Startup ecosystem · Incorporation
Shareholders' agreement (SHA): after the first external investor
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Facts
The SHA is the master document governing relationships between all shareholders, founders, angels, VCs. It overrides the AOA in most cases (investors ensure this). Key clauses: anti-dilution (BWRA standard, protects investors on a down round), information rights (quarterly MIS, annual audited financials), board composition, reserved matters (decisions requiring investor consent), and exit rights
Provisions and law
- Indian Contract Act 1872 | Companies Act 2013, Sec 88
Analysis
(drag-along, tag-along, ROFR, ROFO). Founders often sign SHAs without understanding reserved matters. A poorly negotiated reserved matters clause means the investor can block your ability to hire, fire, sign contracts above a threshold, or raise debt.
Conclusion
- Capex/opex approval threshold, push for ₹50L+ before consent required
- Hiring above a salary, push for ₹30L CTC+ threshold, not ₹10L
- Debt above a threshold, ensure working capital lines don't need approval
- New business lines, keep broad enough for a pivot
A Savvy can do this for you
Private placement share allotment after funding, PAS-4 and PAS-3
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