We present a shareholders agreement template for raising compulsorily convertible debt funding. This contains all the important terms and conditions for you to consider while drafting an SHA. Founders must pay close attention to any shareholder agreements or subscription agreements involved in the fundraising process, as these documents govern the rights and obligations of the investors and the company. Properly drafted agreements can help prevent disputes and misunderstandings down the line. Furthermore, founders should ensure that all regulatory filings and disclosures are accurate and complete, as failure to comply with legal requirements can result in significant consequences for the company. Finally, founders should handle any due diligence documents with care, providing accurate and transparent information to potential investors to build trust and confidence in the business. Overall, careful management of these documents is essential for a successful fundraising process and the startup's long-term success.

1. AND
Startup Sprouts Ventures
www.startupsprouts.in
DUMMY ORGANIZATION FOUNDATION
PRIVILEGED AND CONFIDENTIAL
COMPULSORILY CONVERTIBLE DEBT AGREEMENT

2. AGREEMENT FOR UNSECURED COMPULSORILY CONVERTIBLE DEBT AGREEMENT
AND WHEREAS The Company “Startup Sprouts”, endeavors in the field of Digital
Content and Tools for Startups.
(“DUMMY ORGANIZATION FOUNDATION” AND “COMPANY” hereinafter collectively referred
to as “Parties” and Individually as “Party”).
This Unsecured Compulsorily Convertible Debt Agreement Agreement ) is made at New Delhi on
28-02-20XX, New Delhi, 110001
AND WHEREAS
The Dummy Organisation Foundation has expressed its desire to provide a seed fund assistance in
the form of Compulsorily Convertible Debt to the Company under the Startup India Seed Fund
BETWEEN
DUMMY ORGANIZATION FOUNDATION, company registered under section 8 under the
provisions of the Companies Act, 2013 and having its registered office at Office No. 2833, 11th
Floor, TowerD,ConnaughtPlace,110001(hereinafter referredtoasthe"Investor/Dummy
Organization Foundation context or meaning thereof be deemed to mean and include its
permitted successors and assigns) of the FIRST PART;
AND
Startup Sprouts Ventures CIN: U49383DK2023DJD394034 , a company registered under the
provisions of the Companies Act, 2013 and is a registered start-up recognized by DIPP (Certificate
No.; DIPP349384) and having its registered office at Plot 39, First Floor Shamsher, Singh State,
Hauj Khas Village, Lane 2, Delhi, India, 110030 (hereinafter referred to as the "Company" which
expression shall unless it be repugnant to the context or meaning thereof be deemed to mean and
include its successors and assigns) of the SECOND PART;
WHEREAS Dummy Organisation Foundation agrees to invest a total seed fund assistance in the
form of Compulsorily Convertible Debt instrument up to INR 10,00,000/- (Rupees Ten Lakhs
Only) disbursable in multiple tranches linked to pre-specified milestones as per terms of this
Agreement, under the Seed Support System for start-ups under the Start-up India Seed Fund
Scheme (SISFS) of DPIIT, Govt of India as per terms of the investment policy into start-up
companies.
1

3. INTERPRETATION
NOW THEREFORE, in view of the foregoing and in consideration of the mutual covenants and
agreements hereinafter set forth, COMPANY and Dummy Organisation Foundation agreed as
follows.
Scheme after having selected the Company through the selection process established under the
scheme and the Company has agreed to take the Seed Fund Assistance from the Investor on the
terms and conditions set out in this Agreement.
AND WHEREAS as per the terms of Investment, the financial Assistance will be converted into
a fully paid-up equity shares of COMPANY at the option of the Dummy Organisation Foundation
at the mutually agreed valuation of COMPANY at time of conversion and as per the provisions
of the Companies Act, 2013.
AND WHEREAS
amount of the total agreed seed fund assistance of Rs. 10,00,000/- (in words, Rupees Ten
lakhs only). Dummy Organisation Foundation has agreed to provide a seed assistance in form
of Compulsorily convertible debt ( CCD) in multiple tranches as per terms of this Agreement
amounting to the total of INR 10,00,000/- (in words, Rupees Ten Lakhs Only) ( for a maximum
period of 36 months) from the date of disbursement of funds. The conversion of this
instrument into equity will be governed by Terms and Conditions laid herein.
1.1
ARTICLE-I: INTERPRETATION
In this Agreement, unless the context otherwise requires
(a) the words importing singular shall include plural and vice versa and the words
denoting natural persons shall where the context admits include firms, companies,
corporations, associations, organisations, or other entities (whether or not having
a separate entity).
(b) the headings are for convenience or reference only and shall not be used in and
shall not affect the construction or interpretation of this agreement.
(c) the words "include" and including" are to be constructed without limitation. (d)
reference to this agreement or to any other agreement or deed or other instrument
shall be constructed as a reference to such agreement, deed, or other instrument as the
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4. ARTICLE-II: AGREEMENT AND TERMS OF CONVERSION OF LOANS
same may from time to time be amended, varied, supplemented or innovated.
Aims & Objectives: The detailed aims and objectives to be executed by the aforesaid
are as per the detailed Project document, submitted including revisions/ modifications
therein (hereinafter called as “Project”) and appended herein as Schedule-2.
Project Cost and Contribution: The project’s estimated cost is Rs 10 Lakhs. The
details of which are provided in Schedule 3.
2.2 INTEREST
2.1 AMOUNT OF SEED FINANCIAL ASSISTANCE
The Assistance shall be provided to the Company in Tranches in the following manner:
Tranche 2 Rs 5,00,000/- [ Rupees Five Lakhs only] upon COMPANY fulfilling the Milestone
1 mentioned in Annexure I.
Tranche 1 Rs 5,00,000/- [ Rupees Five Lakhs only] on or before the Closing Date or the Long
Stop Date, and subject to fulfilment of Conditions Precedent as prescribed in this Agreement.
COMPANY agrees and undertakes that the entire amount of Assistance provided by the Dummy
Organisation Foundation to COMPANY shall be used only for the purpose of scaling the
business of the Company and expanding the revenue.
The first tranche will be released after execution of the Agreement to the designated bank
account of the start-up as mentioned in Schedule- 1 subject to fulfilment of the terms and
conditions by the relevant Parties as referred herein below:
a. The Seed Assistance shall carry an interest rate of 5.0% p.a payable from the date of
receipt of respective disbursement of Tranches of CCD. The interest payment shall be
continued till the time the CCD is fully repaid or converted into Equity Shares as set out
3

5. 2.4 VALUATION
2.3 CONVERSION TIMELINES
in terms and conditions of this Agreement,
b. It is agreed that Dummy Organisation Foundation shall be entitled to the discounted price
mark down from the latest valuation of the Company either by the Registered Valuer in
accordance with the Provisions of Companies Act 2013 and Income Tax Act 1961 or any other
allied governing laws and rules or the valuation adopted in the last round of fund
raising as per the terms below:.
a. The Parties agree that the conversion of CCD into Equity Shares shall be in accordance with
the principles and the provisions of all applicable acts in India governing such conversions
including specifically related to Start-ups companies.
a. The Parties agree that the investment/ Assistance may be converted into equity shares
expressed through a written communication.
b. Notwithstanding anything contained in any document or statement, the financial assistance
shall be converted into equity stake, as specified by Dummy Organisation Foundation, as
per the agreed valuation mentioned in clause 2.4, and as per provisions of the Companies
Act 2013.
c. In case, upon conversion of Assistance amount, the equity shares to be issued to Dummy
Organisation Foundation is a fractional number, then the number of equity shares to be
issued to Dummy Organisation Foundation shall be rounded off to the next whole number.
d. Subject to the rights granted to Dummy Organisation Foundation under this Agreement, the
Equity shares so issued and allotted to Dummy Organisation Foundation shall fully paid up
and carry all rights and entitlement pari passu with the other equity shares of COMPANY
existing on the date of conversion / allotment.
e. The number of equity shares issued on conversion of financial Assistance amount and the
price per share of such equity shares shall be appropriately adjusted for corporate actions
such as bonus issue, rights issue, stock split, merger, demerger, transfer of undertaking, sale
of a business division, or any such capital or corporate restructuring.
f. COMPANY agrees to file the necessary records with the Registrar of Companies and ensure
all compliance with respect to the conversion of such financial assistance into equity
shares.
If the company raises capital any time before expiry of the first anniversary from the
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6. If the company raises capital any time after expiry of first anniversary but before
expiry of second anniversary from the disbursement of first tranche of financial
assistance, discount price of 50 % marked down from the latest valuation of the
company.
disbursement of the first tranche of financial assistance, the discount price of 40
% marked down from the latest valuation of the company.
3.1 Jurisdiction
3.2 Severability
3.3 Counterparts
ARTICLE-III: MISCELLANEOUS CLAUSES
This Agreement shall be executed in two counterparts each of which shall be deemed to be
original but shall together constitute one Agreement only.
If for any reason whatsoever any provision of this Agreement is or becomes invalid, illegal or
unenforceable or is declared by any court of competent jurisdiction or any other instrumentality to
be invalid. Illegal or unenforceable, the validity, legality or enforceability of the remaining
provisions should not be affected in any manner.
If the company will not be able to raise funds, after the second anniversary from the
disbursement of the first tranche of financial assistance, the valuation of Rs 5 Cr. ( Five
Crores only) will be considered for conversion of financial assistance into equity shares.
Disputes, if any, shall be amicably resolved between Parties within 30 days of initiation, upon
expiry ofwhichperioddisputesshallbereferredtoanarbitratormutuallyappointedbythe Parties.
ArbitrationshallbeconductedaspertheArbitrationandConciliationAct,1996.Seatof Arbitration shall
be at New Delhi. Subject to arbitration as stated, courts of New Delhi shall have exclusive
jurisdiction.
5

7. 3.4 Voting Rights
3.7 Right of Pre-emption
3.6 Restriction on Founders shares
All shares held by each founder will be subject to restricts (“Restricted Shares”) starting from
the closing date till such time the Dummy Organisation Foundation’s converted shares are
provided an exit or written permission from Dummy Organisation Foundation permitting the
founders to transfer their shares subject to and right of first refusal or tag along right or Drag
Along Rights.
3.5 Reserve Matters
The Company will not without the Dummy Organisation Foundation shareholders meeting or by
amendment, merger, consolidation, or otherwise decide on the Reserved Matters
(i) Liquidate, dissolve or wind-up the affairs of the company or effect any liquidation
Event.
(ii) Amend, alter or repeal any provision of the Company's Charter Documents in any manner
(iii) Create or authorize the creation of or issue any other security convertible into or
exercisable for any equity security having rights, preferences or privileges senior to the
seed shares
(iv) Purchase or redeem or pay any dividend on any capital stock prior to the converted
shares or
(v) Create or authorize the creation of any debt security
(vi) Major decision such as mergers, acquisitions, capital restructuring, raising loans other
than normal working capital/term loan, deciding/changing accounting policies, setting
up subsidiaries of the company
(vii) Transacting with related parties such as directors, shareholders and joint venture
companies.
(viii) Borrowing money or guaranteeing the obligations of third parties.
(ix) Leveraging, assigning, and selling of any intellectual properties of the Company.
The Investor shall have a pro rata right to participate in any future issue of shares by the company
and to retain their shareholding on a fully diluted basis in the company and the same terms and
conditions (including price) as offered to the other shareholders/party(s).
Each Shareholder (including founders) shall have voting rights in respect of all the shares held by
them, whether or not classified as released shares (shares on which restriction on founders shares
point below is applicable). The voting rights of the shareholders shall be as defined in Companies
drawn from point of Type of instrument above.
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8. 3.9 Tag-Along Right
3.10 Drag Along Rights
3.8 Right of first Refusal
There will be no restriction on the ability of the Investor to transfer all or any of the converted
equity shares, except the restriction that the transfer to a third party may proceed only if a simple
majority of shareholders of the company agree in writing about the moral character of the
proposed transferee/purchaser. If such approval is not received within ten (10) days, it shall be
deemed as olders.
For example, if the company has a total of 10 shareholders in all, a simple majority shall mean 6
shareholders. Such majority approval may be evidenced in writing via letters or emails and not
necessarily through a meeting of shareholders.
Subject to the promoter lock in, in the event any of the promoter or any other shareholders intend
such - at the same price as they have offered to the third party. The Non-selling shareholders at
theirsole discretionshallhavetherighttopurchasesharesinproportiontotheirinter shareholding in
the company.
In the event no exit has been provided to the Investors as envisaged in this Agreement and/or the
Company has not bought back the Buy Back Shares, the Investors will have the unilateral right to
sell their Shares to any third party. If such third party requires additional Shares in the Company
then the investors (“Dragging Shareholder”), should the parties that cumulatively hold more than
75% oftheaggregateshareholdingoftheInvestorsconsenttosuchdrag-along,shallhavetheright to drag
along and require the Founders and other stakeholders of the company the “Dragged
Shareholders”, to either: (a) sell all or part of their respective shares (“Drag Along Shares”) along
with the Shares of the
3.11 Transfer by Investor
Where a founder proposes to sell any of his shares in the company to a third party and the
investors do not exercise their right of first refusal, the Investor shall at his option and in lieu of the
Right of first Refusal have a pro-Tag-Along Right to their shareholding percentage, in the transfer
on the same terms as specified in the transfer notice. It is hereby clarified that any transfer of
shares by the Investor shall not be subject to any tag along rights.
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9. 3.15 Reports
3.13 Exit to Investor
3.14 Valuation Protection
Post conversion of financial Assistance into equity shares, If the company offers any securities to
any third party at a later date including any advisory/sweat equity or allotment of any equity for
consideration other than in cash, whether or not an independent valuation has been done for the
allotment of such equity at a valuation lower than the valuation paid by the Dummy Organisation
Foundation, the company will issue to Investor additional shares either at no additional cost to the
seed investor or such lowest possible price at which the share may be issued as per the applicable
law in order to equate the adjusted cost per share of the subscription amount to the price to be
paid by the new offeree.
The Company and the founders agree to work towards creating liquidity for the repayment of
financial Assistance (if required) either by way of a strategic sale, share by back or other
liquidation event that is applicable to the seed Investor.
3.12 Liquidation preference
In addition to the differential rights as mentioned in the type of instrument point above the
following shall accrue.
In the event of any liquidation, dissolution or winding up of the company the surplus if any
remaining shall be applied in the following order of priority First Seed investor shall be entitled to
receive in the financial Assistance amount. Second, the balance amount, if any, shall be distributed,
subject to applicable law, pro rata among all the shareholders, including the seed investors of the
company. If the consideration consists of cash and shares of any other entity the seed investor shall
have the option to acquire cash or shares in such proportion as they may deem fit “Liquidation
event” and will include all liquidation circumstances under which the investors exit except for an
IPO.
(a) Investor will finalize the reporting requirements and frequency in discussion with company and
to the satisfaction of the Investor Company shall also submit the 'Interim Progress Update(s)' and
'Utilisation Certificate(s)' to the Investor in the format as required by the Company, before the
initiation of Tranche - Il under this Agreement.
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10. For the purpose of preparing the 'Interim Progress Update(s)' and the 'Final Report' the
Company shall track and record the following, on a need to know basis:
(b) The Company shall also submit a 'Final Report and 'Audited Utilisation Certificate' post
conversion of the financial Assistance in terms of this Agreement. In the event of failure to
repay the financial Assistance and consequent conversion into equity shares, the promoters
and the Company shall share their learnings and the reasons for failure in their 'Final
Report' and submit it along with the 'Utilization Certificate' for financial Assistance utilized.
3.17 Other covenants
3.16 Inspection & Information Rights
1. Progress of proof of concept
2. Progress of prototype development
3. Progress of product development
4. Progress of field trials
5. Progress of market launch
6. Quantum of loan, angel or VC funding raised
7. Jobs created by startup
8. Turnover of startup
9. Any other appropriate parameter
a) The company shall modify the memorandum and articles of association with
Investors shall have a right to reasonable inspection of regular books of accounts including but not
limited to inspection of any financial record, statement, memorandum record, financial statements,
statutory filings and all other reports excluding confidential documents having bearing on the
valuation of the company.
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11. 3.20 Expenses
3.21 Confidentiality
3.18 Indemnification
Startup Sprouts Ventures
3.19 Closing, Closing date & Long Stop Date
SIGNED AND DELIVERED by the within named
Expenses for diligence and closing to be borne by the Investor.
The terms and conditions of this terms sheet and the investors financing shall be confidential
information and the company or founders shall not disclose the same to any third party unless
approved in writing by the investors.
IN WITNESS WHEREOF the parties have executed these presents at the place, day, month and
year as first above written in the presence of the under noted witnesses.
The Company will indemnify the Investor to the fullest extent permissible by law against all losses
and damages suffered or incurred (including reasonable attorney fee) jointly and severally, arising
out the acts exclusively by the founders of the company only.
notification/information to the Investor, to retain the present Agreement.
b) The Investor shall receive standard information including audited financial reports,
unaudited quarterly financial reports, annual budget and business plan, board packages as
well as standard audit/inspection rights. All other information which the investors may
reasonably require will be provided by the company within 15 days of receipt of notice
requesting such information.
c) Standard financial reports shall be sent to the investors on the board on quarterly basis.
The parties will work towards achieving completion of the investment ("Closing") by [•] (the
"Closing Date"). Actual closing shall be achieved by [•] ("Long Stop Date"), however it will be
subject to satisfaction of customary closing conditions including successful and satisfactory
completion of Due Diligence by the Investor and the conditions precedent as specified by the
Investor
("Conditions precedent"). In any event the closing date will be no later than 7 days from the
satisfaction or waiver by the Investor of all conditions precedent.
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12. Witness 1:
Witness 2:
______________________________________
Authorised signatory
Director: Kiran Dalal
Dummy Organisation Foundation
_________________________
Authorised signatory
Director: Aman Mehta
SIGNED AND DELIVERED by the within named
Name, Designation, Address
Name, Designation, Address
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