A Share Subscription Agreement (SSA) is the primary legal document through which an investor acquires shares (or convertible instruments) in a startup. In a typical Indian startup funding round - from angel investment through Series A and beyond - the SSA is the document that records the investment amount, the price per share, the type of shares issued, the conditions that must be satisfied before funds are released, and the representations each side makes to the other. The SSA is typically signed simultaneously with the Shareholders Agreement (SHA) - the SSA governs the subscription itself, while the SHA governs the ongoing relationship between shareholders after the investment is made.
The Structure Of A Typical Indian Startup Funding Round
In most Indian startup funding rounds, the investor receives Compulsorily Convertible Preference Shares (CCPS) rather than ordinary equity shares. CCPS must convert to equity shares on a specified trigger event (typically a qualified IPO or Series A round) and give the investor preference in liquidation over ordinary shareholders. The use of CCPS is driven by: Tax efficiency: CCPS can be issued at a valuation without triggering tax on the founders as deemed income Investor protection: CCPS holders have preference over equity shareholders in liquidation and often have anti-dilution protections FEMA compliance: For foreign investors, CCPS is a common instrument that facilitates RBI / FEMA compliance
Pre-Money And Post-Money Valuation
Pre-money valuation: The value of the company immediately before the investment. Post-money valuation: Pre-money valuation plus the investment amount. Founders and investors often negotiate on post-money valuation while thinking in terms of pre-money, leading to confusion. The SSA should state both the price per share and the pre-money and post-money valuation explicitly. CONDITIONS PRECEDENT (CPs) Conditions that must be satisfied before the investor is obligated to transfer the funds and the company is obligated to issue the shares. Typical CPs: Completion of legal due diligence by the investor to the investor's satisfaction All existing shareholders having waived their pre-emption rights to the new shares Approval of the share issuance by the company's board and (if required by the Articles) shareholders Completion of any regulatory filings (e.g., RBI filing for foreign investments under FEMA) No material adverse change in the company's business between signing and closing The CPs protect the investor from being forced to invest in a company whose circumstances have changed materially between the time of negotiation and the time of closing.
Representations And Warranties
The company and its founders make a series of representations and warranties to the investor - statements of fact about the company that the investor is relying on in deciding to invest.
Company Representations Typically Include:
The company is duly incorporated and in good standing The company has the authority to issue the shares and enter into the SSA The company's financial statements are accurate and prepared in accordance with applicable accounting standards There are no material pending or threatened litigation proceedings against the company The company owns or has the right to use all the intellectual property material to its business The company has no undisclosed liabilities that are not reflected in the latest financial statements All regulatory approvals, licences, and consents necessary for the company's business are in place
Founder Representations Typically Include:
The founders do not have any conflict of interest with the company The founders have not previously assigned or licensed any IP relevant to the company's business The founders are not subject to any non-compete restrictions that would prevent them from working in the company's business A breach of a representation or warranty after closing typically gives the investor the right to claim indemnity from the company and/or the founders for losses arising from the breach.
Anti-Dilution Protections
Anti-dilution provisions protect the investor against the impact of future down rounds - situations where the company raises new funding at a lower valuation than the investor paid. Types of anti-dilution protection common in Indian startup SSAs: Broad-based weighted average anti-dilution: The investor's price per share is adjusted downward in a down round based on a formula that takes into account the number of shares issued in the down round and the dilution to all existing shareholders. This is the most commonly used and most balanced form. Full ratchet anti-dilution: The investor's price is adjusted to the price per share in the down round - full benefit of the lower price. This is very aggressive and unfavourable to founders; less common in Indian startup practice.
Liquidation Preference
CCPS holders receive a liquidation preference - priority over ordinary shareholders in the distribution of assets on a winding up, merger, or acquisition that does not qualify as a liquidity event for conversion. The preference is typically 1x the investment amount (non-participating), meaning the investor receives their money back (in priority) and then participates in the remaining proceeds as if converted to equity. Participating liquidation preference - where the investor gets their money back and then also participates as if converted - is more aggressive and founder-unfriendly.
When to obtain a review
A review is especially useful when…
- — You are about to sign, send, rely on or respond to this document.
- — The draft was copied from an old template or another state.
- — There is money, property, business control, statutory deadline or reputation risk involved.
- — You need Surat/Gujarat-specific drafting, review or negotiation support.
Legal information notice
This article is general legal information for India and Gujarat. It is not a substitute for advice on your specific facts, documents, limitation period, stamp duty position or court strategy.