Quiz 2: Final Assessment — Founders' Agreements and Startup Legal Setup

Question 1 of 10

Under the Indian Copyright Act, 1957, code written by a founder before the company was incorporated:

AAutomatically vests in the company upon incorporation BBelongs to the founder personally; it must be expressly assigned to the company through an IP assignment agreement CBelongs to the government if the founder was previously a public employee DIs jointly owned by all co-founders equally

Question 2 of 10

The ESOP tax treatment under Indian law involves two taxable events. On exercise of an ESOP option, the employee is taxed on:

AThe full fair market value of the shares as capital gains BThe difference between the fair market value of the shares on the exercise date and the exercise price, as a perquisite (salary income) COnly the exercise price as a capital contribution DNothing — ESOPs are tax-free at exercise

Question 3 of 10

DPIIT-recognised startups benefit from ESOP tax deferral, which defers the perquisite tax until the earliest of which events?

AThe date of DPIIT recognition renewal BThe sale of shares, change of employment, or 5 years from the grant date CThe date of the next funding round D10 years from the date of grant

Question 4 of 10

A weighted average broad-based anti-dilution provision is MOST favourable to:

AInvestors, because it fully protects them from any dilution BFounders, because it results in a smaller conversion price adjustment for investors in a down round compared to full ratchet CNeither party — it treats both parties identically DExisting employees, because it protects their ESOP pool

Question 5 of 10

A drag-along right in a SHA allows:

AMinority investors to block a sale of the company BA majority of shareholders (or a specified majority including investors) to compel all other shareholders to sell their shares in an acquisition CAny individual shareholder to sell their shares at any time DThe company to buy back shares from unwilling shareholders at any time

Question 6 of 10

A founder has a code library built during their previous employment that forms the core of the startup's technology. What is the most significant legal risk?

AThe founder must pay their previous employer for using the code BThe previous employer may own the IP under the employment IP assignment clause, making it unavailable for the startup without risk of infringement CThe code is automatically in the public domain once the startup uses it publicly DThe startup must re-create the code from scratch as a legal requirement

Question 7 of 10

A participating liquidation preference in a SHA means that an investor:

AReceives their investment back first and does not participate in any remaining proceeds BReceives their investment back first (the preference) AND participates in remaining proceeds alongside common shareholders (the participation) — double dipping COnly participates in proceeds if the sale price exceeds a specified multiple of the investment DForfeits their preference in a down round acquisition

Question 8 of 10

A right of first refusal (ROFR) in a SHA means:

AThe company has the right to refuse any share transfer BExisting shareholders have the right to purchase shares that a shareholder wants to sell to a third party, at the same price and on the same terms CThe investor has the right to invest in all future funding rounds first DThe founder has the right to refuse any acquisition offer below a specified valuation

Question 9 of 10

For a private limited company's ESOP plan under the Companies Act, 2013, which of the following is a mandatory requirement?

AThe exercise price must equal the latest funding round price BA minimum 1-year vesting period must elapse between grant and first vesting CThe ESOP plan must be approved by the central government DOptions can only be granted to senior management, not all employees

Question 10 of 10

A founder lock-in provision in a SHA is separate from vesting because:

ALock-in applies to unvested shares while vesting applies to vested shares BLock-in restricts the transfer of shares (both vested and unvested) to third parties without investor consent, while vesting determines when the founder earns their equity; a fully vested founder can still be locked in CLock-in is a tax concept while vesting is a governance concept DThey are identical in effect and one is redundant

Quiz 2 — Final Assessment