces the co-founder agreement with a shareholders agreement and new articles. The founders’ terms do not disappear; they are carried into the new documents, often in a revised form. Founders should expect:

A co-founder agreement that already covers vesting, IP and leaver terms makes this conversation much easier, because the founders are negotiating from a document they understand rather than conceding terms they have never discussed. The agreement should say what happens to it when a shareholders agreement is signed — usually that it terminates, except for matters between the founders that the new documents do not cover.

Tax points to take to your accountant

This page does not give tax advice, and the Income-tax Act was re-enacted with effect from April 2026, so the section numbers founders read online may be out of date. The questions to ask your chartered accountant include:

Stamp duty, signing and records

The co-founder agreement is an agreement under the stamp law of the state in which it is signed and should be on stamp paper or e-stamped before or at signing; for most states this is a modest fixed amount. It does not need to be registered. Our e-stamp paper guide explains how to buy the stamp and what happens if a document is not stamped.

Share transfers made under the agreement later attract a separate stamp duty, which since July 2020 has been charged under central law at a uniform small percentage of the consideration on transfers of shares. Private companies other than small companies have been required in stages to issue and hold their shares in dematerialised form, so a founder share transfer in such a company may have to go through the depository system rather than on a paper transfer deed.

When founders fall out

A good agreement reduces disputes but cannot prevent them. It should set out a path:

Some disputes cannot be taken to arbitration because they belong to the National Company Law Tribunal. A shareholder who claims that the company’s affairs are being conducted in a manner oppressive to him, or prejudicial to the company, may petition the Tribunal under section 241 of the Companies Act, if he meets the eligibility threshold in section 244, or obtains a waiver of it. Founder disputes often end up there, because a founder holding a third of the shares easily meets the threshold.

Mediation, arbitration and Tribunal proceedings are legal proceedings, and they are for your advocate, whose fee is engaged and paid by you directly; we do not quote, collect or share it. You can find an advocate through our directory. What we do is prepare the agreement that makes such proceedings less likely and, if they happen, shorter.

An example: the founder who left in month eleven

Take the three founders in the introduction. With a co-founder agreement, the story would have gone differently.

Before incorporation, they sign an agreement recording an equity split of 36:34:30, reflecting that Aman had built the prototype and would be full time from the start, Bhavna would be full time and was leading sales, and Chirag had a job for the first six months. Chirag’s ₹8 lakh is treated as a loan to the company, repayable once the company raises money, with a board resolution and his declaration under the deposit rules. Everyone’s shares vest over four years with a one-year cliff, and six months of pre-incorporation work is credited to Aman.

Within a week of incorporation, Aman signs an IP assignment covering the code, the design files and the domain, and moves the repository into the company’s organisation account. The articles are amended to include the compulsory transfer clause.

In month eleven Aman resigns to take a job in Bengaluru. Because of the credited six months, part of his shares have vested; the unvested balance transfers to Bhavna and Chirag at face value under the articles. He remains a shareholder with his vested stake, resigns as director, and hands over his accounts under the exit checklist. The company owns the code. Nobody needs a lawyer.

An example: a husband-and-wife startup with a third founder

Meera and Rohit, married, start a skincare brand with Sana, a chemist who formulates the products. Their first instinct is to split one-third each, but Sana is uneasy: between them, the couple will always have two votes to her one.

The agreement addresses this directly. The split is one-third each, but matters affecting product formulation and quality need Sana’s consent, and matters reserved for all founders need unanimity. The couple are treated as separate founders with the same vesting. The agreement provides that if Meera and Rohit separate, neither may transfer shares to the other without Sana being offered her proportionate share first, and that each remains bound by his or her own leaver terms. Sana’s formulations, developed before incorporation, are assigned to the company, with a warranty that none belongs to her former employer. A trademark application filed in Rohit’s name is assigned to the company and the assignment recorded.

Two years later an investor’s diligence takes a day rather than a month.

Where co-founder agreements go wrong

Our fee and what you get

A co-founder agreement from us costs ₹3,999 and is ready in 2 – 5 days. We start with the founder questionnaire, discuss the gaps with you, and then draft.

Swipe to see the full table
IncludedWhy it helps
Founder questionnaire and a call to discuss the answersThe difficult questions asked while they are still easy
Co-founder agreement with split, vesting and leaver termsOwnership that follows contribution
IP assignment deed with a schedule of assetsThe company owns what it is built on
Roles, decision matrix, salary and founder loan termsFewer arguments about who decides and who gets paid
Confidentiality, non-solicit and exit checklistA departure that is orderly rather than hostile
Schedule of clauses for the articlesTerms that bind the company, not only the founders

Stamp duty is extra at actual cost, and we tell you the total before we start. Amending the articles, incorporation, share transfers and trademark work are separate services at their listed prices. Tax and foreign exchange questions are for your chartered accountant. If a dispute ever reaches the Tribunal, an arbitrator or a court, it is for your advocate, whose fee is engaged and paid by you directly; we do not quote, collect or share it.

FAQ

Co-founder agreement — questions people ask

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 like any other agreement. Some of its clauses — restrictions on transferring shares, the obligation of a departing founder to transfer unvested shares, rights to appoint directors — are far easier to enforce against the company and future shareholders if they are also written into the company’s articles of association.
Can we sign a co-founder agreement before the company is incorporated?
Yes, and it is often the best time. The founders sign among themselves, and the agreement records that they will incorporate the company, take shares in the agreed proportions and assign their work to it. Once the company exists it can adopt the relevant terms, and the Specific Relief Act, 1963 allows contracts made by promoters for the company, and accepted by it after incorporation, to be enforced by and against the company.
Should co-founders split equity equally?
Not necessarily. An equal split is simple and avoids an early argument, but it may not reflect very different contributions of time, money, ideas or risk, and a two-way 50:50 split creates a deadlock risk. Whatever the split, vesting matters more than the numbers on day one, because it ties each founder’s stake to staying and contributing.
What is founder vesting and how does it work in India?
Vesting means a founder earns full ownership of his or her shares over time, commonly four years with a one-year cliff. In India the shares are usually issued outright, and the agreement provides that if a founder leaves before the shares have fully vested, the unvested portion must be transferred to the remaining founders or a nominee at a nominal or formula price, because a company cannot freely buy back its own shares.
What is a good leaver and a bad leaver?
These are labels the agreement uses to decide what a departing founder keeps and at what price. A good leaver typically leaves because of death, disability, or being asked to go without fault, and keeps vested shares. A bad leaver typically leaves in breach, for fraud or misconduct, or to join a competitor, and may have to transfer even vested shares at a low price. The definitions are negotiated, and must be written precisely.
Who owns the code a founder wrote before the company was formed?
The founder who wrote it, unless he or she assigns it. The company did not exist, so it could not have employed anyone. The co-founder agreement should require each founder to assign pre-incorporation work, code, designs, domain names and brand assets to the company in writing once it is incorporated. Our freelance agreement guide explains the Copyright Act rules on assignment.
Can a co-founder agreement stop a founder from starting a competing business after leaving?
A promise not to compete while the founder remains involved is generally enforceable. A restraint after the founder has left is likely to be void under section 27 of the Contract Act, unless it falls within the exception for a person selling the goodwill of a business, which courts have applied to reasonable non-competes given by sellers of shares. Non-solicitation and confidentiality clauses are the more reliable protections.
How is a founder removed from the company?
A founder usually wears three hats — shareholder, director and employee — and each is ended differently. As a director, he or she can be removed by an ordinary resolution of shareholders after special notice. As an employee, the employment contract governs. As a shareholder, the founder keeps the shares unless the agreement and articles require a transfer. The co-founder agreement should connect all three.
Do co-founders need to be paid a salary?
No law requires it at an early stage, but founders who work in the company are often paid a modest salary or none at all until funding arrives. Whatever is agreed should be written down, including whether any unpaid salary accrues as a debt, because unrecorded promises of back pay cause disputes later. Tax on founder salaries is a question for your chartered accountant.
Can a founder lend money to the startup instead of investing?
Yes. A loan from a director of the company is excluded from the definition of a deposit under the deposit rules if the director gives a written declaration that the money is not borrowed from others. The terms — interest, repayment, whether it converts into shares — should be recorded in a loan agreement and a board resolution.
What happens to a founder’s shares on death?
The shares pass to the nominee or legal heirs through transmission. Unless the agreement says otherwise, they become shareholders with the founder’s stake. Many co-founder agreements treat death as a good leaver event: vested shares pass to the family, while unvested shares return to the others, sometimes with an option for the company or the other founders to buy the vested shares at fair value.
Does a co-founder agreement need stamp duty or registration?
It needs stamp duty under the stamp law of the state where it is signed, usually a modest fixed amount for an agreement, and should be on stamp paper or e-stamped. It does not need registration. Share transfers made under it later attract a separate, small stamp duty on the transfer itself.
What happens to the co-founder agreement when investors come in?
Investors will usually ask for a shareholders agreement and amended articles, and the founders’ key terms are carried into those documents. The co-founder agreement is then often terminated or kept only for matters between the founders that the investment documents do not cover. Investors sometimes ask founders to re-vest part of their shares at that stage.
Can a co-founder be a non-resident Indian or a foreign national?
Yes. A non-resident can hold shares in an Indian private company under the foreign investment rules, subject to sector conditions and reporting, and can be a director with a director identification number. At least one director of the company must meet the residency requirement. Any transfer of shares between resident and non-resident founders must follow the pricing and reporting rules.
Is a co-founder agreement needed if we form an LLP?
Yes, but it takes the form of the LLP agreement, which must be filed with the Registrar. An LLP has no shares, so contributions, profit shares, vesting and exit are expressed through partners’ contributions and profit ratios. The same questions arise; the drafting is different.
What if the founders already fell out and there is no agreement?
Then the articles of association and the Companies Act decide, which often means that a departing founder keeps all his or her shares. Many disputes are settled by negotiation and a share transfer. If they cannot be, a shareholder may approach the National Company Law Tribunal for oppression and mismanagement. That is litigation, and it is for your advocate, whose fee is engaged and paid by you directly.
What does your co-founder agreement service cost?
A co-founder agreement from us costs ₹3,999 and is ready in 2 – 5 days. It includes a founder questionnaire, the agreement with vesting and leaver terms, IP assignment, roles and decision-making, confidentiality and non-solicitation, and a list of the clauses to be carried into your articles. Stamp duty is extra at actual cost, and we tell you the total before we start. Any dispute that goes to the Tribunal or a court is for your advocate, whose fee is engaged and paid by you directly.
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