The Startup Equity Agreement is a crucial document in the Indian startup ecosystem, typically used when a startup company is raising capital through equity investment. It becomes necessary when new investors are bringing capital into the company in exchange for shares, whether during seed funding, Series A, or subsequent funding rounds. The agreement must comply with Indian corporate law, particularly the Companies Act 2013, SEBI regulations, and FEMA guidelines for foreign investments. It addresses key aspects such as share valuation, investor rights, governance structure, exit mechanisms, and protection of both investor and founder interests. The document is essential for establishing clear terms of investment, preventing future disputes, and ensuring regulatory compliance while providing a framework for the company's growth and subsequent funding rounds.
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1. Parties: Details of the startup company, existing shareholders, and new investors
2. Background: Recitals explaining the context of the investment and company's business
3. Definitions: Definitions of key terms used throughout the agreement
4. Investment Terms: Details of the investment amount, valuation, and number of shares being issued
5. Share Subscription: Terms of share issuance, payment mechanics, and completion requirements
6. Representations and Warranties: Statements of fact and assurances from the company and existing shareholders
7. Investor Rights: Special rights granted to investors including information rights and board representation
8. Transfer Restrictions: Limitations on transfer of shares and right of first refusal provisions
9. Tag-Along and Drag-Along Rights: Co-sale rights and forced sale provisions
10. Board Composition: Structure and composition of the board of directors
11. Reserved Matters: Decisions requiring special approval from investors
12. Covenants: Ongoing obligations of the company and existing shareholders
13. Term and Termination: Duration of the agreement and circumstances for termination
14. Confidentiality: Protection of confidential information
15. Dispute Resolution: Mechanism for resolving disputes between parties
16. General Provisions: Standard boilerplate clauses including notices, amendments, and governing law
1. Anti-Dilution Protection: Protection for investors against future down rounds, used in high-risk investments
2. Liquidation Preference: Special rights on liquidation events, typically included for significant investments
3. ESOP Pool: Creation and terms of employee stock option pool, needed if employee equity is planned
4. Foreign Investment Compliance: Special provisions for foreign investors to ensure FEMA compliance
5. Founders' Vesting: Vesting schedule for founders' shares, useful for early-stage startups
6. Non-Compete and Non-Solicit: Restrictions on founders and key employees, important for protecting company interests
7. Future Funding Rounds: Provisions for subsequent investment rounds, relevant for staged investments
8. Strategic Rights: Special rights for strategic investors, used when strategic partners invest
1. Schedule 1: Cap Table: Pre and post-investment shareholding pattern
2. Schedule 2: Company Information: Detailed information about the company including corporate and financial details
3. Schedule 3: Subscription Details: Detailed breakdown of investment amounts and share allocation
4. Schedule 4: Representations and Warranties: Detailed representations and warranties by the company and founders
5. Schedule 5: Reserved Matters: Comprehensive list of matters requiring investor approval
6. Schedule 6: Conditions Precedent: List of conditions to be satisfied before investment
7. Schedule 7: Key Employees: Details of key employees and their commitments
8. Schedule 8: Intellectual Property: List of company's intellectual property assets
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