What is a shareholders' agreement, and what should it include?
A shareholders' agreement (SHA) is the contract between a company's shareholders, and usually the company, on how it is run and how shares change hands. An Indian startup's SHA should cover founder vesting and leaver terms, board seats and the reserved matters needing investor consent, pre-emptive rights, right of first refusal, tag-along and drag-along, anti-dilution, information rights, and how deadlocks are settled. Two Indian rules matter: the Articles of Association win where the two conflict, so copy the key clauses into the AoA, and stamp the SHA under your state's law. Start from the Startup India sample and have a startup lawyer finish it before an outside investor signs.
A current Indian guide that goes clause by clause through an SHA (reserved matters, ROFR and ROFO, drag-along and tag-along, anti-dilution, pre-emptive rights) and explains why an SHA cannot override the Articles of Association, plus stamp duty and the MGT-14 filing when the AoA is amended.
The India-specific piece that tells you where the split actually gets signed. It separates the founders' agreement (equity, roles, IP, vesting between you) from the shareholders' agreement (your terms with investors), and stresses the timing that trips Indian founders up: get vesting in writing before shares are issued, because you cannot bolt it on retroactively once the cap table exists. It also breaks down good-leaver vs bad-leaver treatment, which is the clause that decides what a departing cofounder actually keeps.
Document cofounder equity and vesting at or before incorporation and before shares issue, since Indian law makes retroactive vesting nearly impossible without every founder consenting
The 4-year vest with 1-year cliff is standard in India too, with unvested shares forfeited to the company at nominal price in a bad-leaver exit
Negotiate clear, objective good-leaver vs bad-leaver criteria and ensure already-vested shares are retained regardless of how you exit
A legal commentary on why Indian courts have refused to enforce SHA restrictions against a company when they were not written into its articles, and what that means for drafting.
The single clearest explanation of the two documents Indian founders confuse: the founders' agreement (equity, vesting, roles, IP, departure, signed at or before incorporation) versus the shareholders' agreement (investor voting rights, drag/tag, reserved matters, signed at your raise). It nails the timing rule that trips people up: sign before shares are issued, because you cannot bolt vesting onto already-issued shares without every founder consenting. It is blunt that IP a founder built before incorporation belongs to that founder personally until a formal IP Assignment moves it to the company, which is exactly what breaks a diligence during your first term sheet.
Founders' agreement governs the co-founder relationship; the shareholders' agreement layers in investor protections later, they are not the same document
Sign at or before incorporation and always before shares are issued, or vesting cannot be applied retroactively
Pre-incorporation IP stays with the individual founder until a formal IP Assignment Agreement transfers it to the company
This is the government's own sample SHA, published on the official Startup India (DPIIT) templates page alongside term sheets and founder agreements, so it is a durable, no-cost drafting starting point that already reflects Indian company-law structure. Its drag-along clause, for instance, spells out the 30-day notice mechanics you would otherwise pay a lawyer to draft from scratch. Draft from this, then pay a lawyer once to make it real for your cap table.
From
Startup Indiaby Startup India (Invest India, DPIIT)13-page template
A free, government-published SHA sample you can open, edit, and take to a lawyer instead of paying to draft from a blank page
Includes the load-bearing exit clauses (drag-along with a 30-day notice period, tag-along, transfer restrictions) that a plain paper founders agreement omits
Sits on the official Startup India tools page with matching term-sheet and founder-agreement templates, so the whole early-stage document set comes from one trusted source
This is the checklist and the template in one, written for Indian Pvt Ltd reality, not a US Delaware copy-paste. It walks all nine load-bearing clauses (equity split, 4-year vest with 1-year cliff, good/bad leaver buy-back, roles, reserved matters and deadlock, IP assignment of pre-incorporation work, exit, dispute resolution) and gives a 16-clause template skeleton. Two India-specific traps it flags will save you a real fight: post-exit non-competes are void under Section 27 of the Contract Act, and any share-related term only binds the company once it is mirrored into your Articles of Association (per V.B. Rangaraj v. V.B. Gopalakrishnan).
Nine essential clauses plus a full template skeleton you can adapt: equity, vesting, leaver mechanics, roles, deadlock, IP, confidentiality, exit, arbitration
Post-termination non-compete clauses are unenforceable in India under Section 27, so lean on in-term restrictions and non-solicit instead
Vesting and buy-back terms bind the company only when written into the Articles of Association, not just the founders' side letter
