Fundraising Docs Founders Should Understand: SHA, SSA, Side Letter Explained

A founder closing their first priced round is handed a stack of documents: term sheet, Share Subscription Agreement, Shareholders' Agreement, Amended Articles of Association, side letter, disclosure schedule, founder warranty letter, indemnification escrow agreement, board resolutions, shareholder resolutions, and a filing pack for the Registrar of Companies. Total: 200 to 600 pages.

The first-time founder's response is usually to skim the documents and sign wherever the lawyer says to sign. This is how founders end up with governance provisions they never fully understood until year three of the investor relationship.

This guide walks through the core Indian fundraising documents, what each one actually does, the order in which they are signed, the clauses that deserve the founder's focused attention, and the founder-friendly positions that can be negotiated without breaking the deal.

The Document Map

A typical Indian priced round (Series A) produces the following documents:

| Document | What it does | Who signs | |---|---|---| | Term Sheet | Non-binding summary of commercial terms | Company and lead investor | | Share Subscription Agreement (SSA) | Transactional agreement — subscription of shares, price, closing mechanics | Company, investors, founders | | Shareholders' Agreement (SHA) | Ongoing governance and share transfer rules | Company, all investors, founders | | Amended and Restated Articles of Association (AoA) | Company charter document, filed with ROC | Company (filed) | | Founder Warranty / Disclosure Letter | Founder-specific representations and disclosed exceptions | Founders | | Side Letters | Investor-specific rights | Company and specific investor | | Board Resolution | Approves issuance, execution | Board | | Special Resolution (Shareholders) | Approves AoA amendment, issue of shares | Shareholders | | ESOP Scheme or Top-up | Pool creation or expansion | Board and shareholders | | ROC Filings | PAS-3 (allotment), MGT-14 (resolutions), DIR-12 (board changes) | Company | | FEMA Filings (if foreign investor) | FC-GPR form | Company |

Understanding what each does, rather than what each is called, is the lens that makes the deal legible.

The Order of Signing

The sequence is not arbitrary:

1. Term sheet signed. Exclusivity and confidentiality binding; commercial terms non-binding pending definitive documents.
2. Legal, financial and commercial diligence conducted over 3–6 weeks.
3. SSA, SHA, AoA drafted by lead investor counsel; negotiated with founder counsel.
4. Disclosure letter prepared. Founders list exceptions to the warranties.
5. Corporate approvals. Board meeting and shareholder resolution authorising issuance and amending AoA.
6. Execution day. SSA, SHA, new AoA, founder warranty, side letters all executed contemporaneously.
7. Closing. Investment amount wired; shares allotted; PAS-3 and MGT-14 filed with ROC within 30 days.
8. Post-closing. FEMA filing (if applicable), director changes, updated statutory registers.

The Share Subscription Agreement (SSA)

What the SSA does

The SSA is the transactional document. It sets out:

• The number and class of shares being issued.
• The issue price per share and total consideration.
• Conditions precedent to closing (e.g., pool top-up, diligence completion, AoA amendment).
• Representations and warranties of the company (organisation, authorisation, capitalisation, IP ownership, litigation, compliance, material contracts, employees, tax).
• Representations and warranties of the investors (authority to invest, compliance with applicable laws).
• Indemnification obligations and limitations.
• Closing mechanics and closing deliverables.
• Pre-closing covenants (ordinary course of business, notice of material adverse changes).

The key negotiation points in the SSA

Indemnification cap and baskets. Investors typically seek indemnification for breaches of representations and warranties. Founder negotiation positions:

• Cap total indemnification at the subscription amount, or a percentage of it (25–50% is common for non-fundamental reps).
• Basket mechanism: individual claims only payable above a threshold (e.g., ₹25,000) and aggregate claims only payable above a larger threshold (e.g., 0.5% of investment).
• Time limitation: most reps survive for 18–24 months post-closing; fundamental reps (authority, capitalisation) may survive longer; tax and title reps until statute of limitations.

Fundamental vs non-fundamental reps. Fundamental reps (authority, cap table, title) are usually uncapped or at 100% of subscription. Non-fundamental reps should be capped and basketed.

Disclosure letter. Every known exception to the reps should be disclosed. Failure to disclose = potential indemnification claim. Founders should be generous in disclosure — it is the founder's shield.

Conditions precedent. The investor's obligation to close is conditional on specified events. Common CPs: satisfactory diligence completion, AoA amendment, ESOP pool top-up, key employee contracts in place, material consents obtained. Founders should push back against CPs that are vague or give the investor discretion to walk without consequence.

The Shareholders' Agreement (SHA)

What the SHA does

The SHA is the governance document. It survives closing and governs the relationship between the company, founders and investors for the duration of the investment. Key provisions:

• Board composition and voting.
• Reserved matters requiring specified shareholder consent.
• Information rights (financial statements, board minutes, cap table, material updates).
• Transfer restrictions (ROFR, tag-along, drag-along, lock-in).
• Pre-emption / pro-rata rights on new issuances.
• Anti-dilution protection.
• Founder-specific provisions (vesting, non-compete during employment, good/bad leaver).
• Liquidation preference (also reflected in AoA).
• Exit rights (right to IPO, right to force exit after specified period).
• Termination of the SHA.

The SHA clauses founders should negotiate most carefully

Board composition. At Series A, founder-controlled board is market: 2 founder directors, 1 investor director, 1 or 2 independent directors. Control usually migrates to investors over Series B and C.

Reserved matters. Covered in detail in our term sheet red flags guide. Key principle: strategic matters (amendment of charter, new rounds, acquisitions, material asset sales) are appropriate for investor consent; operational matters (hiring below C-suite, regular-course vendor contracts) are not.

Drag-along. Threshold of 75% of preference plus majority of common is market. Drag should include floor price protection and carve-outs limiting founder obligations.

Tag-along. Should be symmetric — founders and investors both have tag rights.

ROFR and pre-emption. ROFR should carve out permitted transfers to family members, trusts and estate planning vehicles. Pre-emption should be limited to maintenance of existing ownership.

Anti-dilution. Broad-based weighted-average is market. Full ratchet should be refused.

Founder vesting. Credit for time worked; unvested shares vest over remaining period to reach the four-year milestone from original start date. Double-trigger acceleration on change of control.

Good leaver / bad leaver. Bad leaver should be narrowly defined (conviction of fraud, wilful material breach of duties). Unvested shares forfeit on bad leaver; vested shares subject to buyback at fair market value, not par.

Information rights

Standard investor information rights:

• Monthly or quarterly management accounts.
• Audited annual financial statements within 120 days of financial year end.
• Annual budget and business plan.
• Board meeting minutes.
• Cap table updates on any change.
• Notice of material adverse events.

Founders should agree to information rights in the SHA but should push back on anything that converts into an operational burden — daily updates, real-time dashboard access unless explicitly built, or indefinite consulting time.

The Amended and Restated Articles of Association (AoA)

What the AoA does

The AoA is the company's charter document, filed with the Registrar of Companies. It is a public document. It defines:

• Share capital structure and classes of shares.
• Rights attaching to each class (voting, dividend, liquidation, conversion).
• Share transfer restrictions (must align with SHA).
• Board composition rules.
• Shareholder meeting rules.
• Other governance matters.

Why AoA alignment matters

Where the SHA and AoA conflict, Indian courts generally give precedence to the AoA because it is the public charter document. This means that every right in the SHA that needs to be enforceable against the company or third parties must also be reflected in the AoA.

Common mistake: an SHA grants a specific pre-emption right, but the AoA says shares can be issued freely by board resolution. The investor's pre-emption right becomes difficult to enforce because the AoA, as the public document, governs the company's share issuance power.

Founders should ensure that the amended AoA, which they will propose to shareholders at the general meeting, faithfully reflects every investor right that matters. Equally, they should not agree to AoA provisions that go beyond the SHA.

Side Letters

What a side letter does

A side letter is a separate agreement between the company and a specific investor, granting that investor rights not available to other investors. Common side letter provisions:

• Most-favoured-nation (MFN) clauses: if any other investor gets a better right, the side-letter investor automatically gets it too.
• Specific information rights beyond the SHA standard.
• Observer rights at board meetings (non-voting participation).
• Reporting frequency variations.
• Specific reporting obligations on certain KPIs.
• Confidentiality variations for specific investor types (e.g., SEBI-registered AIFs with reporting obligations).
• Co-investment rights in future rounds.

Side letters are fully binding contracts enforceable between the company and the investor.

Why side letters matter

At Series A, you typically have a lead investor plus 1–4 co-investors. Smaller investors sometimes get side letters with preferential information rights or MFN. The cumulative effect of multiple side letters can create a reporting and compliance burden that the founder did not appreciate at signing.

Founders should:

• Maintain a centralised record of all side letters with a summary of obligations.
• Refuse MFN clauses that reach beyond economic terms (e.g., MFN on governance is rarely appropriate).
• Ensure any reporting obligations in side letters are operationally achievable.
• Periodically review side letters when new rounds close to understand cumulative obligations.

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The Founder Warranty Letter

Sometimes called the "Founder Warranty and Indemnity Letter" or "Founder Representations Letter," this document contains representations specifically from founders (not the company).

Typical founder warranties:

• Ownership of equity in the company and absence of encumbrances.
• Non-compete commitments during employment.
• Commitment to continued employment for a specified period.
• Representation that the founder has disclosed all material personal liabilities.
• Representation about past legal issues.

Founder warranties are typically capped at a percentage of the founder's share value, not the entire investment amount. Founders should scrutinise:

• Scope of warranties — must be specific, not vague "good faith" standards.
• Cap — proportionate to the founder's stake.
• Time limits — 24 months is reasonable.
• Indemnification vs general contractual remedy — indemnification is broader.

The Disclosure Letter

The disclosure letter is the founder's shield. It is delivered contemporaneously with the SSA and lists every exception to the representations and warranties in the SSA.

If a representation in the SSA says "no litigation pending," and the disclosure letter lists "Company X has threatened a trademark opposition," then the SSA rep is considered modified by the disclosure. No claim can later be brought on the disclosed matter.

Founders should:

• Disclose generously. Anything that is known and potentially material should be listed.
• Group disclosures by reference to specific SSA sections for clarity.
• Engage the CFO and key operational leaders in preparing the disclosure letter — the founder alone rarely knows everything.
• Retain proof of delivery of the disclosure letter at closing.

The Closing Checklist

At closing, the following documents are typically exchanged:

• Executed SSA, SHA, AoA, Founder Warranty, Side Letters.
• Disclosure letter.
• Certified copies of board resolution, shareholder resolution, special resolution.
• Certified copy of amended AoA.
• Share certificates (or e-share certificates) for allotted shares.
• Updated Register of Members (Section 88, Companies Act).
• Investor's subscription amount wired.
• Founder bank statements confirming receipt (for SSA).
• Stamp duty payment evidence for the SSA, SHA and share certificates.
• Legal opinions from founder counsel and company counsel.

Post-closing (within 30 days):

• PAS-3 allotment filing.
• MGT-14 resolution filing.
• DIR-12 for any director changes.
• FEMA filing (FC-GPR) if any foreign investor.
• Update of the cap table in the company's records.

Specific Indian Considerations

Stamp duty

SSA, SHA and AoA amendments are chargeable to stamp duty under the applicable state Stamp Act. Stamp duty on equity subscription can be substantial — particularly in Maharashtra and Karnataka, which use ad valorem rates on the transaction value.

For a ₹50 crore Series A in Maharashtra, stamp duty on the SSA alone can exceed ₹5 lakh. This is typically borne by the company and should be budgeted into closing costs.

Foreign direct investment

For foreign investors (including NRIs, foreign venture capital investors, and foreign AIFs), the investment must comply with the Foreign Exchange Management Act, 1999 and the FEMA (Non-debt Instruments) Rules, 2019.

Key requirements:

• Shares must be issued at a price not less than the fair market value determined under Section 56 and Section 50D of the Income Tax Act.
• Form FC-GPR must be filed within 30 days of allotment.
• Pricing guidelines apply — internationally accepted methodology (DCF is common).
• Some sectors have sector-specific caps or restrictions (not applicable to most SaaS / tech startups, which operate in 100% automatic route sectors).

Companies Act notices and filings

• Board meeting with at least 7 days' notice (or shorter with unanimous consent).
• Extraordinary General Meeting or shareholder consent with proper notice.
• Filing PAS-3 within 30 days of allotment.
• Filing MGT-14 within 30 days of the special resolution.
• Updating the Register of Members in the statutory format.

Missing any of these is a compliance default that will be flagged in the next round of diligence.

What Founders Should Do Before the First SHA/SSA

• Engage venture counsel early, ideally when the term sheet is signed.
• Get a venture-experienced lawyer, not a generalist — this is not the place to save money.
• Model the cap table including the round and pool top-up.
• Prepare the disclosure letter collaboratively with operations, engineering and finance leads.
• Understand every clause personally — a founder who signs without understanding is signing a liability.
• Walk away from deals where definitive documents materially deviate from the agreed term sheet.

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Frequently Asked Questions

What is the difference between an SSA and an SHA?▾

The Share Subscription Agreement (SSA) is the transactional document that governs the specific share issuance event. It covers subscription amount, price per share, representations and warranties of the company and investors, conditions precedent to closing, and closing mechanics. Once shares are issued and the closing conditions are met, the SSA is substantially performed. The Shareholders' Agreement (SHA) is the governance document that governs the ongoing relationship between the company, founders and investors after closing. It covers board composition, reserved matters, transfer restrictions, anti-dilution, founder-specific provisions, and exit mechanics. The SHA remains live for the duration of the investment. Both are executed contemporaneously at closing but serve different functions.

Does the SHA or the AoA prevail if they conflict?▾

In most Indian court interpretations, the Articles of Association (AoA) prevail where there is a conflict with the Shareholders' Agreement. This is because the AoA is the public charter document filed with the Registrar of Companies and binds all shareholders, directors, and the company as a matter of statutory governance. The SHA is a private contract among the specific shareholders who sign it. To ensure SHA rights are actually enforceable, the SHA provisions that need to bind the company (e.g., transfer restrictions, pre-emption rights, drag-along) should be mirrored in the AoA. A careful SHA-AoA alignment exercise during drafting is essential.

What is a side letter and why do investors ask for them?▾

A side letter is a separate binding agreement between the company and a specific investor that grants rights not provided in the main Shareholders' Agreement. Investors request side letters for several reasons: (1) they have specific reporting obligations under their own regulatory or LP agreements (e.g., SEBI-registered AIFs, foreign VC funds with LP reporting requirements) that require information beyond the standard SHA reporting; (2) they want most-favoured-nation treatment so that if another investor in the same round gets a better deal, they receive equivalent terms; (3) they want a specific operational accommodation. Side letters are fully binding; founders should maintain a consolidated register of all side letter obligations to track compliance.

Can founders refuse to give representations and warranties in the SSA?▾

Founders can and should negotiate the scope and structure of reps and warranties, but some level of representation is expected in every Indian SSA. Typical founder-specific warranties include: ownership of equity in the company, non-existence of undisclosed personal liabilities that could affect their role, and disclosure of all material facts relevant to the company's business. Typical company warranties — organisation, authorisation, capitalisation, IP, material contracts, litigation, compliance — are given by the company, not the founders individually, but founders often sign in acknowledgement. The negotiation levers are: cap (aggregate maximum liability), basket (threshold below which no claims are made), time limits (typically 18–24 months for non-fundamental reps), and disclosure (extensive disclosure shields the founder from specific known risks).

How long does it typically take to go from signed term sheet to completed fundraise in India?▾

For a typical Indian Series A, 60 to 90 days is the market norm from signed term sheet to fully-closed round. The breakdown: 3–4 weeks of legal, financial and commercial diligence; 3–4 weeks of drafting and negotiating the SSA, SHA and AoA; 1–2 weeks for corporate approvals (board and shareholder resolutions); 5–10 days for closing mechanics (stamping, execution, fund transfer, filings). Complex rounds with multiple co-investors, foreign investors, or regulated sector considerations can extend to 120 days or more. Rounds that close in under 60 days are typically either pre-committed syndicates or follow-on rounds with existing investors using pre-existing documentation.

What happens if we issue shares before filing the PAS-3 form?▾

Issuance of shares is a Companies Act compliance event governed by Section 42 (private placement) or Section 62 (rights issue / ESOP issue). Form PAS-3 must be filed with the Registrar of Companies within 30 days of the allotment. Late filing attracts additional fees and penalties under Section 403 of the Companies Act, 2013. More importantly, the allotment itself must be preceded by the required corporate approvals (board resolution, shareholder special resolution where needed) and compliance with the applicable procedure. An 'allotment' made without proper procedure can be challenged. Even if PAS-3 is filed on time, if the underlying allotment was procedurally non-compliant (e.g., special resolution not passed, amended AoA not filed), the allotment itself can be invalidated. This is material at the next round's diligence.

Do I need separate Indian legal counsel from the investor's counsel?▾

Yes, always. The investor's counsel represents the investor, not the company or the founders. They draft the initial SSA, SHA and AoA to protect the investor's interests. The company and founders need their own counsel to negotiate the documents on the founder-friendly side of each clause. Sharing legal counsel with the investor is a conflict of interest and produces documents that systematically favour the investor. Budget for ₹3–15 lakh of founder counsel fees at Series A, depending on the complexity and the firm chosen. Specialised venture lawyers at boutique firms are typically more cost-effective than top-tier firms for Series A; top-tier firms become necessary at Series B/C and for complex or regulated sectors.