Introduction

A brilliant idea and an energetic team can launch a startup — but without a clear Founders’ Agreement, even the strongest partnerships can fall apart.

This legal document defines each founder’s rights, roles, responsibilities, and ownership, protecting the business from internal disputes and future complications.

In this blog, Bisways Consulting Group explains how to structure a founders’ agreement, key clauses every startup must include, and common mistakes to avoid while drafting it.

What Is a Founders’ Agreement and Why It Matters

A Founders’ Agreement is a legally binding document that outlines the understanding between co founders of a company.

It helps maintain transparency on decision-making, equity ownership, profit-sharing, and exit rights.

Think of it as the constitution of your startup — it ensures that when disagreements arise, the company still runs smoothly and relationships remain professional.

Essential Clauses Every Agreement Should Include

Here’s what every startup should address clearly in its founders’ agreement:

a. Shareholding & Capital Contribution

• Specify how much equity each founder holds and how future funding rounds will dilute shares.

• Clarify whether contributions are in cash, kind, or intellectual property (IP).

b. Roles & Responsibilities

• Define who handles finance, operations, marketing, tech, or legal compliance.

• Avoid overlapping duties to maintain accountability.

c. Decision-Making and Voting Rights

• Mention how major decisions (funding, hiring, expansion, dissolution) are approved — by majority vote, unanimous consent, or board approval.

d. Vesting Schedule

• Introduce vesting to ensure founders earn their shares over time, protecting the company if someone leaves early.
  | Example: 4-year vesting with 1-year cliff.

e. Exit & Termination Clauses

• Lay down terms for voluntary exit, removal, or transfer of shares.

• Include non-compete and non-solicitation provisions to protect company interests.

f. Intellectual Property (IP) Ownership

• Clearly state that all inventions, products, designs, or content developed under the business belong to the company, not the individual founder.

g. Confidentiality

• Every founder must agree to maintain confidentiality of trade secrets, financial data, and strategy.

These forms must be digitally signed using a valid Director’s DSC and certified by a practising professional (CA / CS / CMA).

Legal Framework & Registration Options

• Though not mandatory, the agreement should be printed on non-judicial stamp paper and notarised for legal validity.

• If the startup is already incorporated, the clauses must align with the Articles of Association and the Companies Act, 2013.

• Many investors now insist that the founders’ agreement be drafted before seed funding or due diligence begins.

• Re-assessment risk if undeclared income appears in AIS/TIS.

When and How to Draft

Ideally, the founders’ agreement should be signed before incorporation or immediately afterward. It’s best drafted with help from a legal or corporate advisory firm to ensure compliance with startup laws, FDI norms, and company law regulations.

💡 Tip: Use a transparent, founder-friendly tone — not overly legalistic — so all parties understand the intent and implications clearly.

Benefits of a Well-Structured Agreement

• Prevents disputes by setting clear expectations.

• Builds investor confidence during due diligence.

• Protects the company’s IP and confidential information.

• Provides a defined exit roadmap for founders.

• Ensures smooth transitions during leadership changes.

Conclusion

A founders’ agreement isn’t just a legal formality — it’s a foundation for trust and long-term business harmony.
By clearly defining rights, roles, and responsibilities, startups can focus on innovation and growth without fear of future misunderstandings.