How to set up a proper shareholder agreement before your first investor

Most Indian founders who raise their first institutional round or bring in a co-investor are unprepared for the legal complexity of that conversation. The time to set up a proper shareholder agreement is before you need one — not in the middle of a negotiation.

What a shareholder agreement covers: equity percentages and cap table, voting rights and reserved matters (decisions that require unanimous or supermajority approval), board composition, transfer restrictions (who can sell shares and to whom, and who has right of first refusal), anti-dilution protections, drag-along and tag-along rights, and what happens if a founder leaves (vesting and leaver provisions).

Founder agreements are often the most neglected. If you have a co-founder, you need a founder agreement before you do anything else. It should cover: equity split and vesting schedule (typically 4 years with a 1-year cliff), what happens if one founder exits, decision-making deadlock, and IP assignment.

Four-year vesting with a one-year cliff means: nothing vests in the first 12 months, 25% vests at the 12-month mark, and the remaining 75% vests monthly over the next 36 months. This protects both founders — if one leaves early, they don't walk away with a large equity stake for minimal contribution.

Reserved matters — decisions that require board or investor approval — should be negotiated carefully. Common ones include: raising new debt above a threshold, making acquisitions, changing the business model, issuing new shares, and approving the annual budget.

TBC works with founders on pre-investment legal readiness — including shareholder agreements, founder agreements, and cap table structuring. Don't wait for an investor to force this conversation.