SHA, SSA & Term Sheet Explained: The Complete Guide for Indian Founders (2026)

01The Three Documents & How They Connect

A priced funding round in India runs through three documents, and they come in a fixed order. Founders often treat them as one big blur of legalese. They are not. Each does a different job, and knowing which is which tells you when you can still negotiate and when the terms are locked.

1The Term Sheet: the summary

The term sheet is a short document (often three to six pages) that sets out the headline commercial terms: how much the investor is putting in, at what valuation, in what share class, and the key protections they want. It is mostly non-binding, a statement of intent. But it matters enormously, because every term you agree here gets re-papered into the binding documents that follow. The term sheet is where the real negotiation happens.

2The SSA: the purchase contract

The Share Subscription Agreement is the binding contract under which the investor actually subscribes to and pays for the new shares. It covers the price per share, the exact amount, the conditions that must be met before the money moves (the conditions precedent), and the representations and warranties the company and founders give about the state of the business. The SSA is a one-time transaction document: once the shares are issued and paid for, its main job is done.

3The SHA: the long-term rulebook

The Shareholders’ Agreement is the binding document that governs how the company is run and how shares can move, for years after the money is in. Board composition, reserved matters, anti-dilution, transfer restrictions and exit rights all live here. The SHA outlives the SSA: it is the rulebook the founders and investors live by until the next round re-papers it or the company exits.

02The Term Sheet

What it is: the negotiating document. A term sheet groups together a handful of economic terms and a handful of control terms, and binds you to almost none of them on its own. The binding bits are usually only three: exclusivity (a no-shop period where you can’t go shopping the deal to other investors), confidentiality, and who pays the legal costs. Everything else is intent to be re-papered.

Why does a non-binding document matter so much? Because it sets the anchor. The valuation, the liquidation preference, the board structure and the protective provisions you agree at term-sheet stage become the default the SSA and SHA are drafted from. Founders who understand the term sheet line by line negotiate from strength. Founders who skim it spend the next five years living with terms they never really read.

03Economics: Valuation, Dilution, Liquidation Preference & Anti-Dilution

The economic terms decide how the value of the company gets split, both today (through valuation and dilution) and on an exit (through the liquidation preference and anti-dilution). These four are where the most money moves, so they are worth slowing down on.

1Valuation & Dilution

Plain summary: the valuation is what the company is worth in the round; dilution is how much of it you give away to get the money. In our cap table, the Series A Investor put in ₹20 crore for 20% at a ₹100 crore post-money valuation. Pre-money plus new money equals post-money, and the founders’ combined stake falls as new shares are issued. The trap founders miss is the ESOP top-up: investors often insist the option pool be expanded before the round, which dilutes founders, not the incoming investor. A higher headline valuation with a big pre-money pool can leave you worse off than a lower one with no top-up.

2Liquidation Preference

Plain summary: the liquidation preference decides who gets paid first when the company is sold, and how much, before equity shareholders see a rupee. A clean 1x non-participating preference is market standard and founder-fair: it returns the investor’s money on a bad exit without letting them double-dip on a good one. The danger is everything stacked on top: a participating right (the investor takes their money back and shares the rest), a multiple above 1x, or several rounds stacked in seniority. On a ₹40 crore exit, the Series A Investor’s ₹20 crore preference takes half the proceeds before founders split anything. Your ownership percentage is not what you get paid.

3Anti-Dilution

Plain summary: anti-dilution protects the investor if you later raise at a lower valuation than they paid (a “down round”). It re-prices their earlier shares so they get more shares to compensate, and those extra shares come out of the founders’ stake. Full ratchet is harsh: it re-prices the investor’s entire holding to the new lower price, which can savage founder ownership. Broad-based weighted average is the fair, market-standard version: it adjusts only partially, in proportion to how big and how cheap the down round was. The formula you accept here can be the difference between keeping control of your company and losing it after a single tough round.

04Preference Shares (CCPS) & Their Economic Rights

Plain summary: in India, investors almost never take ordinary Equity Shares. They take Compulsorily Convertible Preference Shares (CCPS). The “preference” layer is the wrapper that carries the protections we have been describing: the liquidation preference, anti-dilution adjustments, and often a fixed or accruing dividend. “Compulsorily convertible” means the shares must convert into Equity Shares at some point, usually at an IPO or on a pre-agreed trigger, after which the investor sits alongside the founders as an ordinary shareholder.

Why CCPS and not plain equity? FEMA rules effectively require foreign investment in Indian startups to come through compulsorily convertible instruments, and CCPS lets investors hold downside protection now while keeping the upside of equity later. The practical effect for founders: the investor’s economic rights live in the preference shares, and those rights bite hardest exactly when things go wrong. Understand the dividend term too, an accruing or cumulative dividend quietly adds to the preference amount the investor takes off the top on an exit.

05Control Rights: Board, Reserved Matters & Voting

Plain summary: control terms decide who gets to make decisions, separately from who owns the most shares. You can own 60% and still need an investor’s sign-off on the decisions that matter most. Control comes in three main forms.

• Board seats: the investor takes one or more director seats, plus sometimes an observer. With three founders and two investors, the board composition decides whose vote carries the room. A balanced board (founders, investors, and an independent) is healthier than one where investors plus one defecting founder can outvote the rest.
• Reserved matters (protective provisions): a list of decisions the company cannot take without the investor’s consent, regardless of the board vote. Typical items: raising new money, selling the company, changing the share capital, large spends, or hiring and firing senior staff. This is where real veto power sits.
• Voting & information rights: how votes are counted on shareholder matters, plus the investor’s right to regular financial reporting. Information rights are reasonable; an over-broad reserved-matters list is where founders lose practical control of their own company.

The point founders miss: control is not about today’s harmony. It is about who decides in a crisis, when the next round is hard, when a co-founder wants to leave, or when an acquirer comes knocking. A long reserved-matters list hands the investor a veto over exactly those moments.

06Founder Obligations: Vesting & Leaver Provisions

Plain summary: founder vesting means you have to earn your own shares over time, usually four years with a one-year cliff, even though you started the company. If a founder leaves early, the unvested shares can be bought back, often cheaply. The investor’s logic is simple: they are betting on all three of you staying and building, and they do not want a co-founder walking away in year one with a big chunk of equity.

The crucial sub-term is the leaver provision: it splits departing founders into “good leavers” (death, disability, removal without cause) who usually keep more, and “bad leavers” (resignation, termination for cause) who can lose unvested, and sometimes even vested, shares at a low buy-back price. If Founder C (8%) leaves in year two, vesting and the leaver classification decide whether they keep most of their stake or hand most of it back. Vesting decides what you own; the leaver terms decide what you keep if you go.

07Transfer & Exit Rights

This bucket answers two questions: who can sell their shares, to whom, and when (transfer restrictions); and how the investor eventually gets their money out (exit rights). In a real share sale these fire in sequence, which is why they belong together.

1Transfer Restrictions: Drag, Tag, ROFR, ROFO & Lock-In

Plain summary: five clauses control share movement. Lock-in keeps founders committed and stops them selling for a set period. ROFR (right of first refusal) means you find a buyer first, then let insiders match the deal; ROFO (right of first offer) means you offer to insiders first at your price, then go to the market. Tag-along lets smaller holders join a big seller’s sale on the same terms. Drag-along lets a defined majority force the rest to sell so a buyer can get 100%. The most important of these to negotiate is the drag trigger: with three founders and two investors, the wrong threshold can let an investor coalition drag the founders into a sale they do not want.

2Exit Rights: IPO, Buyback, Put & Call Options

Plain summary: investors do not invest forever; they need a path to liquidity. Exit rights set out how they get out: a qualified IPO (the cleanest exit), a buyback by the company, a put option (the investor’s right to sell their shares back at a set price or formula if no other exit happens by a deadline), or a drag-led sale of the whole company. The put option is the one founders should study hardest: a put that forces the company or founders to buy the investor out at a guaranteed return can become a heavy, sometimes ruinous, obligation if the planned exit never arrives.

08The SSA: Representations, Warranties & Indemnity

Plain summary: while the SHA governs the future, the SSA looks at the present and the past. Its heart is a long list of representations and warranties: factual statements the company and, often, the founders personally make about the state of the business. That the company owns its IP, that taxes are filed, that there is no hidden litigation, that the cap table is accurate. If a warranty turns out to be false, the indemnity clause decides who pays for the damage, and how much.

For founders, three things in this section matter most. First, who gives the warranties: company-only warranties are far safer than warranties you give personally. Second, the indemnity cap: the maximum you can be made to pay, which should sensibly be limited (often to the amount invested or a fraction of it) and time-limited. Third, the disclosure schedule: anything you disclose here that contradicts a warranty protects you, so disclose fully and carefully. A clean SSA is not about giving zero warranties; it is about giving fair ones, capped sensibly, with everything disclosed.

How the whole deal fits together

Read in isolation, each term feels like a separate threat. Read together, they tell one story. The term sheet sets the anchor. The SSA closes the purchase and locks in what the founders promise about the company. The SHA then governs the years that follow: control terms decide who steers, economic terms decide who gets paid, founder terms decide what happens to your equity, and transfer and exit terms decide how and when anyone gets out. A founder who understands only the valuation, but not the preference, the drag, or the put, will badly misread their own deal.

09Frequently Asked Questions