Complete founder agreement guide 2025 India: lawyer costs ₹5000 (template only) to ₹27998 (full drafting + consultation), standard 4-year vesting/1-year cliff (25% at cliff, 1/48 monthly), good leaver vs bad leaver mechanics, 12 essential clauses, IP assignment, dispute resolution (mandatory mediation 120 days), exit clauses, free templates, sample vesting calculations.
Table of Contents
Why You Need This (Founder Disputes: Real Impact)
Most startup founders skip founder agreements. They assume friendship will last. Then someone leaves early, or a co-founder stops working, or one person wants to pivot while others don’t. Without an agreement in place, your entire equity structure collapses into courtroom drama and wasted lawyer fees.
Real Impact: What Happens Without an Agreement
- Equity disputes escalate fast: “I thought I had 40%, you thought you had 50%” = lawsuit if undocumented
- Early departure creates chaos: Founder leaves after 6 months still claiming 25% equity. No mechanism to reclaim unvested shares. Company can’t attract new co-founder because equity pool exhausted
- Underperformance founders never leave: No mechanism to terminate founders for non-contribution. One founder takes salary + benefits while other 2 founders are unpaid
- IP ownership unclear: Founder leaves, claims he owns the code/technology he built. Company can’t use product because IP disputed
- Investor won’t fund without it: All VCs require founder agreement before investing. Missing it = no Series A
- Startup dies because of founder drama: 3 founders, 2 irreconcilable conflicts, no process to resolve. Company winds down
The Founder Agreement Solves This
- Clear equity ownership: Each founder knows exactly what % they own. Vesting schedule ensures commitment
- Structured exit process: If founder leaves, agreement specifies: vesting stops, company can repurchase unvested shares at predetermined price
- IP ownership locked in: All code/IP created for company belongs to company, not individual. Founder can’t claim ownership
- Decision-making clarity: Which decisions need unanimous consent? Which need majority? Prevents deadlock
- Dispute resolution process: Disagreements go to mediation first (quick + cheap), then arbitration if needed. No court = months saved
- Investor confidence: Professional document signals you’re serious. VCs/angels more likely to fund
What to Include: 12 Essential Clauses
A founder agreement isn’t a generic document. It must reflect your specific co-founder dynamics, business model, and equity split. Here are the 12 clauses that must be in EVERY founder agreement.
The 12 Non-Negotiable Clauses
| Clause | What It Covers | Example Language | Priority |
|---|---|---|---|
| 1. Roles & Responsibilities | Who is CEO, CTO, CFO, etc.? What are their specific responsibilities? Time commitment expectations? | “Founder A (CEO): responsible for sales, fundraising, strategy. 100% time commitment. Founder B (CTO): responsible for product, engineering. 100% time” | CRITICAL |
| 2. Equity Distribution | Who owns what % of the company? Is it equal split (33/33/33) or unequal? | “Founder A: 40%, Founder B: 35%, Founder C: 25%. Based on prior contributions + role differentiation” | CRITICAL |
| 3. Vesting Schedule | When does equity vest? Standard: 4-year period with 1-year cliff. See section below for details | “4-year vesting period, 1-year cliff. 25% vests on 1-year anniversary, then 1/48 per month for 36 months” | CRITICAL |
| 4. IP Assignment | All code, designs, processes created by founders belong to company, not individual | “All IP created during term of this agreement for the business shall be owned solely by the Company. Each Founder assigns all rights to Company immediately” | CRITICAL |
| 5. Good Leaver/Bad Leaver | When founder leaves, what happens to unvested shares? Good reason = founder keeps pro-rata vested shares. Bad reason = company repurchases at no cost | See detailed section below | CRITICAL |
| 6. Confidentiality & NDA | Founder keeps business secrets confidential during term + after exit. Protects trade secrets, customer lists, financials | “Founder shall maintain strict confidentiality on all proprietary information, customer data, financial information. Obligation survives termination indefinitely” | HIGH |
| 7. Non-Compete (Limited) | Post-exit, founder can’t start competing business or work for competitor. Limited to reasonable duration + geography. India courts don’t enforce perpetual non-competes | “During employment + 1 year after exit, Founder shall not engage in competing business within India. After 1 year, restriction lifts” | HIGH |
| 8. Decision-Making & Voting Rights | Which decisions require unanimous approval vs majority? Which are CEO-only? Prevents deadlock | “CEO can hire/fire employees. Fundraising >₹1Cr needs unanimous approval. New product line needs 2/3 approval. Daily operations = CEO only” | HIGH |
| 9. Compensation & Draws | Are founders paid salary? If yes, how much? When can salaries be changed? Can founders take draws/dividends before exit? | “Founders shall not draw salary until Series A funding or ₹50L annual revenue. Post that, salary decided by board annually. Dividends only after debt/expenses covered” | MEDIUM |
| 10. Dispute Resolution | How are disagreements resolved? Mandatory mediation first (120 days), then arbitration if unresolved. Specifies governing law (India Contract Act) + jurisdiction (e.g., Delhi courts) | “Disputes resolved via mediation (120 days). If unresolved, binding arbitration under Arbitration Act 1996. Venue: Delhi. Governing law: Indian Contract Act 1872” | CRITICAL |
| 11. Term & Termination | What’s the duration of the agreement? When does it end? Can it be terminated? What happens on termination? | “Agreement effective on signing date, continues indefinitely. Can be amended by unanimous written consent. Termination triggers: all founders agree, company dissolution, acquisition” | HIGH |
| 12. Dissolution & Exit | If company shuts down, how are assets, IP, and liabilities divided? If acquired, what’s payout formula? | “On dissolution, assets distributed per remaining equity. On acquisition, sale proceeds distributed per equity % (after investor pref rights). Founders’ founders get pro-rata share” | MEDIUM |
Vesting Schedule: 4-Year/1-Year Cliff Standard
Vesting is the most important mechanism in a founder agreement. It ensures founders stay committed. It’s the industry-wide standard: 4-year vesting period with a 1-year cliff. Let’s break down exactly how it works.
What Does “4-Year Vesting with 1-Year Cliff” Mean?
- 4-year vesting period: Equity vests (is earned) over 48 months
- 1-year cliff: NOTHING vests until the 1-year anniversary. Month 0-11 = 0% vested. Month 12 = 25% vested all at once
- Monthly vesting thereafter: After cliff, remaining 75% vests in equal monthly installments over 36 months
- Monthly rate: 1/48 of total equity per month (which equals 75% over remaining 36 months)
Real Example: How 4/1 Vesting Works
Example: Founder owns 1,000 shares (33% equity)
- Month 0 (Day 1): Founder owns 1,000 shares but NONE are vested. If founder leaves today = loses all equity
- Month 6: Still 0% vested (cliff hasn’t hit yet). If founder leaves = loses all 1,000 shares
- Month 12 (1-year anniversary – THE CLIFF): 250 shares vest (25% of 1,000). Founder keeps these even if they leave tomorrow. 750 shares remain unvested
- Month 13: ~250 + 20.83 = ~271 vested shares (~27%)
- Month 24: ~250 + (250 × 12/36) = ~333 vested shares (~33%)
- Month 36: ~250 + (250 × 24/36) = ~417 vested shares (~42%)
- Month 48 (4-year mark): All 1,000 shares vested (100%). Founder fully owns their equity
Why the Cliff?
- Protects against early departures: If founder leaves after 6 months, they get 0%. Prevents people from joining, taking equity, then leaving immediately
- Incentivizes commitment: Founder knows they need to stay 12 months minimum to get ANY equity
- Avoids complexity: If vesting started from day 1, founder leaving month 2 would own 2/48 = 4.2% (messy calculations)
- Aligns with investor expectations: All VCs expect 1-year cliff. Anything else is red flag to investors
Can You Customize the Vesting?
- Cliff length: 6-month cliff (very rare, risky). 12-month cliff (standard). 18-month cliff (if team has proven track record together). Don’t deviate unless there’s reason
- Vesting period: 3-year vesting (aggressive, shows confidence). 4-year (standard). 5-year (rare, very long). Stick with 4-year unless you have good reason
- Vesting frequency: Monthly (standard). Quarterly (simpler but less granular). Annual (very rare). Monthly is easiest
What About Double-Trigger Acceleration?
- Acceleration clause: If company is acquired, all unvested shares accelerate (vest immediately). Common in VC-backed startups
- Example: Founder has 1,000 shares, only 250 vested. Company acquired for ₹100Cr. With acceleration clause, all 1,000 shares vest on acquisition date. Without it, founder only gets proceeds on 250 vested shares
- Single-trigger: Acceleration happens on acquisition event (company sale). Founder vests out immediately
- Double-trigger: Acceleration happens on acquisition + founder’s employment terminated (rare). More restrictive
- Recommendation: Include single-trigger acceleration. Fairness to founders + incentivizes founders to build value for acquisition
Good Leaver vs Bad Leaver: Exit Mechanics
A founder leaves (voluntarily or involuntarily). What happens to their unvested shares? The answer depends on whether they’re a “good leaver” or “bad leaver”.
Good Leaver: Founder Left for Good Reason
Definition: Founder’s professional relationship terminates involuntarily (e.g., sick, family emergency, laid off) or voluntarily without cause, AND before the company exercised termination rights for misconduct.
- Scenarios: Founder diagnosed with cancer + needs to focus on health. Company relocates but founder can’t move. Founder has family emergency in another city. Founder offered amazing opportunity elsewhere. Founder is laid off due to company downsizing
- Treatment of unvested shares: Company has 90-180 days to repurchase unvested shares at original price (usually ₹0 if issued at incorporation) OR founder keeps vested shares only + loses all unvested
- Treatment of vested shares: Founder keeps all vested shares. Can be bought back by company OR founder can retain equity indefinitely (rarer)
- Non-compete: Typically 6-12 months post-exit. Founder can’t join direct competitor but non-solicitation applies (can’t poach employees/customers)
- Example: Founder joins as CEO with 40% equity, 4-year/1-year cliff. After 2 years leaves for health reasons (good leaver). By month 24, 50% of shares vested (250 out of 1000 if 1000 shares total). Founder keeps all 250 vested shares. Company repurchases remaining 750 at no cost. Founder exits with 25% of original equity stake
Bad Leaver: Founder Left for Bad Reason
Definition: Founder terminated for cause (gross negligence, fraud, criminal activity, material breach of agreement, willful misconduct).
- Scenarios: Founder commits fraud/embezzlement. Founder works for competitor while employed (breach of non-compete). Founder steals company IP. Founder is convicted of crime. Founder causes material damage through gross negligence
- Treatment of unvested shares: Company repurchases ALL unvested shares at no cost (founder forfeits). Period. No exceptions
- Treatment of vested shares: Vested shares typically repurchased at no cost OR at significant discount (e.g., 10% of FMV). Varies by agreement
- Non-compete: Typically longer (18-24 months) + stricter. Founder can’t start competing business or solicit employees
- Example: Founder (bad leaver) embezzles ₹50L from company. Caught, terminated immediately. Had 60% of 1000 shares vested (600 shares). Company repurchases all 600 at no cost + remaining 400 at no cost. Founder exits with ₹0 from equity
Key Clause Language (Good vs Bad Leaver)
Sample Good Leaver Clause
“A Founder becomes a ‘Good Leaver’ if their professional relationship terminates during the Vesting Period due to retirement, death, disability, or involuntary termination without Cause. Upon becoming a Good Leaver, the Company has 90 days to repurchase unvested shares at original purchase price. Vested shares remain with the Founder’s estate/family.”
Sample Bad Leaver Clause
“A Founder becomes a ‘Bad Leaver’ if their professional relationship terminates due to: (i) voluntary resignation without reasonable cause; (ii) termination for Cause (fraud, embezzlement, gross negligence, criminal activity, material breach); (iii) engagement in competitive activity while employed. Upon becoming a Bad Leaver, the Company has the right to repurchase all unvested shares AND vested shares at original purchase price (typically ₹0). Founder forfeits all equity rights.”
Dispute Resolution: Mediation & Arbitration
Co-founders WILL disagree. About strategy, hiring, spending, pivot direction. Without a pre-agreed process, disagreements become expensive legal battles. India law now mandates mediation.
The Dispute Resolution Ladder (India 2025)
Step 1: Direct Negotiation (Informal)
- What: Co-founders sit down, discuss issue face-to-face. Try to resolve without lawyers
- Timeline: 2 weeks to attempt resolution
- Cost: ₹0
- Success rate: ~40% of founder disputes resolve at this level
Step 2: Mediation (Mandatory Under Indian Mediation Law 2023)
- What: Neutral mediator helps co-founders reach compromise. Mediator has NO power to impose decision. Both parties must agree to settlement
- Timeline: Maximum 120 days (extendable 60 more days by mutual consent)
- Cost: ₹5,000-20,000 mediator fees (split among founders)
- Process: Each founder presents their position. Mediator identifies common ground. Mediator suggests compromise. If both agree, agreement signed. If not, move to arbitration
- Success rate: ~60-70% of disputes resolve in mediation
- Why mandatory: Indian Mediation Act 2023 requires all civil/commercial disputes attempt mediation before court/arbitration. Non-compliance can result in court dismissing your case later
Step 3: Arbitration (Binding)
- What: Arbitrator (private judge) hears both sides, makes binding decision. Decision enforceable in court
- Timeline: 90-180 days from filing to decision
- Cost: ₹50,000-200,000 arbitrator fees + lawyer fees
- Process: Both parties submit written statements. Arbitrator schedules hearing. Both sides present evidence. Arbitrator issues award (binding decision)
- Why not court: Arbitration much faster + cheaper + more private (no public record) than court litigation which takes 3-5 years
Sample Dispute Resolution Clause (For Your Agreement)
Dispute Resolution Language
“Any dispute between Founders shall be resolved as follows: (1) Direct negotiation for 14 days; (2) If unresolved, mandatory mediation under Indian Mediation Act 2023 for maximum 120 days; (3) If mediation fails, binding arbitration under Arbitration & Conciliation Act 1996 before single arbitrator. Seat of arbitration: Delhi. Governing law: Indian Contract Act 1872. Arbitrator fees split equally among disputing Founders. Award final + enforceable in court.”
Real Dispute Example: How Process Works
- Month 1: Founder A wants to pivot product, Founder B disagrees. Cannot reach agreement in 2 weeks of negotiation
- Month 2: Parties enter mediation. Mediator suggests compromise: launch new product as separate line while maintaining core product. Both founders agree. Mediation succeeds = dispute resolved
- Alternative outcome: If parties couldn’t compromise, arbitrator hears both sides in hearing. Issues binding decision (e.g., “proceed with pivot” or “maintain core product only”). Both founders must follow arbitrator’s decision
- Total cost if mediation succeeds: ₹10,000-15,000. Total time: 30-45 days
- Total cost if arbitration needed: ₹100,000+. Total time: 120-180 days
Lawyer Costs & Template Options
You don’t need an expensive lawyer to draft a founder agreement. Unless your situation is complex, templates work fine. Here’s the complete breakdown of options and real pricing.
Option 1: DIY Templates (Free to ₹5,000)
| Source | Cost | What’s Included | Best For | Limitation |
|---|---|---|---|---|
| Razorpay Rize | FREE | Download founder agreement template. Customizable. No lawyer review | Early-stage startups with equal co-founders | Generic template. No India-specific customization |
| Startup India | FREE | Download founder agreement + employment agreement template from govt portal | India-based startups. Government-endorsed | Very basic. Missing some clauses |
| Promise Legal | FREE | Founder agreement template with vesting explained | Founders who want to understand vesting first | US-centric. India law not covered |
| LegalRaasta (India) | ₹5,000 | Download customizable template. India-specific language | India startups. Better than free templates | Limited support. No lawyer consultation |
Option 2: Online Template Services (₹999-₹24,999)
| Service | Cost | What’s Included | Customization Level | Turnaround |
|---|---|---|---|---|
| LegalRaasta Template | ₹999 | Customizable template. Fill in founder names, equity %, roles. Download PDF/Word | Medium – you edit sections yourself | Instant download |
| Promise Legal Template | ₹1,500-2,500 | Template + online form wizard. Answer questions, template auto-fills | Medium-High. Wizard guides customization | Same day |
| Legalwiz Founder Agreement | ₹3,500 | Template + 30-min video walkthrough explaining each clause | Medium. You understand what you’re signing | Next day |
| Etsy Lawyer Templates | ₹2,000-5,000 | Word/PDF template drafted by lawyer. Lawyer-reviewed, editable | High – lawyer-quality, you edit as needed | 3-5 days |
Option 3: Lawyer-Drafted (₹5,000-₹27,998)
| Service Tier | Cost | What’s Included | Best For | Timeline |
|---|---|---|---|---|
| Template + 30-min consultation | ₹5,000-8,000 | Lawyer provides template + 30-min call to explain clauses + answer questions | Founders who want template + expert guidance | 3 days |
| Full drafting + 1 iteration | ₹12,999-18,000 | Lawyer drafts customized agreement from scratch. 1-2 iterations of changes. Delivery in 2-3 days | Complex equity structures or unequal splits | 5-7 days |
| Full drafting + unlimited iterations | ₹24,999-27,998 | Custom drafting + consultation + unlimited revisions until satisfied + notarization | Complicated startups (many co-founders, complex IP, investor involved) | 10-14 days |
| Premium: Full legal package | ₹50,000-100,000+ | Founder agreement + shareholder agreement + employment terms + IP assignment + all supporting docs + ongoing support | VC-backed startups. Complex legal needs | 2-4 weeks |
Which Option to Choose?
- 3 equal co-founders, simple setup: Use FREE template (Razorpay/Startup India). Time = 1 hour. Cost = ₹0. Risk = low if all agree to terms
- Unequal splits or complex roles: Use ₹3,500-5,000 paid template + form wizard. Spend 2-3 hours customizing. Get it right = worth the time investment
- Fundraising soon or complex situation: Hire lawyer for ₹12,999-18,000 full drafting. Peace of mind + investor confidence
- Multiple co-founders (>3) or investor involved: Hire lawyer ₹24,999+. Worth it to avoid future disputes
Important: Even with Paid Lawyer, You Need to Understand It
- Don’t blindly sign: Even if lawyer drafts, you must understand every clause. Have lawyer explain vesting, good leaver/bad leaver, IP assignment
- Get written explanations: Ask lawyer to provide 1-page summary of each major clause. Keep this summary on file
- All co-founders must review: Don’t have just one founder review + sign. All co-founders must read + agree before signing
Implementation Checklist & Timeline
You have a template or lawyer-drafted agreement. Now what? Here’s how to actually implement it and make it binding.
Pre-Signing Checklist (Before Lawyer/Template)
- Get all co-founders aligned on 5 key points: (1) Equity split %. (2) Roles (CEO, CTO, CFO). (3) Vesting schedule (4-year/1-year cliff standard?). (4) Exit mechanics (good/bad leaver language ok?). (5) Dispute resolution (mediation then arbitration agreed?)
- If no alignment on above = don’t sign agreement yet. Mediate first. Once all agree on 5 points, then draft agreement
- Timeline: 1-2 meetings. 2-3 hours total
Execution Phase (After Agreement Drafted)
Step 1: Review Draft (1-2 Days)
- Each co-founder reads entire agreement independently. Takes ~1-2 hours per founder
- Flag any sections that feel wrong or unclear. Email lawyer with questions
- Lawyer responds to clarifications
Step 2: Execute Document (Sign)
- All co-founders sign agreement. Each founder gets original + scanned copies
- Get lawyer to notarize originals (optional but recommended). Cost ₹500-1000
- Keep original in safe place (safe deposit + cloud backup)
Step 3: Share & Communicate
- Share copy with current/future investors. They’ll request it during due diligence
- Inform your company’s legal counsel / company secretary about key clauses (vesting, IP assignment)
- File copy in company records (share register, director board papers)
Step 4: Implement in Systems
- Track vesting monthly: Create spreadsheet tracking each founder’s vesting. Month 1, month 2, etc. Check vesting cliff hit month 12
- Set 1-year cliff reminder: Calendar alert 1 month before cliff. Verify founder still employed. If yes, cliff vests
- Document IP assignments: Any code/IP created post-agreement date is automatically owned by company (per IP clause). Keep log of what created when
- Annual review: Every Jan 1, review agreement. Any founder status changed? Any roles shifted? Document any amendments
Post-Signature Maintenance (Ongoing)
Annual Founder Agreement Review Checklist
- All co-founders still employed? Any status changes? (Founder A went part-time?) → update record
- Any new co-founders or advisors? Do they need equity + agreement? → draft addendum
- Roles changed? (CTO became Chief Revenue Officer?) → update agreement if material
- Any disputes between founders? Resolved? Documented? → review dispute resolution clause
- Any IP created? All assigned to company per clause? → verify compliance
- Agreement getting stale? Any company growth + investor rounds? → consider updates
- Retention copies updated? (Digital + physical backup?) → verify backups current
Key Takeaways: Founder Agreement Mastery
1. Founder agreement is NOT optional. It’s mandatory for any startup with >1 founder. Without it, equity disputes become legal nightmares (₹1L+ lawyer fees, 2+ years of court battles)
2. Standard vesting: 4-year period with 1-year cliff. 25% vests on 1-year anniversary (cliff cliff), then 1/48 per month for 36 months. Protects against early departures
3. Good leaver: founder leaves involuntarily (health, relocation, layoff). Keep vested shares. Company repurchases unvested at original price. Example: 40% equity, 2 years service = 50% vested, founder keeps 20% equity
4. Bad leaver: founder terminated for cause (fraud, theft, gross negligence). Lose ALL equity (vested + unvested). Company repurchases at ₹0. Incentivizes ethical behavior
5. IP assignment clause: ALL code, designs, business processes created by founders = owned by company, not individuals. Prevents departing founder from claiming ownership of product
6. Dispute resolution: mandatory mediation first (120 days max under Indian law), then binding arbitration if unresolved. Much faster/cheaper than court (court = 3-5 years)
7. 12 essential clauses: roles + equity + vesting + good/bad leaver + IP + confidentiality + non-compete + decision-making + compensation + dispute resolution + term + dissolution. Missing any = exposed to future conflicts
8. Lawyer costs: ₹5,000 (template only) to ₹27,998 (full drafting + consultation). For 3 equal co-founders = free template works. For complex/unequal splits = hire lawyer ₹12K-20K
9. Free templates: Razorpay Rize, Startup India portal. Paid templates: LegalRaasta (₹999), Promise Legal (₹1500-2500), Etsy lawyers (₹2000-5000)
10. Do NOT sign without understanding every clause. Even if lawyer drafted, ask lawyer to explain each section. All co-founders must review independently before signing
11. Common mistakes: skipping agreement entirely, unclear equity splits, no vesting schedule (instant 100% vesting = bad idea), missing IP assignment clause, no good/bad leaver differentiation. Avoid these = avoid 90% of founder disputes
12. VCs require founder agreement before funding Series A. Missing it = automatic deal killer. Have it documented = investor confidence
13. Amendment clause: founder agreement can be amended only with unanimous written consent from all founders. Prevents one founder from changing terms unilaterally
14. Timeline: draft agreement BEFORE taking any outside capital or pivoting business model. Best time = Day 1 of startup (incorporation). Worst time = after founder conflict emerges
15. Action plan: (1) Align co-founders on equity % + roles (2-3 hours). (2) Download template or hire lawyer (3-7 days). (3) Review + sign (1 day). (4) Store digitally + physically (1 hour). Total time investment: 2 weeks. Cost: ₹0-25K. Payoff: protects ₹0-∞ company value
