Company Secretary & Startup Compliance Firm in Delhi NCR & India | Bhavya Sharma and Associates
Founder's Agreement & Cap Table Management Service for Startups Delhi Bangalore Gurgaon 2025
Establish clear founder agreements and cap table management preventing costly disputes and ensuring fair equity distribution among co-founders. Bhavya Sharma and Associates specializes in comprehensive founder agreements with vesting schedules, IP assignment, buyback clauses, non-compete provisions, and cap table management across Delhi, Bangalore, and Gurgaon. From equity split determination to vesting cliff protection and dispute resolution mechanisms, we ensure every founder relationship is documented with legal clarity and founder alignment. Undocumented founder equity splits cost startups 15 to 25 percent of exit value in disputes and delays. Proper documentation prevents breakup scenarios destroying 40 percent of startup value.
Over 52,000 founders search for founder agreement templates monthly. Yet 68 percent of startups lack formal founder agreements. Critical reality: Founder disputes over equity split, IP ownership, and buyback trigger costly litigation and exit delays. Example: Two co-founders with undocumented equity split dispute causes 6-month exit delay costing founders 5 to 10 million dollars in deal value reduction. Founder agreement and cap table documentation prevents these catastrophic outcomes.
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Understanding Founder Agreements Critical Foundation for Co-Founder Relationships
A founder agreement is the cornerstone contract governing the rights, obligations, and equity relationships between all co-founders. It defines ownership, decision rights, exit scenarios, and dispute resolution protecting all founder interests.
What Is a Founder Agreement and Why Every Co-Founder Team Needs One
Definition: A legally binding contract between co-founders specifying equity split, vesting schedules, roles and responsibilities, IP ownership, non-compete obligations, and dispute resolution mechanisms.
Scope: Applies to all co-founders regardless of founding phase. Pre-incorporation through Series A and beyond.
Necessity: Mandatory for multiple founder startups. Prevents disputes costing hundreds of thousands in legal fees and opportunity costs.
Impact: Determines exit outcomes, founder motivation, investor confidence, and company stability. Poorly drafted agreements reduce founder returns by 15 to 25 percent.
Key Provisions in Founder Agreements
- Parties and Equity Allocation: Names of all founders and exact equity percentage held by each.
- Roles and Responsibilities: Specific role of each founder. CTO, CEO, CFO designation and scope of authority.
- Vesting Schedule: Timeline for founders to earn equity. Typically 4-year with 1-year cliff.
- Cliff Period and Impact: No equity until cliff completion. Protects against early exits.
- Buyback Clause: Right to repurchase unvested and vested shares under specified conditions.
- IP Assignment: All intellectual property created during company association vests in company.
- Non-Compete Clause: Founders cannot start competing business during employment and for specified period post-departure.
- Confidentiality and NDA: Founders bound to maintain strict confidentiality of business information.
- Dispute Resolution: Arbitration or litigation mechanism for resolving founder disputes.
- Tag-Along and Drag-Along Rights: Minority protection and majority exit facilitation.
- Exit Scenarios: Treatment of equity upon founder departure, acquisition, IPO, or company liquidation.
- Capital Contribution: Amount of capital each founder commits to company.
Frequently Asked Questions Founder Agreement Cap Table 2025
Q1: Do I need a founder agreement if there is only one founder?
Answer: No. Single founder does not require founder agreement. Required when multiple co-founders exist. Single founder should execute founder pledge to company regarding IP ownership and non-compete.
Q2: When should I execute founder agreement?
Answer: Before company incorporation or immediately after. Latest within 30 days of incorporation. Later execution creates ambiguity on who owns what equity at incorporation time.
Q3: What is fair equity split between co-founders?
Answer: Depends on contributions. Equal split if contributions equal. Weighted split 50-35-15 if contributions differentiated. Framework should be transparent and documented. Suggested range 30-70 to 45-55 percent for two founders.
Q4: What is 4-year vesting with 1-year cliff?
Answer: Standard founder vesting schedule. Cliff means zero vesting for 12 months. After cliff, 25 percent vests immediately. Remaining 75 percent vests over 36 months typically monthly. Full vesting at 48 months.
Q5: Can I modify vesting schedule after founder agreement executed?
Answer: Modification possible with consent of all founders. Typical modifications extend cliff period for new joiner or accelerate vesting upon acquisition. Requires written amendment and all founder signatures.
Q6: What happens to unvested equity if founder leaves startup?
Answer: Unvested equity returns to company ESOP pool for reallocation. Founder receives no value for unvested shares unless good leaver provision triggered.
Q7: Should equity vesting be in founder agreement or separate?
Answer: Vesting best documented in founder agreement. Secondary documentation in option grant letter. Single source of truth in founder agreement prevents disputes.
Q8: What is IP assignment and why is it critical?
Answer: Founder assigns all IP created during company association to company. Critical because without assignment, founder could claim ownership of code, patents, or business processes blocking company commercialization.
Q9: How do I protect company IP if founder departs?
Answer: IP assignment clause in founder agreement assigns all IP to company. Non-compete clause prevents founder from using proprietary knowledge. Confidentiality obligation prevents disclosure to competitors.
Q10: What is non-compete clause and is it enforceable?
Answer: Clause preventing founder from starting competing business during employment and for specified period post-departure. Generally enforceable if duration reasonable and scope limited to direct competition. 12 to 24 month non-compete typical.
Q11: What is buyback clause and when does it apply?
Answer: Clause allowing company or remaining founders to repurchase departing founder shares. Applies upon voluntary resignation or termination. Prevents external investor entry and protects remaining founders from unwanted shareholder.
Q12: What is difference between good leaver and bad leaver?
Answer: Good leaver receives fair market value for vested shares if terminated involuntarily or for non-performance reasons. Bad leaver receives discounted value if leaves voluntarily or terminates for cause. Incentivizes founder to stay and perform.
Q13: What happens to equity in acquisition or IPO?
Answer: Founder equity converts to acquisition proceeds per share conversion formula or becomes publicly traded stock in IPO. Liquidation preference and investor rights determine distribution order.
Q14: What is cap table and how is it different from share register?
Answer: Cap table summarizes all equity ownership and convertible securities. Share register is official ROC record. Cap table includes options and convertible notes not yet on share register.
Q15: How do I track dilution through funding rounds?
Answer: Cap table shows pre and post dilution percentages for each round. Model different round sizes to understand dilution impact on founder ownership.
Q16: Can I use spreadsheet or must I use cap table software?
Answer: Spreadsheet acceptable for pre-seed and seed stage. Recommended to move to software like Eqvista or Carta at Series A when investor coordination required.
Q17: What is fully diluted cap table?
Answer: Cap table showing all shares on fully diluted basis including unvested options, convertible notes, and any other convertible securities. Represents true ownership on exit assuming all conversions occur.
Q18: How often should I update cap table?
Answer: After every equity transaction including share issuance, option grant, note conversion, share repurchase. Recommended quarterly review ensuring accuracy.
Q19: How is cap table used in investor due diligence?
Answer: Investors review cap table to understand current ownership, founder vesting status, employee option pool size, and dilution trajectory through funding rounds. Clean cap table accelerates due diligence and fundraising.
Q20: What is option pool and how does it affect founder dilution?
Answer: ESOP pool carved from company equity for employee options. Series A investors typically require 10 to 15 percent pool for hiring. Pool is created before investor dilution percentages calculated. Impacts founder post-round ownership.
Q21: Can founder recover after leaving due to involuntary termination?
Answer: Yes. Good leaver provision allows recovery of fair market value for vested shares plus unvested shares sometimes recoverable depending on agreement terms.
Q22: What happens to founder equity if company is struck off or liquidated?
Answer: Upon liquidation, company assets distributed to creditors and preferred shareholders first. If assets insufficient to cover liabilities, common equity founders receive nothing.
Q23: Should founder execute confidentiality agreement separate from founder agreement?
Answer: Confidentiality typically included in founder agreement. Separate confidentiality agreement possible but redundant. Single agreement sufficient if comprehensive.
Q24: Can founders dispute equity split after agreement executed?
Answer: Difficult to revisit once both parties sign. Courts enforce written agreements. However amendments possible if both parties consent. Disputes over fairness difficult to win absent fraud or unconscionability.
Q25: How do I calculate founder dilution in Series A round?
Answer: Founder ownership percentage multiplied by series A investor percentage. Example founder 80 percent pre-round, Series A investor receives 20 percent. Founder post-round 64 percent (80 percent x 80 percent). Dilution 16 percent.
Get Expert Founder Agreement and Cap Table Management Support Today
Bhavya Sharma and Associates specializes in comprehensive founder agreements and cap table management including equity split determination, vesting schedule design, IP assignment protection, buyback clause structuring, and cap table creation and maintenance across Delhi, Bangalore, and Gurgaon. From pre-incorporation to Series B and beyond, we ensure founder relationships are documented with legal clarity and equity disputes prevented.
Available in: Delhi, Bangalore, Gurgaon, and pan-India delivery.
Services: Founder agreement drafting and negotiation, equity split determination and justification, vesting schedule design and documentation, IP assignment and confidentiality clauses, non-compete and non-solicitation provisions, buyback clause structuring good leaver bad leaver, dispute resolution mechanism definition, cap table creation and template design, cap table software selection and onboarding, dilution modeling and scenario analysis, founder departure planning and equity settlement, investor cap table coordination and reporting, cap table audit and reconciliation, exit readiness cap table review.
Why Choose Bhavya Sharma and Associates for Founder Agreement and Cap Table Delhi Gurgain Noida Mumbai and Bangalore?
Equity Split Framework: Transparent methodology determining fair equity split based on founder contributions and future roles.
- Vesting Schedule Expertise: Standard 4-year with 1-year cliff optimized for founder motivation and company protection.
- IP Protection Mastery: Comprehensive IP assignment, confidentiality, and non-compete clauses protecting company IP from founder disputes.
- Buyback Clause Structuring: Good leaver bad leaver provisions balancing founder protection and company flexibility.
- Cap Table Creation: From initial founder allocations through Series A B C complexity. Clean cap tables accelerating investor due diligence.
- Dilution Modeling: Scenario analysis showing dilution impact of various funding round sizes and investor stakes.
- Founder Dispute Resolution: If dispute arises, mediation and negotiation guidance preventing costly litigation.
- Exit Readiness: Cap table review ensuring cleanliness for acquisition or IPO. Prevents exit delays due to cap table issues.
- Investor Communication: Cap table reporting and explanations for investor meetings and due diligence.
- Growth Stage Management: Cap table evolution from seed through Series B and beyond. Conversion tracking and full dilution management.
Related Services Available: Private Limited Company Registration, Shareholders Agreement, Investment Documentation, ESOP Setup and equity management, Annual ROC Compliance.