AS | Ankit Sarawagi|Founder, CFOmatrix·June 2026·12 min read | Updated Jun 2026 |
- The SSA closes the deal (price, shares, closing conditions, warranties, indemnity); the SHA runs the company (board, voting, transfers, exit). They are signed together but do very different jobs.
- Representations and warranties are statements of fact you give about the business. If one is false, the investor can claim money back through the indemnity.
- The disclosure schedule is your single best protection: anything you properly disclose there cannot later be claimed against you. Disclose generously.
- The cap (ceiling), basket (threshold) and de minimis (floor) decide your worst case. Negotiate the cap down and the basket up.
- Survival periods and knowledge qualifiers decide how long and how strictly you carry the risk. Both are negotiable and both matter.
| ₹20 crore The Series A investment. An uncapped general indemnity could put this entire amount at risk; a negotiated cap shrinks it | ₹5 crore A founder-fair cap at 25% of the ₹20 crore invested: the most the founders can lose on general warranties | ₹40 lakh A 2% basket: total claims must cross this before the investor can recover anything at all |
Every example below uses this cap table. The Series A round set the company’s post-money valuation at ₹100 crore, with the lead investing ₹20 crore. Founders and the ESOP pool hold equity shares; the two investors hold preference shares (in India, usually CCPS). In the SSA, the founders and the company are the ones giving warranties to the incoming Series A Investor.
| Shareholder | Holding | Share Type | Capital Invested |
|---|---|---|---|
| Founder A (CEO) | 30% | Equity Shares | Nil |
| Founder B (CTO) | 22% | Equity Shares | Nil |
| Founder C (COO) | 8% | Equity Shares | Nil |
| Angels & ESOP pool | 5% | Equity Shares | Nil |
| Seed Investor | 15% | Preference (CCPS) | ₹6 crore |
| Series A Investor (lead) | 20% | Preference (CCPS) | ₹20 crore |
SSA vs SHA: What Each Document Actually Does
Plain definition: The Share Subscription Agreement (SSA) is the contract for the transaction: it records that the Series A Investor is paying ₹20 crore to subscribe to new preference shares (CCPS), at what price, on what conditions, and with what promises about the company. The Shareholders’ Agreement (SHA) is the contract for the relationship that begins once the money is in: board composition, voting and veto rights, transfer restrictions, liquidation preference, and exit rights.
Why there are two documents: A purchase and a partnership are different things. Buying a car and living with the people you share a garage with are not the same agreement. The SSA does its job once, at closing, and then mostly goes quiet (except for the indemnity, which lingers). The SHA governs years of decisions afterwards. Whose interest does each protect? The SSA mostly protects the investor at the moment of paying: it makes sure they are buying what they think they are buying. The SHA balances both sides over time.
| SSA (Share Subscription Agreement) | SHA (Shareholders’ Agreement) | |
|---|---|---|
| Governs | The investment transaction | The ongoing relationship |
| Key contents | Price, shares, conditions, warranties, indemnity | Board, voting, transfers, preference, exit |
| When it matters most | At closing (and if a warranty is wrong) | Every day after closing |
| Founder’s main risk | Paying money back under the indemnity | Losing control of decisions and exit |
The term sheet usually focuses on SHA economics (valuation, preference, board) and stays light on SSA mechanics. So the cap, basket, survival periods and knowledge qualifiers often appear for the first time in the SSA draft, after the term sheet is signed and the pressure to close is high. Ask for the indemnity terms at term-sheet stage so they are not sprung on you later.
Representations & Warranties: the Promises You Sign
Plain definition: Representations and warranties (often shortened to “reps and warranties” or just “warranties”) are formal statements of fact about the company that the founders and the company make to the investor at closing. Examples: the company validly owns its source code and intellectual property; all taxes (GST, TDS, income tax) have been filed and paid; there is no pending litigation; employee and ESOP records are accurate; key customer contracts are valid and not in breach.
Why they exist (and whose interest they serve): The investor cannot personally verify everything in a few weeks of diligence. Warranties shift that risk: instead of the investor having to find every problem, the founders promise there are none, and carry the cost if a promise turns out to be false. They are a risk-allocation tool, and they sit squarely in the investor’s interest.
Fundamental vs business warranties
Not all warranties carry the same weight. Fundamental warranties go to the core of the deal: the founders genuinely own their shares, the company is validly incorporated, and the signatories have authority to sign. These are rarely capped and survive for a long time. General business warranties cover the everyday operating picture (contracts, tax, employees, IP) and are where the cap, basket, de minimis and shorter survival periods apply. Knowing which bucket a warranty sits in tells you how much risk it really carries.
The knowledge qualifier
A warranty given flat (“there is no pending litigation”) is absolute: if it is wrong, you are liable even if you had no idea. A warranty given with a knowledge qualifier (“to the best of the founders’ knowledge, there is no pending litigation”) only bites if you actually knew, or reasonably should have known. That single phrase changes your exposure dramatically. Founders should push to add “to the knowledge of the founders” to as many general warranties as the investor will accept.
Who gives the warranties, and are they “joint and several”? If all three founders give warranties jointly and severally, the investor can recover the entire claim from any one of you, regardless of your shareholding. Founder C (8%) could be chased for a full claim. Push for several (proportionate) liability tied to shareholding, and try to ensure the company, not the founders personally, gives the operating warranties wherever possible.
The Disclosure Schedule: Your Single Best Protection
Plain definition: The disclosure schedule (sometimes called the disclosure letter) is the document where the founders list all the exceptions to their warranties. The warranty says “there is no pending litigation”; the disclosure schedule says “except the supplier dispute in the Bengaluru court, details attached.” Anything you properly disclose is carved out: the investor accepts it with full knowledge and cannot later claim against you for it.
Why it’s in your interest: This is the rare part of the SSA that works for the founder. A warranty is a promise; the disclosure schedule is where you make the promise honest and shrink your own liability at the same time. A well-built disclosure schedule converts “things that could blow up into a claim” into “things the investor already agreed to live with.”
Disclosed vs not disclosed: a ₹1.5 crore swing
Say the company has a GST classification dispute that could cost ₹1.5 crore. If the founders disclose it in the schedule, the Series A Investor takes the company knowing the risk and cannot bring an indemnity claim if it crystallises later. If the founders fail to disclose it and the warranty said “all tax matters are in order,” the investor can claim that ₹1.5 crore back from the founders. Same fact, same number: disclosure decides who pays.
General vs specific disclosure
Investors prefer specific disclosure (each issue listed against the exact warranty). Founders prefer broad protection, including “deemed disclosure” of everything in the data room. Push for a clause stating that anything fairly disclosed in the diligence data room is treated as disclosed against the warranties. It is a meaningful safety net if a stray document covers a risk you forgot to list separately.
Treat the disclosure schedule as a finance and operations project, not a legal formality. Pull the GST notices, the TDS reconciliations, the litigation list, the contracts with change-of-control or termination clauses, and the ESOP grant records, then disclose them deliberately. Founders lose more to claims from things they forgot to disclose than from things they negotiated. Over-disclose; it is free protection.
Conditions Precedent & Conditions Subsequent
Plain definition: Conditions precedent (CPs) are the boxes that must be ticked before the investor pays and the deal closes. Conditions subsequent (CSs) are the boxes that must be ticked shortly after closing, by an agreed deadline. CPs gate the money going in; CSs are clean-up items the investor is willing to let happen just after, on trust.
Why they exist: The investor wants the company in a known, clean state before parting with ₹20 crore. CPs are how they enforce that: board approvals passed, ESOP pool created, key-person agreements signed, regulatory filings made. Some items (like a fresh government registration that simply takes time) cannot realistically be done before closing, so they become CSs with a deadline.
- Typical CPs: board and shareholder resolutions approving the issue of CCPS; the amended Articles of Association adopting the SHA terms; the ESOP pool set up; founder employment and lock-in agreements signed; the disclosure schedule delivered and accepted; satisfactory completion of due diligence.
- Typical CSs: filing the return of allotment with the Registrar of Companies; the FC-GPR filing with the RBI when the Series A Investor is a non-resident (a FEMA requirement on foreign investment); updating the statutory registers; issuing the share certificates.
Missing a conditions subsequent deadline can trigger penalties, default interest, or even a right for the investor to unwind or claw back. Cross-border rounds are the usual trap: the FC-GPR filing has a strict RBI timeline, and a late filing carries compounding consequences. Assign every CS to a named owner with a calendar date the moment you sign, and do not treat CSs as “we will get to it.”
Indemnity: the One Place You Can Pay Money Back
Plain definition: The indemnity is the clause that turns a broken warranty into actual rupees. It says: if a warranty is false, or a specifically identified risk crystallises, the founders (or the company) will compensate the investor for the loss. It is the engine that makes warranties worth giving.
Why it matters more than founders expect: Everywhere else in a financing, a founder’s downside is dilution, losing some control, or a smaller exit. The indemnity is the one place a founder can be required to write a cheque after the round. That is why the limits on it (covered next) are the most important numbers in the whole SSA.
Special (specific) indemnities
Beyond the general warranty indemnity, an investor who spots a specific risk in diligence (say, that ₹1.5 crore GST dispute) will often ask for a special indemnity: a rupee-for-rupee promise to cover that exact issue. Special indemnities usually sit outside the cap and basket, so they are not softened by the limits you negotiate for general warranties. Watch for them, because they can be the largest real exposure in the document.
Survival periods
An indemnity is not forever. The survival period is how long after closing a warranty stays live (the window in which the investor can bring a claim). Common pattern: general business warranties survive 18 to 24 months; tax warranties survive until the relevant statutory limitation period ends; fundamental warranties and fraud may survive indefinitely. A shorter survival period is a direct reduction in how long the founders carry the risk, so negotiate it down where you can.
Cap, Basket & De Minimis: the Three Limits That Decide Your Downside
These three limits are confusable because they all shrink the indemnity, but they do it at different points. Read together, they answer three questions: which claims are too small to count, when claims become payable, and the most the founders can ever lose.
| De Minimis | Basket (Threshold) | Cap (Ceiling) | |
|---|---|---|---|
| What it does | Ignores tiny individual claims | Delays recovery until claims add up | Limits total liability |
| Position | The floor | The trigger | The ceiling |
| Founder wants it | Higher | Higher | Lower |
| Example on our deal | ₹5 lakh per claim | ₹40 lakh total (2%) | ₹5 crore (25%) |
De minimis: the floor for a single claim
The de minimis sets the size below which an individual claim is simply ignored, so the parties do not fight over trivial amounts. On our deal, set it at ₹5 lakh. A ₹3 lakh claim never counts at all; a ₹7 lakh claim is large enough to be counted (and starts filling the basket). Founders want this higher so small noise cannot accumulate against them.
Basket: claims must add up before anyone pays
The basket is a total threshold: claims that clear de minimis are collected, and the investor can only recover once the running total crosses the basket. Set it at ₹40 lakh (2% of the ₹20 crore invested). A key sub-point is what happens once you cross it: with a “tipping” basket, the founder pays from the first rupee; with a “deductible” basket, the founder pays only the excess above ₹40 lakh. The deductible version is much friendlier, so ask for it explicitly.
Cap: the ceiling on total liability
The cap is the most the founders can ever pay out under the general indemnity, no matter how many claims land. An investor’s opening ask is often the full ₹20 crore (100% of the investment) or even uncapped. A founder-fair landing for general warranties is commonly 25% to 50% of the amount invested: on our deal, a ₹5 crore cap at 25%. Fundamental warranties and fraud typically sit above this cap, sometimes uncapped, which most founders accept as fair.
Suppose three problems surface after closing: a ₹3 lakh vendor claim, a ₹30 lakh employment claim, and a ₹25 lakh contract claim. De minimis (₹5 lakh): the ₹3 lakh claim is ignored. The other two count, totalling ₹55 lakh, which clears the ₹40 lakh basket.
With a deductible basket, the founders pay only the excess: ₹55 lakh minus ₹40 lakh = ₹15 lakh. With a tipping basket, they pay the full ₹55 lakh. Either way, total liability can never exceed the ₹5 crore cap. Three numbers, three very different outcomes.
Picture a bucket. De minimis is the mesh at the bottom: pebbles too small fall through and never enter. The basket is the bucket itself: nothing pours out until it fills to the line. The cap is the rim: it can never hold more than that. Floor, fill-line, rim, in that order.
Negotiate all three together, not one at a time: pull the cap down, push the basket up, raise the de minimis, and insist on a deductible (not tipping) basket. Then check the carve-outs: if tax, fundamental warranties and special indemnities all sit outside the cap, your real exposure can be far larger than the headline ₹5 crore. Always ask, “what is excluded from these limits?”
How an Indemnity Claim Actually Fires
In a real dispute after closing, the SSA pieces resolve in a fixed sequence. Money only flows to the investor if a claim survives every gate:
1 | Was a warranty actually breached? If the issue was properly disclosed in the disclosure schedule, there is no breach, and the claim stops here. |
| ↓ | |
2 | Is it still within the survival period? If the warranty has expired (for example, a general warranty after 24 months), the claim is time-barred. |
| ↓ | |
3 | Does the claim clear de minimis? A single claim below the floor (here ₹5 lakh) is ignored entirely and never even enters the basket. |
| ↓ | |
4 | Has the basket been crossed? Qualifying claims accumulate; nothing is payable until the total crosses the basket (here ₹40 lakh). |
| ↓ | |
5 | Pay out, up to the cap The founders compensate the investor (the excess, if a deductible basket), but never more than the cap (here ₹5 crore). |
Notice that the first gate is the disclosure schedule, not the cap. Most founders spend their negotiating energy on the cap number and barely touch the schedule, but a strong disclosure schedule stops claims at gate one, before the limits even matter. Spend at least as much effort disclosing carefully as you spend arguing about ₹5 crore versus ₹7 crore.
“The SHA decides how you live with your investor for years. The SSA decides whether you ever have to pay them back. Founders fight hard over the first and sign the second on trust.”
Ankit Sarawagi, CFOmatrixFrequently Asked Questions
What is the difference between the SSA and the SHA?
The Share Subscription Agreement (SSA) governs the investment transaction itself: the price, the shares issued, the closing conditions, the reps and warranties the founders give, and the indemnity if those are wrong. The Shareholders’ Agreement (SHA) governs the ongoing relationship after money is in: board seats, voting, transfer restrictions, liquidation preference and exit rights. SSA closes the deal; SHA runs the company.
What are representations and warranties in an SSA?
They are formal statements of fact the founders and company make about the business at closing: that the company owns its intellectual property, has filed its taxes, has no hidden litigation, and so on. If a statement turns out to be false, the investor can claim compensation through the indemnity. They are how the investor allocates risk for things they cannot fully verify in diligence.
What is a disclosure schedule and why does it matter to founders?
It is the document where founders list the exceptions to their warranties: the one pending lawsuit, the customer contract that can be terminated, the GST notice. Anything properly disclosed there cannot later be used to claim against you. The disclosure schedule is the founder’s single best protection in the SSA, so it should be detailed and honest, not minimal.
What is the difference between a cap, a basket and de minimis?
The de minimis is the floor below which a single claim is ignored. The basket is a total threshold of claims that must build up before the investor can recover anything. The cap is the ceiling on the founders’ total liability. Together they decide which claims are too small to count, when claims become payable, and the most a founder can ever lose.
What is a fair liability cap for founders in an SSA?
There is no single number, but founders should push the cap well below the full investment amount for general warranties: a cap of 25% to 50% of the amount invested is a common negotiated outcome, with a higher or uncapped position kept only for fundamental warranties (title to shares, authority to sign) and fraud. Never accept an uncapped general indemnity.
What is a survival period in an SSA?
The survival period is how long the warranties stay live after closing, meaning how long the investor has to bring a claim. General business warranties commonly survive 18 to 24 months; tax warranties often survive until the statutory limitation period ends; and fundamental warranties may survive indefinitely. A shorter survival period reduces how long the founders carry the risk.
This is a general explanation for founders, not legal advice. Indian deals involve specific structures (CCPS, FEMA rules and the FC-GPR filing on foreign investment, and the way warranties and indemnity terms are drafted into the SSA and the Articles of Association). Have your SSA, disclosure schedule and SHA reviewed by a lawyer before signing.
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AS | Founder, CFOmatrix | Finance Strategy & Equity Compliance CFOmatrix is a knowledge platform focused on how finance actually works inside growing companies. Every insight is shaped by real operating experience across startups and growth-stage companies, including cross-border setups. |