Founders’ agreement, IP assignment, NDAs, employment / contractor contracts, ESOP paperwork, customer Terms and a SAFE/SHA readiness checklist — what to sign before the first hire or term sheet.
By Kanoons Editorial Team · 13 min read · Last verified 2026-10-06
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Summary
Indian startups usually incorporate first and paper second. The gap shows up the day a key engineer leaves with unassigned IP, a co-founder disputes vesting, or a term sheet’s diligence list asks for contracts that were never signed. This checklist is the minimum commercial paper stack most seed-ready private limited companies are expected to show — not a substitute for counsel on your facts. Verified against common Indian startup diligence practice and linked to live Kanoons service paths on 6 October 2026.
- Incorporation ≠ ownership clarity — add founders’ / shareholders’ terms and IP assignment.
- Every builder (employee or contractor) needs a written contract with confidentiality + IP assignment to the company.
- Brand and product surfaces need customer Terms / Privacy and, usually, a trademark filing plan.
- Hiring triggers Shops & Establishment / labour registrations beside the employment contract.
- Service path: Legal Agreements.
Before the first external cheque
| Document | Why it exists | Typical failure if missing |
|---|---|---|
| Founders’ agreement → evolves into SHA | Roles, equity, vesting, reverse vesting, deadlock, leaver provisions | Cap-table fights; unclean diligence |
| Share subscription / allotment (PAS-3 trail) | Proves shares actually issued for consideration | MCA / investor mismatch |
| IP assignment from founders | Moves pre-incorporation code, brand, domain into the company | Company does not own its product |
| Invention assignment from early builders | Same for post-incorporation work | Engineers own modules they wrote |
| Board resolutions | Authorise allotments, bank, ESOP pool | Paper trail gaps |
If you are still choosing the vehicle, read Private Limited vs LLP and Register a Private Limited Company. Investors almost always want a private limited with a clean SHA, not an LLP with informal WhatsApp equity.
Hiring and contractor stack
1. Offer letter → employment agreement (role, CTC break-up, probation, termination, confidentiality, IP, non-solicit as enforceable in your facts). 2. Contractor / freelance agreement where the relationship is genuinely independent — with IP assignment and TDS mechanics (section 194J overview). 3. ESOP plan + grant letters before anyone is verbally promised options (Companies Act / rule compliance for private companies; pool reserved in SHA). 4. POSH policy / ICC once the workplace crosses applicable thresholds — see POSH Compliance. 5. Statutory registrations: Shop and Establishment, PF/ESI when headcount/wage triggers hit (thresholds primer).
Mid-article CTA: Get founder and employment agreements drafted → Cross-sell: Trademark Registration, Private Limited Company, POSH Compliance.
Customer, vendor and data paper
| Surface | Instrument |
|---|---|
| SaaS / app users | Terms of Use, Privacy Policy, refund / cancellation where consumer rules apply |
| B2B sales | Master Service Agreement + Order Form / SOW |
| Vendors / agencies | Vendor MSA + NDA + IP / subcontracting limits |
| Pilots | Paid pilot SOW with clear IP and data clauses |
Privacy and consent language will need a fresh pass as DPDP Act rules mature — do not copy a US template blindly. Keep a single source of truth on the website and in-product, version-dated.
Brand and secrecy
- Trademark search + filing in the right classes before marketing spend scales — Trademark classes, Benefits of trademarking, service: Trademark Registration.
- NDAs for vendors, contractors and deep diligence rooms; do not expect every angel to sign one at first coffee.
- Domain / social handle ownership in the company’s name (or assigned to it).
Fundraising instruments (high level)
Indian early rounds commonly use a SAFE-style / CCA instrument or a priced SSA + SHA. Whatever you sign, diligence will still ask for the operational contracts above. A beautiful term sheet does not cure missing IP assignments. After money lands, update the cap table, file allotments, and keep the SHA, ESOP and employment paper consistent.
Ninety-day checklist for a new Pvt Ltd startup
- Founders’ terms signed; IP assigned to the company
- Allotment / PAS-3 and register of members match the cap table
- Employment / contractor templates ready before the first hire
- Customer Terms + Privacy published and dated
- Trademark filing decision recorded (file / defer / watch)
- Shops & Establishment (and GST if liable) on the compliance calendar
- INC-20A filed if share-capital commencement rules apply — INC-20A guide
Related reading on this site
- Startup India recognition
- 10 essential steps to start a business
- Private Limited vs LLP
- Trademark classes and search
Primary sources / anchors
- Companies Act, 2013 — incorporation, shares, private-company contract capacity
- Indian Contract Act, 1872 — formation and enforceability of commercial agreements
- Information Technology Act / SPDI rules historically, and Digital Personal Data Protection Act, 2023 (rules still maturing — re-check before publishing privacy claims)
- Trade Marks Act, 1999 — registration and enforcement
- Industrial employment / Shops & Establishment state Acts; POSH Act, 2013
- mca.gov.in · ipindia.gov.in
Disclaimer
General information only — not legal advice. Kanoons is not a law firm. Contract enforceability, employment classification, ESOP tax and fundraising instruments are fact-specific; have independently qualified counsel review documents before you sign or circulate them to investors. See our Disclaimer.
Frequently asked questions
Do we need a founders’ agreement if we already incorporated a private limited company?
Incorporation creates the company; it does not automatically record how founders split equity, vesting, roles, IP ownership or exit mechanics. A shareholders’ agreement (or founders’ agreement that feeds into one) plus clean share subscription / allotment paperwork is what investors diligence. MoA/AoA alone are rarely enough.
Can we hire on a handshake until we raise?
You can, but you usually should not. Without a written employment or contractor agreement plus IP assignment, the company may not clearly own code, designs or customer lists the hire creates — a common diligence failure. Labour registrations (Shops & Establishment, PF/ESI when thresholds hit) are separate from the contract itself.
Is an NDA enough to protect our idea when pitching investors?
Most early-stage investors will not sign a broad NDA before a first meeting. Protect what you can with staged disclosure, trademark filing for the brand, and ensuring employee/contractor IP already sits in the company. Use NDAs for vendors, freelancers and deeper technical diligence rooms.
What agreements do investors usually ask for in diligence?
Cap table and SHA/SSA (or SAFE/CCA history), IP assignment from founders and builders, employment contracts for key hires, customer/vendor MSAs, ESOP plan and grant letters if options were promised, and evidence that trademarks or domain ownership match the company — not a founder’s personal name.
Should contractor agreements differ from employment agreements?
Yes. Misclassifying an employee as a “consultant” creates labour and tax exposure. Contractor agreements should still include IP assignment, confidentiality, non-solicit where appropriate, payment/tax clauses (including TDS under section 194J where applicable), and clear deliverables — without copying employee-only statutory language incorrectly.