The Founder Shareholder Agreement is a critical document used during company formation or early stages of a business in India, when multiple founders come together to establish their rights and responsibilities. This agreement becomes particularly important as it sets the foundation for corporate governance and helps prevent future disputes among founders. It addresses key aspects such as equity distribution, decision-making powers, exit mechanisms, and non-compete obligations, all while ensuring compliance with Indian corporate law. The document is essential for startups and new ventures across various sectors, providing clarity on crucial matters like board composition, reserved matters, and share transfer restrictions. The agreement must comply with the Indian Companies Act, 2013, SEBI regulations, and other relevant Indian laws, making it a fundamental instrument in establishing and maintaining founder relationships in Indian companies.
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1. Parties: Identification of all founding shareholders and the company as parties to the agreement
2. Background: Context of the agreement, including company formation details and purpose
3. Definitions and Interpretation: Definitions of key terms used throughout the agreement and rules of interpretation
4. Shareholding Structure: Details of initial shareholding percentages, share classes, and capital structure
5. Board Composition and Governance: Rules regarding board size, appointment of directors, and board proceedings
6. Shareholders' Rights and Obligations: Key rights and duties of founding shareholders, including voting rights and capital contribution obligations
7. Transfer Restrictions: Limitations on share transfers, including right of first refusal and lock-in periods
8. Reserved Matters: List of decisions requiring special majority or unanimous consent
9. Tag Along and Drag Along Rights: Provisions protecting minority shareholders and enabling majority exits
10. Exit Provisions: Mechanisms for shareholder exits, including IPO, strategic sale, or buyback
11. Confidentiality: Obligations regarding confidential information and trade secrets
12. Non-Compete and Non-Solicit: Restrictions on competitive activities and employee solicitation
13. Dispute Resolution: Procedures for resolving disputes between shareholders
14. General Provisions: Standard clauses including notices, governing law, and amendments
1. Anti-Dilution Protection: Protection against equity dilution, typically included when future funding rounds are anticipated
2. Intellectual Property Rights: Specific provisions for IP ownership and transfer, important for technology companies
3. Founder Vesting: Vesting schedule for founder shares, typically used in startups to ensure long-term commitment
4. Emergency Funding Provisions: Procedures for emergency capital calls or bridge funding
5. Digital Governance: Provisions for virtual meetings and electronic communications, important for modern companies
6. Related Party Transactions: Rules for handling transactions between the company and related parties
7. Foreign Investment Compliance: Required when foreign investment is involved or anticipated
1. Schedule 1 - Details of Shareholders: Complete details of founding shareholders including shareholding percentages
2. Schedule 2 - Business Plan: Initial business plan and key milestones
3. Schedule 3 - Share Capital Structure: Detailed breakdown of share classes and rights
4. Schedule 4 - Reserved Matters List: Comprehensive list of matters requiring special approval
5. Schedule 5 - Tag and Drag Along Procedures: Detailed procedures for implementing tag and drag along rights
6. Schedule 6 - Deed of Adherence: Template for new shareholders to join the agreement
7. Appendix A - Board Resolution Ƶ: Standard templates for common board resolutions
8. Appendix B - Valuation Methodology: Agreed methods for company valuation in various scenarios
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