The SHA is where the term sheet grows teeth. Two documents close an Indian funding round: the Share Subscription Agreement (SSA) – the investor’s promise to pay for new shares, with representations and conditions – and the Shareholders’ Agreement (SHA) – the constitution that governs everyone afterwards. Founders read the SSA once and live under the SHA for a decade. This guide explains what each document does, the clauses that bite years later, the enforceability rules peculiar to India, and why the Articles of Association must be amended to match.
SSA vs SHA: two documents, two jobs
| SSA (Share Subscription Agreement) | SHA (Shareholders’ Agreement) | |
|---|---|---|
| Governs | The investment transaction itself | The relationship after money lands |
| Key content | Shares, price, tranches, conditions precedent, warranties, indemnities | Board, reserved matters, transfer restrictions, exit rights, vesting, information rights |
| Life | Substantially spent at closing (warranties survive 18–36 months) | Lives until exit or replacement by the next round’s SHA |
| Signed by | Company + investor(s) + founders (for warranties) | Company + all shareholders (or all material ones) |
Many Indian deals merge both into a single SSHA – fine, as long as you know which clauses are transactional and which are constitutional. Each subsequent round replaces or amends the SHA; by Series B the “Amended and Restated SHA” is the norm, and legacy side letters from angel rounds should be swept into it rather than left floating.
The warranty and indemnity architecture (the part founders sign personally)
The SSA’s representations and warranties – accounts true, taxes paid, litigation disclosed, IP owned, capital table accurate – are given by the company and typically by founders personally. Three protections to negotiate: a disclosure letter (everything disclosed against the warranties cannot later be claimed on – this is why the pre-diligence disclosure discipline in the DD guide matters contractually, not just tactically); caps and baskets (founder liability capped – market practice ranges from a fraction of founder net proceeds to 100% of the round for fundamental warranties; de-minimis and basket thresholds so trivia cannot be claimed); and time limits (18–24 months for business warranties, longer only for tax and title). An uncapped, unlimited founder warranty package is off-market – push back.
The SHA clauses that bite years later
Transfer restrictions: founders cannot transfer without consent (lock-in), everyone faces right-of-first-refusal (ROFR) or right-of-first-offer (ROFO), investors get tag-along, the majority gets drag-along. The one to read twice is ROFR scope – drafted broadly it catches even estate-planning transfers to a family trust; carve those out now. Vesting and leaver provisions: the definitions of “cause” and “good leaver” decide whether a departing founder keeps vested shares or sells them back at face value – narrow “cause” (conviction, fraud, wilful breach) protects founders; “any breach of any obligation” does not. Anti-dilution and pre-emptive rights: mechanics live here in full – check the weighted-average formula actually written matches what was agreed, and that for foreign investors the adjustment respects the FEMA conversion floor (down-round guide). Deadlock and dispute: escalation then arbitration – Indian SHAs now standardise institutional arbitration seated in India; foreign-seated arbitration with Indian parties needs careful drafting. Termination: what survives if the SHA ends – confidentiality, non-compete (enforceable in India only within s.27 Contract Act limits – post-exit non-competes against founders are largely unenforceable except with sale of goodwill), and accrued rights.
India-specific overlays
FEMA: no assured exit price for foreign investors – every exit clause must be drafted as best-efforts or FMV-linked (the FEMA pricing guide covers what survived NTT Docomo); optionality clauses (puts/calls) must exercise at prevailing FMV. Press Note 3: transfer clauses should oblige beneficial-ownership disclosure so a future transferee does not trip government-approval requirements. Companies Act: private-company share transfer restrictions are valid (indeed definitional), but the SHA cannot override statutory shareholder rights; reserved-matter vetoes operate through Articles and quorum/voting design. Stamp duty: SHAs attract state-specific agreement stamp duty (nominal); the share issue itself is stamped at 0.005% – mechanics in the closing checklist.
Reading order for a founder with 48 hours
Read the SHA in this sequence: (1) vesting and leaver clauses – your personal equity; (2) reserved matters – your operating freedom; (3) drag/tag and exit clauses – your endgame; (4) anti-dilution formula – your next hard round; (5) warranty caps in the SSA – your personal downside. Only then the rest. Bring your CA into (4) and (5) with the cap table model open – every clause is a number wearing a costume.
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Talk to an expertFrequently Asked Questions
Do all shareholders have to sign the SHA?
Ideally yes; practically, all material ones – founders, institutional investors, and angels above a threshold. Small holders are often covered through a deed of adherence mechanism: anyone acquiring shares must sign on. Ensure the Articles make adherence a condition of transfer, or the mechanism leaks.
What happens to the angel round’s SHA at Series A?
It is replaced by an amended and restated SHA that all parties (including the angels) sign. Angels typically lose bespoke rights and gain standardised minority protections. Watch for survival of any angel-round side letters – sweep them in or terminate them expressly.
Are electronic signatures valid for SHAs in India?
Yes – contracts can be executed electronically (IT Act), and market practice uses e-signing widely. Stamp duty still applies per the state of execution; pay it on time, because an insufficiently stamped agreement faces admissibility problems exactly when you need to enforce it.
Can the SHA stop the company issuing new shares?
Through reserved matters, yes – new issues above agreed thresholds need investor consent, and pre-emptive rights give existing shareholders first right to subscribe. Both must also live in the Articles to bind the company’s corporate actions, not just the signatories.
Last reviewed: August 2026. Companies Act 2013 (ss.5, 14, 58, 117), Indian Contract Act s.27, FEM (NDI) Rules 2019; enforceability positions per settled Indian case law on SHA-vs-Articles.