STARTUP SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT is made and entered into on this _____ day of __________, 20
BETWEEN
The undersigned shareholders whose names and particulars are set forth in Schedule A (collectively, the “Shareholders”); AND [COMPANY NAME], a private limited company incorporated under the Companies Act, 2013, having its registered office at [Address] (the “Company”).
PREAMBLE
WHEREAS the Company operates as an early-stage technology startup developing innovative solutions in [specify sector]; WHEREAS the Shareholders comprise founding members, angel investors, and key contributors who collectively seek to establish comprehensive governance mechanisms, equity vesting frameworks, transfer restrictions, exit strategies, and dispute resolution procedures; NOW THEREFORE, acknowledging mutual interests and in consideration of the covenants herein, the parties agree as follows:
ARTICLE 1: DEFINITIONS
“Board” means the Company’s Board of Directors constituted in accordance with this Agreement and the Articles of Association.
“Equity Securities” encompasses all shares, stock options, warrants, convertible instruments, and securities convertible into Company shares.
“Founder” designates original shareholders instrumental in establishing the Company’s business operations and technology platform.
“Transfer” means any sale, assignment, pledge, encumbrance, or disposition of Equity Securities, whether voluntary or involuntary.
“Vesting” refers to the gradual acquisition of unconditional ownership rights in allocated Equity Securities over specified timeframes.
ARTICLE 2: CAPITALIZATION AND VESTING
2.1 Issued Share Capital
The Company’s authorised capital comprises Rs. [Amount] divided into [Number] equity shares of Rs. …………….. each. The issued and paid-up capital consists of ……….. (No.) shares distributed among Shareholders as detailed in Schedule A, representing ownership percentages calculated on a fully diluted basis, including outstanding options and convertible securities.
2.2 Founder Vesting Schedule
All founder shareholdings vest over four years with a one-year cliff mechanism. Twenty-five percent of allocated shares vest upon completing twelve consecutive months of full-time service. The remaining seventy-five percent vests in equal monthly instalments over the subsequent thirty-six months. This structure ensures founder commitment while protecting the Company against premature departures that could compromise operational continuity and investor confidence.
2.3 Vesting Acceleration
Accelerated vesting may occur upon: acquisition of the Company, where founders experience involuntary termination within twelve months post-closing; qualified initial public offering exceeding specified valuation thresholds; or termination without cause approved by the Board. Acceleration decisions require majority Board approval and must align with shareholder value maximisation principles.
2.4 Unvested Share Repurchase
Upon founder separation before complete vesting—whether through resignation, termination for cause, or voluntary departure—all unvested shares revert to the Company or undergo repurchase at nominal consideration. This provision prevents unearned equity accumulation and protects continuing shareholders from dilution without corresponding value contribution.
2.5 Employee Stock Option Pool
The Company maintains an Employee Stock Option Pool comprising 12% of its fully diluted share capital, designed to attract exceptional talent, retain high performers, and align employee interests with long-term shareholder value creation. The Board administers the ESOP in accordance with regulatory-compliant schemes that address grant procedures, exercise mechanisms, and taxation implications.
ARTICLE 3: GOVERNANCE AND BOARD COMPOSITION
3.1 Board Structure
The Board comprises …….. (No.) directors, including founder-appointed directors proportionate to founder shareholdings, investor-nominated directors based on investment thresholds, and independent directors contributing domain expertise. Board composition adapts as the Company progresses through financing stages and regulatory maturity.
3.2 Reserved Matters
Certain material decisions require approval by shareholders holding seventy-five percent voting rights: constitutional amendments; new equity issuances except approved ESOP grants; asset disposals exceeding Rs. ……………; debt obligations exceeding Rs………….; related-party transactions; mergers or liquidation; fundamental business changes; dividend declarations; annual budget approvals; and key management appointments or removals, including Chief Executive Officer and Chief Financial Officer positions.
3.3 Information Rights
Shareholders receive quarterly unaudited financials within thirty days of quarter-end; annual audited statements within one hundred twenty days of fiscal year-end; monthly management reports detailing revenue, burn rate, customer metrics, and cash runway; Board meeting notices with accompanying materials; and reasonable access to Company records and management subject to confidentiality obligations and operational considerations.
ARTICLE 4: TRANSFER RESTRICTIONS
4.1 Transfer Prohibition
No Shareholder may transfer Equity Securities except in strict compliance with this Agreement. Non-compliant transfers are void and unrecognisable by the Company.
4.2 Lock-In Period
Founders face a twenty-four-month lock-in from execution, preventing any transfers except to family members, personal trusts, or wholly-owned entities where beneficial ownership remains unchanged, provided transferees execute joinder agreements accepting all Agreement terms.
4.3 Right of First Refusal
Shareholders proposing third-party transfers must first offer shares to existing shareholders pro-rata. Selling shareholders provide written notice specifying quantity, price, and terms. Existing shareholders have thirty days to accept. Unaccepted shares may transfer to third parties within ninety days on identical or less favourable terms.
4.4 Tag-Along Rights
When founders holding majority stakes sell to third parties, minority shareholders may participate pro-rata on identical terms, ensuring minorities aren’t trapped with undesirable controlling shareholders and maintaining equitable liquidity access.
4.5 Drag-Along Rights
Shareholders holding seventy-five percent approval may compel remaining shareholders to participate in Company sales, preventing minority blockage of value-maximising exits and ensuring clean acquisitions attractive to strategic buyers.
ARTICLE 5: ANTI-DILUTION AND PREEMPTIVE RIGHTS
5.1 Anti-Dilution Protection
Down-round financings trigger anti-dilution adjustments for preference shareholders using weighted-average methodologies, balancing investor protection against excessive dilution while preserving the Company’s fundraising flexibility during challenging market conditions.
5.2 Preemptive Rights
Existing shareholders may subscribe pro-rata in future equity issuances, maintaining ownership percentages subject to securities law compliance. Exemptions include ESOP grants, convertible instrument conversions, acquisition-related issuances, and lender-required equity.
ARTICLE 6: INTELLECTUAL PROPERTY
6.1 IP Assignment
Founders, employees, and contractors irrevocably assign all intellectual property—including inventions, patents, trademarks, copyrights, trade secrets, algorithms, and source code—created before or after this Agreement relating to Company business. This comprehensive assignment ensures the Company owns foundational technology essential for competitive advantage and commercialisation.
6.2 Confidentiality
Shareholders maintain strict confidentiality regarding proprietary information, including business strategies, financial data, customer information, technical specifications, and trade secrets during and after the Company association. Breaches entitle the Company to injunctive relief and damages.
6.3 Non-Compete Covenants
During association and for eighteen months thereafter, founders shall not engage in competing businesses within specified territories, solicit Company employees, or divert business opportunities, protecting legitimate business interests, including customer relationships and employee retention.
ARTICLE 7: EXIT MECHANISMS
7.1 Qualified IPO
Upon a qualified initial public offering, this Agreement terminates except for surviving provisions, including intellectual property assignments, confidentiality obligations, and indemnification protections.
7.2 Good Leaver Treatment
Founders departing due to death, disability, or termination without cause retain vested shares and may sell unvested shares at fair market value determined through independent valuation, recognising contributions while enabling dignified transitions.
7.3 Bad Leaver Consequences
Founders departing through resignation, termination for cause, or contractual breaches forfeit unvested shares immediately. The Company may repurchase vested shares at discounted valuations, discouraging opportunistic departures and protecting remaining stakeholders.
ARTICLE 8: DISPUTE RESOLUTION
Disputes undergo sequential resolution: thirty-day good-faith negotiations between senior executives; mediation before neutral mediators; and if unresolved, binding arbitration under the Arbitration and Conciliation Act, 1996, with single or three-member tribunals, seated in [City], conducted in English, applying Indian law. Arbitral awards are final and enforceable in competent courts.
ARTICLE 9: GENERAL PROVISIONS
This Agreement constitutes the entire understanding, superseding prior agreements. Amendments require written consent from shareholders holding seventy-five percent voting rights. The Agreement is governed by Indian law, with ………. [City] courts having jurisdiction over non-arbitrable matters. Invalid provisions don’t affect the remaining terms’ enforceability.
EXECUTION
IN WITNESS WHEREOF, the parties execute this Startup Shareholder Agreement on the date first written above.
COMPANY: __________________ [Authorized Signatory]
SHAREHOLDERS: __________________ [Individual Signatures]
SCHEDULE A: [Shareholder names, addresses, share quantities, ownership percentages]
Legal Disclaimer: This startup shareholder agreement template provides general information and does not constitute legal advice. Early-stage companies must consult qualified corporate lawyers to customise agreements addressing specific circumstances, investor requirements, regulatory compliance, intellectual property protection, employment law considerations, and industry-specific provisions governing equity management, founder vesting schedules, anti-dilution mechanisms, transfer restrictions, governance frameworks, and dispute resolution appropriate for venture-backed startups operating in India’s evolving entrepreneurial ecosystem.