Lesson content
Scroll through numbered sections or jump via the outline.
What you'll take away
- Founder not on cap table but controlling bank account.
- Multiple related-party entities with unclear IP ownership.
- No vesting on founders who joined at different times.
- Verbal promise of 10% equity to early employee never papered.
Beyond the handshake split
Equity split is a proxy for risk, role, capital, and IP contributed. 50-50 is fine when vesting, decision rights, and exit scenarios are documented.
Without a founders' agreement (even 5 pages), you rely on Companies Act defaults — which do not cover vesting, non-compete, or what happens if a founder stops showing up.
What a founders' agreement should cover
- Roles, decision areas (product vs sales vs finance), and tie-break mechanism.
- Vesting schedule (standard: 4 years, 1-year cliff).
- IP assignment to the company for all past and future work.
- Full-time commitment expectations and side-project rules.
- Good leaver / bad leaver buyback formula.
- Confidentiality and non-solicit (enforceability varies — draft with a lawyer).
Adding a co-founder after incorporation
Pvt Ltd: allot new shares via board + shareholder resolution, file PAS-3, update cap table, revise SHA if investors exist.
LLP: amend LLP agreement, file Form 4 for partner admission, update profit-sharing ratios.
Price per share matters — allotting at ₹10 face value vs fair market value has tax implications under Section 56.
Adding a director without equity
Not every early hire should be a director. Directors have fiduciary duties and DIN KYC obligations.
Use director appointment for people who need signing authority; use employee or advisor agreements for others.
File DIR-12 within 30 days of appointment; remove via DIR-12 when they leave.
Red flags investors see
- Founder not on cap table but controlling bank account.
- Multiple related-party entities with unclear IP ownership.
- No vesting on founders who joined at different times.
- Verbal promise of 10% equity to early employee never papered.