# Founders' Agreement

> A founders' agreement sets out how co-founders share equity and work together: the equity split, vesting (commonly four years with a one-year cliff, implemented as reverse vesting since founders hold shares upfront), roles and decision-making, assignment of all IP to the company, confidentiality, and what happens if a founder leaves. Key terms should also be reflected in the company's articles to bind the company.

Practice: Startup Funding, ESOP & Valuation — https://www.industax.com/services/startup-funding/

Most co-founder disputes come from what was never written down: who decides, what happens to unvested shares when someone leaves, and who owns code written before incorporation. A short, clear agreement prevents them.

Indian law matters here: post-exit non-compete clauses are generally unenforceable under Section 27 of the Indian Contract Act, so we rely on vesting, leaver provisions, confidentiality and non-solicitation instead.

## Key facts

| Item | Detail |
| --- | --- |
| Vesting | Often 4 years with a 1-year cliff (reverse vesting) |
| IP | All founder IP assigned to the company |
| Leaver terms | Good leaver / bad leaver buy-back price |
| Non-compete | Post-exit restraint generally void under Section 27, Contract Act |
| Articles | Transfer restrictions should mirror the agreement |

## Who needs this

- Co-founders at or before incorporation
- Teams adding a new co-founder
- Founders preparing for a first investor

## What's included

- Term discussion with all founders
- Agreement drafting
- Articles alignment
- IP assignment deeds

## Documents

- Cap table and roles
- Pre-incorporation IP details
- Company articles

## Process

1. **Align** — Founders agree the key terms.
2. **Draft** — Agreement and IP assignment prepared.
3. **Embed** — Articles amended to match.

Work that legally requires a advocate (for drafting and stamping) is signed by a partner professional; Indus Tax coordinates it.

## FAQs

### Are founder non-compete clauses valid in India?

Restrictions during the founder's association with the company are enforceable, but post-exit non-competes are generally void under Section 27 of the Indian Contract Act.

### How does founder vesting work if we already own our shares?

Through reverse vesting: the company or other founders can buy back unvested shares at a nominal price if a founder leaves early.

### Do we need a founders' agreement before raising money?

It's strongly advisable — investors usually ask for founder vesting and IP assignment as part of the round.

## Official sources

- Ministry of Corporate Affairs — MCA21: https://www.mca.gov.in/

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Canonical page: https://www.industax.com/services/startup-funding/founders-agreement
Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.