Founders’ agreement, three founders, pre-incorporation, with reverse vesting

FOUNDERS’ AGREEMENT

THIS FOUNDERS’ AGREEMENT is made at [Place where the Agreement is made] on this [Day of the month the Agreement is made] day of [Month and year the Agreement is made]

Between

1. [First Founder's full name], son / daughter of [First Founder's father's name], aged about [First Founder's age (years)] years, holding PAN [First Founder's PAN], residing at [First Founder's residential address] (hereinafter referred to as the “First Founder”, which expression shall, unless repugnant to the context, include his / her heirs, executors, administrators and permitted assigns) of the First Part;

2. [Second Founder's full name], son / daughter of [Second Founder's father's name], aged about [Second Founder's age (years)] years, holding PAN [Second Founder's PAN], residing at [Second Founder's residential address] (hereinafter referred to as the “Second Founder”) of the Second Part; and

3. [Third Founder's full name], son / daughter of [Third Founder's father's name], aged about [Third Founder's age (years)] years, holding PAN [Third Founder's PAN], residing at [Third Founder's residential address] (hereinafter referred to as the “Third Founder”) of the Third Part.

The First Founder, the Second Founder and the Third Founder are hereinafter referred to individually as a “Founder” and collectively as the “Founders”.

Whereas

A. The Founders have agreed to carry on together the business of [describe the business in two or three lines, for example: developing, marketing and licensing a software platform for reconciliation of payments for small merchants] (the “Business”) through a private limited company proposed to be incorporated under the Companies Act 2013 under the name [Proposed name] Private Limited or such other name as the Registrar of Companies may approve (the “Company”).

B. The First Founder has since [Month and year First Founder began development] developed the prototype, the source code and the designs described in Schedule 3, has contributed Rs [Cost of development contributed by First Founder (Rs)] towards the cost of that development, and will join the Business full time from [Date First Founder joins full time].

C. The Second Founder brings the customer relationships described in Schedule 3, has agreed to contribute Rs [Second Founder's cash contribution to working capital (Rs)] in cash towards the initial working capital, and has joined the Business full time from [Date Second Founder joined full time].

D. The Third Founder brings the technical expertise described in Schedule 3 and has agreed to join the Business full time from [Date Third Founder joins full time], foregoing salaried employment at an annual cost to company of Rs [Third Founder's forgone annual cost to company (Rs)].

E. Having regard to the respective contributions recorded in Recitals B to D, the Founders have agreed that the equity of the Company shall be held among them in the proportions set out in Schedule 1, and that such equity shall be earned over time on the terms of Clause 5 and Schedule 2, so that a Founder who ceases to serve the Business does not retain equity attributable to service he has not rendered.

F. The Founders are entering into this Agreement before the incorporation of the Company, and intend that the Company shall, upon incorporation, adopt and accept the benefit and the burden of this Agreement in the manner provided in Clause 3.

Now this agreement witnesseth and it is hereby agreed and declared as follows

1. Definitions and interpretation.

1.1 In this Agreement, unless the context otherwise requires:

“Act” means the Companies Act 2013 and the rules made thereunder, as amended.

“Articles” means the articles of association of the Company, as amended from time to time.

“Bad Leaver” means a Founder who ceases to be engaged in the Business in any circumstance other than one that makes him a Good Leaver, and includes a Founder whose engagement is terminated for Cause and a Founder who resigns before the fourth anniversary of his Vesting Commencement Date without the prior written consent of the other Founders.

“Business Day” means a day other than a Saturday, a Sunday or a public holiday on which scheduled banks are open for business at [City whose bank holidays define a Business Day].

“Cause” means, in relation to a Founder: (a) conviction of an offence involving moral turpitude, or of any offence punishable with imprisonment for a term exceeding six months; (b) fraud, wilful misappropriation of the funds or property of the Company, or wilful falsification of its records; (c) wilful and persistent failure to discharge the duties assigned to him, continuing for thirty days after written notice specifying the failure; (d) material breach of Clause 8, Clause 11, Clause 12 or Clause 13, not cured within thirty days of written notice where the breach is capable of cure; or (e) his becoming disqualified from acting as a director under [section 164 of the Act]. Unsatisfactory performance not amounting to (c) above shall not constitute Cause.

“Fair Value” means the fair value of one Share determined by an independent valuer being a registered valuer under section 247 of the Act appointed by the Board, applying the valuation methodology prescribed under Rule 11UA of the Income-tax Rules 1962, whose determination shall be final and binding save for manifest error.

“Good Leaver” means a Founder who ceases to be engaged in the Business by reason of (a) death; (b) permanent physical or mental incapacity certified by a registered medical practitioner; (c) termination of his engagement by the Company otherwise than for Cause; or (d) resignation on or after the [third] anniversary of his Vesting Commencement Date with the prior written consent of the other Founders, such consent not to be unreasonably withheld.

“Leaver Event” means the date on which a Founder ceases, for any reason, to be engaged full time in the Business, or the date on which he ceases to devote to the Business the time required by Clause 8, whichever is earlier, as recorded by the Board.

“Option Price” means, in respect of Unvested Shares, the subscription price actually paid by the relevant Founder for those Shares, being their face value; and in respect of Vested Shares of a Bad Leaver, the lower of (a) the subscription price actually paid and (b) fifty per cent (50%) of the Fair Value as at the date of the Leaver Event.

“Shares” means equity shares of the Company of the face value of Rs [Face value of each Share (Rs)] each.

“Unvested Shares” and “Vested Shares” have the meanings given in Clause 5.

“Vesting Commencement Date” means, in respect of each Founder, the date set out against his name in Schedule 2, being the date from which he commenced or is to commence full-time engagement in the Business, whether before or after the date of incorporation of the Company.

1.2 The headings are for convenience only. Words importing the singular include the plural. A reference to a statute includes any statutory modification or re-enactment of it. “Writing” includes e-mail. The Schedules form part of this Agreement.

2. Incorporation of the Company.

2.1 The Founders shall, within [Days within which the Company is incorporated] days of the date hereof, cause the Company to be incorporated as a private company limited by shares under the Act, with an authorised share capital of Rs [Company's authorised share capital (Rs)] divided into [Number of equity shares in the authorised capital] equity shares of Rs [Face value of each Share (Rs)] each, with its registered office at [Company's registered office address], and with the Founders as the first subscribers and first directors.

2.2 The main objects clause of the memorandum of association shall be in the form set out in Schedule 4, and the Articles shall incorporate the provisions listed in Clause 17.

2.3 All costs of incorporation, including professional fees, stamp duty and filing fees, shall be borne by the Company, and until incorporation shall be advanced by the Founders in the proportions set out in Schedule 1 and reimbursed by the Company upon incorporation.

3. Adoption by the Company. The Founders shall procure that, at the first meeting of the board of directors of the Company held after incorporation, the Company shall by resolution (a) adopt, ratify and accept this Agreement and all acts done by the Founders in contemplation of incorporation, (b) accept the benefit and the burden of this Agreement, and (c) execute and deliver to each Founder a deed of adherence in the form set out in Schedule 5, so that this Agreement may be enforced by and against the Company in accordance with sections 15(h) and 19(e) of the Specific Relief Act 1963. The Company shall thereafter be a party to this Agreement as if named herein.

4. Shareholding and subscription.