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Sweat Equity Partnership Agreement for India

Sweat Equity Partnership Agreement Template for India

A comprehensive legal agreement governed by Indian law that establishes the terms and conditions under which an individual or entity receives equity shares in a company in exchange for their expertise, know-how, or services, rather than monetary investment. The agreement complies with the Companies Act 2013 and SEBI regulations, detailing the nature of contribution, equity allocation, vesting schedule, rights and obligations of parties, and exit provisions. It includes specific provisions for valuation of services, regulatory compliance requirements, and protection mechanisms for both the company and the sweat equity partner.

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What is a Sweat Equity Partnership Agreement?

The Sweat Equity Partnership Agreement is a crucial document in the Indian business landscape, particularly utilized by startups and growing companies to attract and retain key talent without significant cash outlay. This agreement type is specifically regulated under Section 54 of the Companies Act 2013 and SEBI regulations, requiring careful structuring to ensure compliance with Indian corporate and securities laws. The document is typically used when companies wish to compensate individuals for their intellectual property, technical know-how, or valuable services by offering equity ownership instead of traditional compensation. It outlines the complete framework of the partnership, including contribution expectations, equity rights, vesting conditions, and exit mechanisms, while ensuring protection for both the company and the sweat equity partner.

What sections should be included in a Sweat Equity Partnership Agreement?

1. Parties: Identification of all parties entering into the agreement, including full legal names and addresses

2. Background: Context of the agreement, including the business purpose and reasons for entering into the sweat equity arrangement

3. Definitions: Definitions of key terms used throughout the agreement

4. Sweat Equity Contribution: Detailed description of the services, know-how, or intellectual property being contributed as sweat equity

5. Equity Allocation: Specifics of the equity shares being offered, including percentage, class of shares, and valuation

6. Vesting Schedule: Timeline and conditions for the vesting of sweat equity shares

7. Rights and Obligations: Detailed rights and responsibilities of all parties, including management participation and decision-making powers

8. Non-Compete and Confidentiality: Restrictions on competition and protection of confidential information

9. Exit Provisions: Terms and conditions for partner exit, including share transfer restrictions and buyout provisions

10. Term and Termination: Duration of the agreement and circumstances under which it can be terminated

11. Dispute Resolution: Procedures for resolving disputes between parties

12. Governing Law: Specification of Indian law as governing law and jurisdiction

What sections are optional to include in a Sweat Equity Partnership Agreement?

1. Tag-Along Rights: Optional provision giving minority shareholders the right to join in the sale of shares by majority shareholders

2. Drag-Along Rights: Optional provision allowing majority shareholders to force minority shareholders to join in the sale of shares

3. Anti-Dilution Protection: Protection against dilution of equity stake in future funding rounds

4. Board Representation: Rights and terms for board membership, if applicable

5. Performance Metrics: Specific performance criteria tied to the vesting of sweat equity

6. Intellectual Property Assignment: Detailed provisions for IP assignment if the sweat equity involves intellectual property creation

7. Death and Disability Provisions: Procedures in case of death or permanent disability of the sweat equity partner

What schedules should be included in a Sweat Equity Partnership Agreement?

1. Schedule A - Services Description: Detailed description of services or expertise to be provided as sweat equity

2. Schedule B - Vesting Schedule: Detailed timeline and milestones for equity vesting

3. Schedule C - Share Valuation: Methodology and details of how the sweat equity shares have been valued

4. Schedule D - Performance Metrics: Specific performance criteria and evaluation methods

5. Schedule E - Company Information: Key company information including capital structure and existing shareholders

6. Appendix 1 - Shareholders' Agreement: Reference to or incorporation of existing shareholders' agreement terms

7. Appendix 2 - Required Regulatory Approvals: List of necessary regulatory approvals and compliance requirements

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

India

Publisher

Ƶ

Cost

Free to use
Relevant legal definitions












































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Relevant Industries

Technology Startups

Professional Services

Consulting

Software Development

Healthcare

Engineering Services

Creative Industries

Management Consulting

Education Technology

Financial Services

Business Services

Research and Development

Relevant Teams

Legal

Human Resources

Executive Leadership

Finance

Corporate Governance

Business Development

Strategic Planning

Company Secretarial

Relevant Roles

CEO

Founder

Co-Founder

Chief Technology Officer

Chief Financial Officer

Legal Counsel

Company Secretary

HR Director

Business Development Director

Technical Architect

Senior Developer

Product Manager

Strategy Consultant

Innovation Director

Managing Partner

Industries







Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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