What transfer restrictions should we put on founder shares so one co-founder cannot sell their stake to a random outsider?
The short answer
Lock founder shares down with a right of first refusal (the company and other founders get first dibs), plus a general transfer restriction requiring board consent. Add tag-along and drag-along so minorities are protected and a majority sale is not blocked. You do not want to wake up with a stranger, or worse a competitor, as your co-shareholder because one founder wanted quick cash. Write this into the SHA from the start.
Go deeper, your way
3 hand-picked resources, 3 link-checked. Pick how you want to dig in.
📄 Article
✓ Link checkedIndiaFreeIntermediate
Why we picked it
This is the exact mechanism that stops a co-founder selling to a stranger, explained by an India and SEA cap-table platform that drafts these clauses daily. It gives you sample SHA language for both ROFR and ROFO, and argues you should push for ROFO (offer to insiders first, before any outside bid) for tighter control over who lands on your register.
ROFR forces a selling founder to first offer shares to the company and other founders on the same terms an outsider agreed, ROFO forces the offer to insiders before any third party is even approached
The page hands you ready-to-adapt SHA clause text with bracketed placeholders for thresholds and acceptance windows, so your lawyer edits rather than drafts from scratch
Carve out permitted transfers (family, holding company, estate planning) so routine moves do not trip the restriction while genuine outsider sales stay blocked
Why we picked it
ROFR alone does not finish the job: you still need tag-along so a minority founder is not stranded when the majority exits, and drag-along so one holdout cannot block a clean 100 percent sale. This piece explains both with sample clause language and the usual 50 percent-plus trigger, from the same India-context source as the ROFR guide.
Tag-along lets a minority holder sell alongside the majority on identical terms, so nobody gets left behind with a new outside controlling shareholder
Drag-along lets a qualifying majority compel minorities to sell into a bona fide exit, which most acquirers require since they want all of the company, not most of it
Includes sample SHA wording and covers founder-side protections like a minimum drag price floor so you cannot be forced to sell too cheap
Why we picked it
This puts the transfer restrictions in their real home: the Indian SHA, alongside the lock-in, board consent and reserved-matters clauses that actually make the restriction enforceable under the Companies Act. It walks all 14 clauses a founder team should write in from day one, so you see how ROFR, tag, drag and a 3 to 5 year founder lock-in fit together.
Frames ROFR, tag-along and drag-along as one interlocking transfer-control system rather than isolated clauses, plus board consent via reserved matters
Founders in India are typically locked in for 3 to 5 years, which is your first line of defense against a co-founder cashing out early to an outsider
Enumerates all 14 SHA clauses (vesting, board composition, anti-dilution, exit) so nothing load-bearing gets left out of your first draft
