What is a founders' agreement and what must it actually cover?
It's the contract between you and your co-founders that decides what happens when things get hard, written while you still like each other. Non-negotiables: equity split and vesting, roles and decision rights, IP assignment (everyone's work belongs to the company), what happens if someone leaves or is fired, and how you resolve a deadlock. A handshake between friends is how founder disputes become fatal. Sign this before you write serious code or take a rupee of outside money.
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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 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
Concrete proof that the absence of a written agreement is what turns a friendship into a lawsuit. The Zipcar story (a casual 50/50 handshake with no documented expectations, ending in one founder firing the other after 18 months of resentment) and the anonymous 'Tom and James' story (no governance in place, a co-founder drained funds and pushed the company into insolvency, and Tom lost his life savings) are the exact scenarios a 3-page document prevents. Read this before you tell yourself you and your co-founder are too good friends to need paperwork.
