The Founder Stock Restriction Agreement is a crucial document used when establishing or formalizing founder relationships in Indian companies, particularly during early-stage startup formation or subsequent funding rounds. This agreement, governed by Indian law and compliant with the Companies Act, 2013, sets forth detailed terms regarding founder share ownership, including vesting schedules, transfer restrictions, and company repurchase rights. It's designed to protect the company's interests by ensuring founder commitment while also providing founders with clear rights and obligations regarding their equity ownership. The agreement typically comes into play during company incorporation, new founder addition, or when implementing formal equity structures, often coinciding with investment rounds or corporate restructuring.
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1. Parties: Identifies the company, founders, and any other relevant parties to the agreement
2. Background: Provides context about the company formation, initial share issuance, and purpose of the agreement
3. Definitions: Defines key terms used throughout the agreement including 'Restricted Shares', 'Vesting Period', 'Cause', etc.
4. Share Ownership and Restrictions: Details the number of shares issued to founders and general transfer restrictions
5. Vesting Schedule: Specifies the vesting period, cliff period, and vesting conditions for founder shares
6. Transfer Restrictions: Detailed provisions regarding prohibited transfers, permitted transfers, and right of first refusal
7. Repurchase Rights: Company's rights to repurchase unvested shares upon termination or other triggering events
8. Founder Representations and Warranties: Founders' confirmations regarding share ownership, authority to enter agreement, etc.
9. Company Representations and Warranties: Company's confirmations regarding authority, share issuance, etc.
10. Termination: Circumstances under which the agreement can be terminated and consequences
11. Governing Law and Jurisdiction: Specifies Indian law as governing law and jurisdiction for disputes
12. General Provisions: Standard provisions including notices, amendments, entire agreement, etc.
1. Tag-Along Rights: Include when founders want the right to join in sale of shares by other founders
2. Drag-Along Rights: Include when company wants right to force founders to join in sale of company
3. IPO Provisions: Include for startups with clear IPO plans, addressing lock-in periods and public offering requirements
4. Founder Commitments: Include specific commitments regarding time dedication and non-compete if needed
5. Accelerated Vesting Triggers: Include specific events that might trigger accelerated vesting like change in control
6. Death and Disability Provisions: Include specific provisions for handling shares in case of founder death or disability
7. Dispute Resolution: Include detailed arbitration or mediation procedures if preferred over court litigation
8. Foreign Investment Compliance: Include if any founders are non-resident Indians or foreign nationals
1. Schedule 1 - Share Details: Details of shares held by each founder including share numbers, class, and percentage
2. Schedule 2 - Vesting Schedule: Detailed breakdown of vesting timeline and percentages
3. Schedule 3 - Form of Share Transfer Notice: Template for founders to use when proposing to transfer shares
4. Schedule 4 - Deed of Adherence: Template for new shareholders to sign agreeing to be bound by the agreement
5. Schedule 5 - Permitted Transfers: List of permitted transferees and conditions for permitted transfers
6. Appendix A - Board Resolutions: Copy of board resolutions approving the agreement and share issuance
7. Appendix B - Shareholders' Resolution: Copy of shareholders' resolution approving the agreement if required
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