Most founders spend more time negotiating the valuation in their term sheet than the terms of the SHA that encodes the real power dynamics of the investor relationship. Valuation determines how much equity you give away on paper. The SHA determines how much of the company you actually control, and what your equity is actually worth, across every scenario that follows.
Advisorate's Company Secretary team drafts SHA and SSA documentation for Indian startups raising equity rounds, from first angel cheques to institutional Series A transactions. We draft with a founder-protective perspective: flagging the clauses that create problems founders only discover when they matter, explaining what standard looks like at each stage in India's early-stage investment market, and structuring both documents so your interests are protected across the scenarios you are not thinking about right now.
SHA versus SSA, two documents that do completely different jobs
These documents are almost always confused, often combined, and occasionally treated as interchangeable. They are not. Understanding what each one does is the starting point for understanding what you are signing.
The Share Subscription Agreement (SSA)
The SSA is the transaction document. It governs the specific investment transaction, how an investor acquires newly issued shares in your company, the mechanics of that acquisition, and the conditions that must be satisfied before the transaction closes. Think of it as the contract that gets the investor onto your cap table.
A properly drafted SSA for an Indian startup covers: the details of the parties, the number of shares being subscribed, the class of shares being issued (equity shares or Compulsorily Convertible Preference Shares), the subscription price per share and the total subscription amount, conditions precedent that must be satisfied before closing (board and shareholder resolutions approving the allotment, any regulatory clearances, any clean-up actions required on the cap table or corporate documents), representations and warranties made by the company and founders to the investor (statements about the accuracy of financial information, the completeness of disclosed liabilities, the absence of undisclosed litigation, the validity of IP ownership, and the company's compliance with applicable laws), closing mechanics and the sequence of steps on closing day, and indemnification provisions that apply if the representations and warranties turn out to be inaccurate.
One critical point about indemnity survival periods that most founders miss: investor counsel typically proposes indemnity survival periods of seven to ten years for tax representations. Under the Income Tax Act, 2025, which replaced the 1961 Act from 1 April 2026, the practical limitation period for most tax assessments is six years from the end of the relevant tax year. There is no rational basis for an indemnity survival period longer than this. We push for survival periods that match the applicable limitation period, not template provisions that create exposure without corresponding regulatory rationale.
The Shareholders Agreement (SHA)
The SHA is the governance document. It governs the ongoing relationship between all shareholders, founders, investors, and sometimes key management, after the investment closes. If the SSA gets the investor onto the cap table, the SHA determines what the investor can do once they are there, and what the founders can and cannot do as the company grows.
Unlike the SSA which is executed and then largely set aside, the SHA is a living document that affects every significant decision the company makes for as long as the investor remains a shareholder. Board meetings, new hires above a certain seniority level, new contracts above a certain value, new share issuances, acquisitions, changes to the business model, secondary share sales by founders, all of these can be affected by SHA provisions. Understanding this document thoroughly before signing it is not optional.
One critical procedural point that many founders and even some advisors miss: under
Indian law, specific SHA provisions, particularly share transfer restrictions and special voting rights, must be incorporated into the Articles of Association to be enforceable against the company. The Supreme Court's ruling in V.B. Rangaraj v. V.B. Gopalakrishnan established that restrictions in a SHA that are not captured in the AoA are generally unenforceable against the company. When we draft the SHA, we identify all provisions that need to be mirrored in the AoA and prepare the necessary AoA amendments simultaneously. Learn more about our post-round compliance support which covers the AoA amendment and filing process.
Can the SSA and SHA be combined?
Yes, and in many early-stage transactions, particularly angel rounds and small seed rounds, they are. A combined SSA-SHA document covers both the subscription transaction and the ongoing governance in a single document. This is simpler administratively but creates a complication when future rounds happen, because amendments to the governance provisions require revisiting the entire document rather than just updating the SHA while leaving the SSA for that round intact. We advise on whether to combine or separate based on the specifics of the round and the investor's preferences.
The SHA clauses that matter most, and what founders must negotiate
This is the section of the page that most founders need to read most carefully. These are the clauses where the difference between a founder-protective SHA and an investor-protective one plays out concretely, not in abstract legal theory but in real commercial consequences when scenarios arise.
Board composition and reserved matters
Board composition determines who controls the decisions that shape the company's direction. Most early-stage SHAs in India give investors the right to appoint one director to the board in exchange for their investment, with the founders retaining majority board control until a specified threshold ownership percentage is crossed. The specific thresholds, at what investor ownership percentage do they gain additional board seats, veto rights, or the ability to block founder decisions, are among the most negotiated provisions in any SHA.
Reserved matters are the decisions that require investor consent before the company can act. These are the provisions most founders underestimate when they sign and most regret when they operate. A reserved matters list that is drafted broadly, covering routine decisions like entering into contracts above ₹5 lakhs, hiring anyone above a certain salary, or changing the marketing budget, can make the company operationally paralysed, requiring investor approval for decisions that should be within management discretion. A well-drafted reserved matters list should be limited to genuinely material corporate actions: new share issuances that would dilute existing shareholders, major acquisitions or disposals, changes to the core business scope, large borrowings above a defined threshold, related party transactions, and changes to the constitutional documents. We draft reserved matters lists that protect investors' legitimate interests without creating an operational veto over day-to-day management.
Anti-dilution provisions, the clause with the biggest financial consequence at your next round
Anti-dilution provisions protect an investor's economic position if the company subsequently raises capital at a lower valuation, a down round. There are two main types and the difference between them is enormous in financial terms.
Broad-based weighted average anti-dilution adjusts the investor's conversion price based on a formula that takes into account both the lower price of the new round and the amount of capital raised at that price. If only a small amount of capital is raised at a lower price, the adjustment is modest. This is the market standard for early-stage deals in India and is broadly considered fair to both founders and investors.
Full ratchet anti-dilution resets the investor's conversion price to the new lower price completely, regardless of how small the down round is. This can result in devastating dilution for founders. If an investor owns 20% of your company at a seed round valuation of ₹10 crore, and a subsequent round is raised at ₹8 crore, even if that subsequent round is only ₹25 lakhs, full ratchet anti-dilution resets the seed investor's price to the new lower price, significantly increasing their ownership percentage and diluting founders accordingly. Never agree to full ratchet anti-dilution. It is not standard practice in India's early-stage market. We push for broad-based weighted average in every SHA we draft and flag full ratchet provisions in every SHA we review for founders.
Liquidation preference, who gets paid first and how much
Liquidation preference determines the order in which shareholders receive proceeds from an exit, whether that exit is an acquisition, a winding up, or another liquidity event. This is the most economically consequential clause in the SHA for most startup exits.
1x non-participating liquidation preference means the investor receives their investment amount back first (1x what they put in), and then the remaining proceeds are distributed pro-rata among all shareholders including the investor. Alternatively, the investor can choose to convert to equity and share pro-rata from the start, taking whichever gives them more. This is the standard and founder-friendly structure.
1x participating liquidation preference, called "double dipping", means the investor receives their investment amount back first AND THEN participates in the remaining proceeds pro-rata alongside founders. This is significantly more investor-friendly and erodes founder returns substantially in mid-range exit scenarios. Consider a company that exits for ₹30 crore after a ₹5 crore investment at 20% ownership. Under non-participating preference, the investor takes ₹5 crore back and then either converts to participate in the full ₹30 crore at 20% (₹6 crore, which is more) or takes the preference, getting ₹6 crore. Under participating preference, the investor takes ₹5 crore back first and then takes 20% of the remaining ₹25 crore (₹5 crore), for a total of ₹10 crore, significantly more than under non-participating. We push for non-participating preference in every SHA we draft and explain the exit scenario economics to founders before they accept participating structures.
Founder vesting, reverse vesting schedules and good-leaver versus bad-leaver provisions
Founder vesting, sometimes called reverse vesting in the
Indian context, means that founders' shares are subject to buyback by the company or investors if a founder leaves before a specified vesting period is complete. This is an investor-protective provision that incentivises founders to stay with the company, and it is entirely standard practice in Indian early-stage deals. The typical structure is a four-year vesting schedule with a one-year cliff, a founder who leaves before the first anniversary of the investment gets nothing, a founder who leaves after two years keeps 50%, and a founder who stays for the full four years is fully vested.
The critical negotiation points are the distinction between good-leaver and bad-leaver provisions, and the buyback price that applies in each case.
Good-leaver provisions apply when a founder leaves for reasons that are not their fault, death, permanent disability, or termination without cause. Under good-leaver provisions, the departing founder typically retains their vested shares and may receive fair market value for unvested shares.
Bad-leaver provisions apply when a founder voluntarily leaves or is terminated for cause, typically defined as fraud, gross misconduct, breach of the SHA, or conviction of a criminal offence. Under bad-leaver provisions, unvested shares are typically bought back at face value, the nominal value of the share, which can be a fraction of its fair market value. Some SHAs proposed by investor counsel also classify voluntary resignation as a bad-leaver event, which effectively locks founders in without adequate protection for genuine life circumstances that prevent continued involvement. We push for a nuanced good-leaver definition that does not penalise founders for circumstances beyond their control.
Drag-along and tag-along rights
Tag-along rights protect minority shareholders in an acquisition. If the majority shareholder proposes to sell their shares to a third party, the tag-along clause entitles minority shareholders to sell their shares to the same buyer on the same price and terms, preventing minority holders from being left behind in a liquidity event.
Drag-along rights work in the opposite direction. They allow a specified majority to compel all remaining shareholders to sell their shares in a proposed acquisition, enabling a buyer to acquire 100% of the company. Drag-along provisions are typically investor-friendly: venture capital funds and strategic buyers routinely require them to ensure that a minority founder or investor cannot block a negotiated exit by withholding consent. Drag-along provisions are typically triggered upon a vote by shareholders representing 60 to 75% of all voting shares, with specific founder consent requirements in some structures.
The key negotiation points are the threshold that triggers drag-along (higher thresholds give founders more protection) and whether founder consent is independently required in addition to the shareholder vote threshold. We structure drag-along provisions that protect founders' ability to block a forced exit at an inadequate valuation while not giving any single minority holder an absolute veto over an exit that is genuinely in the company's interests.
Right of First Refusal (ROFR) and Right of First Offer (ROFO)
ROFR gives existing shareholders the right to purchase shares before they can be sold to a third party. If a founder wants to sell their shares, they must first offer them to existing investors at the same price and on the same terms as the proposed third-party sale. Only if investors decline to exercise their ROFR can the shares be sold externally. This is the stronger protection for investors and is more common in Indian startup SHAs.
ROFO requires a selling shareholder to offer shares to existing shareholders first before approaching external buyers, but at a price the seller proposes rather than the price agreed with a specific third party. ROFO is slightly less investor-protective than ROFR because the seller sets the price rather than matching a third-party offer.
One practical consequence founders must understand: if a founder signs a Share Purchase Agreement with a third-party buyer before obtaining ROFR waivers from existing investors, they are in breach of the SHA. Under the Indian Contract Act, 1872, this breach can give investors grounds to challenge the transfer under specific performance provisions. Always obtain ROFR waivers in writing before executing any secondary sale agreement. Learn more about our legal due diligence support and post-round compliance.
Information rights
Information rights specify what financial and operational data investors receive, at what frequency, and in what format. Common provisions include monthly management accounts within fifteen to twenty business days of month end, quarterly board reports covering financial performance, key metrics, and material developments, and annual audited financial statements within a specified period after the financial year end.
The negotiation point for founders is the specificity and burden of the reporting requirements. Investor counsel sometimes proposes information rights packages that require data the company does not currently track or cannot produce at the required frequency without significant additional administrative burden. We draft information rights provisions that satisfy investors' legitimate need for transparency without creating a reporting burden that distracts the founding team from building the business. Learn more about our Virtual CFO service which handles the ongoing investor reporting that SHA information rights require.
Lock-in periods and transfer restrictions
Lock-in periods restrict founders from selling their shares for a specified period after the investment closes, typically one to two years for the first institutional round. During the lock-in period, founders cannot sell any shares on the secondary market regardless of whether an eligible buyer exists or what price is offered.
Transfer restrictions additionally limit who founders can transfer shares to, typically allowing transfers only to immediate family members or wholly owned holding companies, subject to the transferee entering into a deed of adherence to the SHA.
The SSA, what it covers and what to watch in every clause
Conditions precedent
Conditions precedent (CPs) are the list of things that must happen before the investor is obligated to fund and before the company is obligated to issue shares. Common CPs include board and shareholder resolutions approving the allotment, an updated cap table showing the post-allotment ownership, a valuation report confirming the issue price is at or above Fair Market Value (for FEMA compliance in foreign investor rounds), clean-up actions on prior cap table issues, receipt of all regulatory clearances, and delivery of the SHA executed by all parties.
The list of CPs matters because it defines what the company must deliver before receiving the funds. A CP list that includes items the company cannot easily produce, for example, requiring a clean FEMA compliance certificate when prior rounds had filing delays, can delay closing significantly or create leverage for the investor to renegotiate terms. We review CP lists carefully and push back on conditions that are disproportionate to the stage and size of the round.
Representations and warranties
Representations and warranties are statements the company and founders make to the investor about the accuracy of the information provided during due diligence, financial statements, cap table, IP ownership, litigation status, tax compliance, and material contracts. If a representation turns out to be inaccurate, the investor can claim under the indemnity provisions of the SSA.
The key negotiation points are the scope of the representations (what they cover and what is disclosed against them), the materiality threshold (representations qualified by materiality or knowledge are less onerous than unqualified representations), and the survival period of the indemnity obligation (as discussed above, we push for alignment with applicable limitation periods under the Income Tax Act, 2025, rather than template provisions that extend exposure beyond the legal limitation period).
Closing mechanics
The closing mechanics section of the SSA specifies the sequence of events on closing day, the order in which documents are executed, funds are transferred, shares are allotted, and board resolutions are passed. Getting this sequence right is important practically: funds should not be transferred until all conditions are satisfied, and shares should not be allotted until funds are received. We structure closing mechanics to protect the company and the founders through this sequence, not just the investor.
The AoA amendment, the step most founders skip
As discussed above, specific SHA provisions must be incorporated into the Articles of Association to be enforceable against the company under Indian law. Specifically, share transfer restrictions (ROFR, ROFO, drag-along, tag-along), special voting rights for investor directors, and reserved matter veto rights typically need to be reflected in the AoA.
Many founders, and some advisors, skip this step because it involves an additional shareholder resolution, a potentially time-consuming process if all shareholders need to consent, and an MCA filing. The consequence of skipping it is that the SHA provisions purporting to bind the company are not enforceable against the company itself, only against the individual shareholders who signed the SHA. In a dispute, this distinction can be outcome-determinative. We prepare the AoA amendment as part of every SHA drafting engagement and support the necessary shareholder resolution and MCA filing documentation through our legal compliance services.
How our SHA and SSA drafting process works
Term sheet review before drafting begins If a term sheet has been issued, we review and annotate it before drafting begins. The term sheet is the commercial agreement that the SHA and SSA must encode, it specifies the valuation, the round size, the investor's board rights, the anti-dilution mechanism, the liquidation preference structure, and the key governance provisions. Understanding what was agreed in the term sheet before drafting the definitive agreements prevents the common situation where a founder signs a term sheet without fully understanding the implications and then is surprised by the SHA that documents those implications. Learn more about our term sheet review service.
Understanding the investor and round context The appropriate SHA structure depends on who the investor is, what stage the company is at, and what the round size is. An SHA for an individual angel investor writing a ₹50 lakh cheque is structurally simpler than one for a SEBI-registered angel fund writing ₹3 crores with a formal investment committee. The governance provisions, the reserved matters list, the information rights package, and the drag-along thresholds are all calibrated to the investor type, stage, and the existing cap table.
Drafting with founder-protective framing We draft from a founder-protective perspective, this means we start with provisions that protect founder interests and include investor-protective provisions to the extent they are genuinely standard for the stage and investor type. We do not draft from an investor's template and make minimal changes to get to founder-acceptable. We draft from scratch or from our own templates and negotiate investor additions. This is the opposite of how most SHA negotiations go when founders engage their own counsel after an investor's lawyer has already produced a draft.
Negotiation support After the investor receives our draft, we support founders through the negotiation process, explaining what the investor's proposed changes mean in practice, identifying which proposed changes are standard and reasonable versus which are aggressive, and advising on where to hold firm versus where to compromise. SHA negotiation typically takes two to four weeks for an angel or seed round and four to eight weeks for a Series A.
Execution, AoA amendment, and post-round filings We coordinate the execution process, ensuring all parties sign in the correct sequence, that conditions precedent are satisfied before funds move, and that the AoA amendment and post-round MCA filings are completed within the statutory deadlines. Learn more about our post-round compliance support.
The most common SHA mistakes Indian founders make
These are the specific mistakes that recur across the deals we review and draft. Some are negotiation mistakes, some are drafting mistakes, and some are process mistakes. All of them are avoidable.
Signing an SHA without understanding the reserved matters list. Founders accept a reserved matters list that includes operational decisions, hiring above a certain salary grade, entering contracts above a modest threshold, changing marketing spend, that effectively give investors a veto over day-to-day management. This only becomes apparent when the company needs to move quickly on a decision and discovers it cannot without investor consent. Reserve matters should cover genuinely material corporate actions, not routine operational decisions.
Accepting participating liquidation preference without modelling the exit scenarios. The financial difference between participating and non-participating preference is not apparent in the abstract, it only becomes clear when you model specific exit valuation scenarios. We build a simple exit waterfall model for every SHA engagement so founders can see exactly what they receive under different exit values before signing.
Not getting the
AoA amended. As discussed above, this is the step that makes specific SHA provisions enforceable against the company. Skipping it because it is administratively inconvenient creates a potentially fatal gap in the documentation.
Agreeing to full ratchet anti-dilution without understanding the consequences. Founders often sign the SHA without fully understanding the anti-dilution clause. Full ratchet can result in devastating founder dilution if any subsequent round is raised at a lower valuation. Always push for broad-based weighted average.
Not addressing what happens to a co-founder's shares if they leave. The vesting and buyback provisions need to be specific about the good-leaver versus bad-leaver distinction, the buyback price in each case, and the process by which a determination is made. Vague provisions in this area create disputes when a co-founder departure actually happens.
Accepting indemnity survival periods longer than the applicable limitation period. As discussed, survival periods for tax representations should match the Income Tax Act limitation period, not template provisions that extend exposure indefinitely. Contact us to discuss specific indemnity provisions you have been asked to accept.