In January 2025, Bengaluru-based startup Table Space was preparing for a public listing when its founder and CEO, Amit Banerji, died suddenly, triggering leadership uncertainty and investor hesitation just when the company was on a fast growth trajectory. Weeks earlier, in December 2024, Epigamia co-founder Rohan Mirchandani also passed away unexpectedly while expansion plans were underway, forcing an immediate reshuffle of leadership and concerns over continuity and decision-making.
In both cases, the founders' absence exposed a deeper institutional weakness - leadership uncertainty with no clear legal mechanism to handle the transition.
It is a common belief that startups fail primarily when their revenue and sales decline, but the crisis due to the sudden death or incapacity of a founder is an overlooked risk in the Indian startup ecosystem. When the central figure behind the startup's growth, management and vision suddenly disappears, investor confidence is immediately shattered, employees begin to disengage, and eventually, the business enters a downward spiral.
Being founder-centric, startups are often assessed by investors based on the face value their founders hold. When the founder himself is suddenly out of the scene, investors view the startup in a vulnerable state and start juggling around different exit strategies.
The real issue, however, lies not in the founder’s absence but in the legal blind spot within Indian startup law that offers no default or time-bound response to such situations. The issue is further exacerbated by the optional treatment of succession plans, highlighting a systematic policy failure with wider economic and public impact.
The Legal Blind Spot
The core problem with the Indian startup law is that it provides no automatic legal response upon a founder’s death or incapacity. The company is left to navigate the crisis informally, and the absence of the primary brand figure compounds its vulnerability and internal disorder. This leads to informal power shifts, and decision-making becomes paralysed.
Furthermore, investors grow hesitant, operations slow down, and eventually, there may be a share transfer to the founder’s legal heirs, but without any accompanying governance clarity.
At the same time, a silent power struggle frequently unfolds among senior managers and key executives to assert control and fill the governance vacuum left by the founder. The focus radically shifts away from the business to their own power politics, casting a detrimental impact on the company’s operations and revenue channels.
So, the legal silence imposed by the absence of any default legal response upon the founder's death or incapacity creates a governance vacuum, opening the door to uncertainty.
Where the Law Falls Short
The existing laws governing the startup industry fail to address this governance vacuum and do not trigger any prompt response to ensure viable decision-making within the company.
The primary law dealing with corporate governance in India, The Companies Act, 2013 (the Act), assumes continuity through boards and interchangeable management structures. It does not contain any provision recognising a founder's death or incapacity as a distinct governance event. Consequently, the Act falls short of providing any interim professional leadership to manage the company affairs during such chaos.
The Act rests on the premise that management is interchangeable, but in founder-driven startups, this premise breaks down.
The Insolvency and Bankruptcy Code, 2016 (IBC), springs into action only when there is a financial default and not merely a leadership vacuum. A founder’s absence may eventually push the startup into insolvency, but such an outcome is not inevitable.
Another factor preventing IBC from kicking in is the statutory default threshold of over Rs 1 Crore coupled with the fact that startups mostly raise capital from venture capitalists and angel investors, who function as investors rather than creditors. Moreover, invoking IBC is an extreme step, and it is unlikely that the startup would survive the resolution process.
As a result, the IBC remains a mechanism to prevent a viable company from collapsing and activates only upon financial distress, offering no solution for the immediate governance vacuum left by the founder.
In some cases, succession plans within a startup are handled through private contractual agreements under contract law. While this is a prudent step, it is largely confined to well-funded and mature startups, leaving early-stage startups exposed to unforeseen risk.
What aggravates this problem is that early-stage startups view founder's absence as a remote contingency, leading to unpreparedness when such events occur. Importantly, having a proper succession plan is given an optional treatment by the law with no statutory obligation under the Act.
The outcome is that only a few startups backed by experienced founders and sound legal advice address the risk contractually, and the rest remain dependent on informal and ad-hoc arrangements. Thus, any contractual mechanism cannot substitute a default legal response capable of addressing the chaos left by the founder’s absence.
The Cost of Silence
The sudden absence of the founder creates governance shock within a startup, paving the way for institutional vulnerability. The Act fails to provide any automatic legal response, such as an interim leadership or temporary decision-making forum to take over the affairs of the startup in such a situation.
As a result, routine operational decisions like banking approvals, hiring, contractual sign-offs, and strategic commitments are delayed or stalled altogether. The company remains alive on paper, but internally, its functioning is gravely immobilised.
Employees also face a dilemma whether to continue or opt out of the startup. Leadership ambiguity directly affects their salary continuity, ESOPs (Employee Stock Options), and morale. In this situation, key talent often escapes during the uncertainty window in search of better opportunities that offer stability.
This attrition, in turn, affects the revenue potential and scalability of the startup, as trusted employees get compelled to leave halfway. Thus, the employees are forced to bear the aftershocks of a crisis that they did not create.
Upon the founder’s absence, a silent power struggle is triggered among senior managers and executives to secure the highest pedestal within the startup’s structural governance. The focus shifts radically from the company's interest to their own individual interest, and ultimately, their decisions are driven by self-preservation rather than stewardship, often leading to disputes and adversarial attitudes within senior management.
The investor confidence erodes, hampering the founder-investor relationship and future fundraising.
A major confusion that confronts investors is who possesses the legal authority to sign, negotiate and amend agreements on behalf of the company. This confusion worsens in single-founder startups, and eventually, investors hesitate to proceed without a legally recognised decision-maker and, at times, even pause the ongoing transactions.
Taken together, these consequences do not signal individual failure or poor planning, but a structural gap in India’s startup law, and necessitate immediate legal reform.
Reforming the Silence
The law governing startups must explicitly recognise a founder’s death or incapacity as a distinct statutory triggering event requiring immediate remedial intervention. However, such a trigger must be strictly limited only to founder-directors or founder-CEOs to prevent regulatory overreach. This mechanism would ensure that, under the guise of stability, there is no automatic alteration in the ownership structures.
There should be an independent interim professional authority to facilitate the operational continuity for a short, defined period (e.g., 90 days). Simultaneously, effective board oversight must be maintained during this phase so that founders’ successors or shareholders are not kept aloof from long-term key decisions.
Disclosure of a proper succession plan must be made mandatory for every startup, either at the stage of incorporation or as part of the DPIIT startup recognition framework with regard to established startups. Moreover, as the company evolves, the law governing such disclosure needs to remain flexible enough to permit requisite updates in line with the startup’s growth.
Once the triggering event unfolds, a statutory protection period must be activated to prevent hasty and irreversible decisions including changes in shareholding, equity dilution, transfer of founder shares, or hostile reconstitution of the board. Simultaneously, the same protective shields must extend to employees and minority shareholders so that their contractual rights, economic interests, and participatory expectations are not eroded during the transition.
As India’s startup ecosystem matures, the law must evolve alongside it. Indian startup law treats founders' death or incapacity as legally insignificant, leading to structural governance deadlock. Addressing this policy gap will require formal recognition of the triggering event, interim professional handling, mandatory succession plan disclosures, and the activation of protective legal shields.
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