The founders’ agreement (“Agreement”) is an arrangement between all the co-founders of a contract. The Agreement lays down possession, rights, obligations, and other terms to be executed between the company. The determination of the proportion of equity is one of the most relevant terms of the Agreement. The equity holding of the company’s co-founders is determined to take different factors into accounts, such as monetary expenditure, experience, current intellectual property, know-how, and business networks. Equity ownership is also important to determine the voting rights which may be exercised by the co-founder.
Further, providing a mechanism shall also be taken into consideration in a case where the co-founder of the company exists or is ousted, thus, it is one of the essential factors to be taken into account during the drafting of the agreement, so, for this purpose, a vesting structure shall be included in the agreement so that shares can be taken up by the founders. The shares can be made vested in the manner of Time-based vesting and Milestone Vesting. The drafting of the founder’s agreement, agreement makes the founders accountable for certain actions which they have to take care of and can be made accountable for, such as value-additions, confidentiality, employment, future financing, and decision making.
The privileges and restrictions of the founders to pass their shares in the company are another significant factor to be taken into account in the Agreement. A lock-in clause can be provided for in the Agreement, prescribing the number of years before the expiry of which the co-founder is not allowed to move the stock in the company held by him. The agreement provides a procedure for coping with cases in which the co-founder decides to leave the company before the end of the lock-in era. The system of valuation of the shares and the anti-dilution rights attached to the shares should be calculated as appropriate.
One of the ways to guarantee that the company's equity is not sold to outsiders is by providing the shareholders with the right of first refusal. The right of first refusal would force the founders to pass their shares to outsiders only after the other shareholders of the company have declined to consider the same. Under the High Court of Judicature at Bombay in Bajaj Auto Ltd v. Western Maharashtra Development Corporation Limited (CDJ2015 BHC 1305) held that in the event there is an agreement between the shareholders containing restrictions on the transfer of shares of the company, then even if such a company is a public company the restrictions on the transfer of shares will be enforceable.
The founders of the company also have the responsibility regarding the Intellectual Property Rights of the company. Under this aspect, the founders while drafting the agreement, are responsible to add a clause regarding the same and this is considered as one of the most important clauses of the agreement because the whole valuation of the company gets affected by the intellectual property owned by it.
Now, looking into the matter of termination of the agreement, the Agreement can be terminated upon the occurrence of a specific case, i.e. by a party or by mutual consent of the parties, for a cause or without cause. Furthermore, in relation to any matter referred to in the Agreement, i.e. mediation, conciliation, and arbitration, the Agreement shall provide a specific procedure for resolving conflicts between the Organization and the co-founders. The parties shall agree on the relevant law of the Agreement and on the exclusive jurisdiction of the courts to which conflicts can be referred pursuant to the Agreement.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.