Shareholder’s Agreement - an Overview

A shareholder's agreement is just a contract determining the liaison between the share owners of a business or a company. A shareholder's agreement in India comprises the rights and duties, reallocation of shares, operations of the business, and how crucial verdicts and decisions are made.

A shareholder agreement's purpose is to protect and treat shareholders equally, as well as to allow them to make decisions about third parties who may become shareholders in the future. A shareholder agreement is more important to minority shareholders than it is to majority shareholders because it emphasizes the majority shareholders' commitment to protect minority shareholders from abuse and provide them a voice when important decisions are made.

Benefits of a Shareholder’s Agreement

It clears authority

A shareholder's agreement India clears the authority and standing of a share owner and the license you stock as the issuer of such shares by characterizing the power and risks for all. Additionally, it mediates as a governor of the interaction between small and big shareholders.

Ease in making amendments

A shareholder's agreement facilitates the perfect conditions for making amendments to the company constitution. It is suitable for small-scale and medium businesses that do not wish to officially change the entire constitution whenever minute changes are required to be made.

Checklist of a Shareholder's Agreement Include

Rights of a shareholder

• Right to vote
• Right to appoint directors and the company auditor
• Right to ask for a general meeting
• Right to inspect the books & registers of the company
• Right to the financial statements of the company

Regulations related to the transfer and sale of shares of the company

Certain rules need to be incorporated in a shareholders agreement India to protect the shareholders’ interest with regards to the transfer and sale of company shares. Such rules would ensure that such a sale or transfer happens only after receiving the mutual consent of the parties associated.

Financial requirements of the company

Shareholders can proceed to obtain the most feasible source of funding, whenever they think it to be beneficial for the company. The shareholder's agreement draft includes the procedure to obtain such finances.

Requirements of quorum

The shareholder's agreement will mention the requirements related to a quorum (the minimum number of members required to constitute a valid meeting)

Methods for Valuation of shares of the company

Considering the frequent fluctuations in the market, proper valuation of company shares is extremely important for the fortunes of the company. The valuation methods and approaches are laid down precisely in the shareholder's agreement India.

Guidelines to run the company

The shareholder's agreement would contain the guidelines, policies, and procedures to ensure the smooth running of the company on a day-to-day basis.

Shareholder Liabilities

Shareholders only have limited liability with the company and are not liable directly for the activities of the company. The liabilities of the shareholders are defined clearly in the agreement.

Protection of minority shareholders

The rights of the minority shareholders, as per provisions of the Companies Act, 2013, are laid down in the shareholder's agreement. The agreement will ensure the protection of the minority shareholders in the event of mismanagement, oppression, or Piggy Backing (sale of shares by majority shareholders).

Advantages of a Shareholder's Agreement

Protects Smaller Shareholders:

A company may have majority and minority shareholders. A shareholder's agreement states the role and protects the rights of minority shareholders, within a company.

Purchase of Shares

A minority shareholder will have access to purchasing shares from other shareholders, just like a majority shareholder.

Gaining Control:

A shareholder's agreement will ensure that shareholders will have legal association with the company, including setting or modifying rules and guidelines.

Protects Position:

Shareholder's agreement ensures the position or roles of shareholders, within a company, is protected.

Shareholder Restrictions:

Restrictions on matters that can be decided by shareholders can be included in the agreement.

Ensures Privacy:

While the articles of association are made public, the terms of a shareholder's agreement is private.

Protects Smaller Shareholders:

A company may have majority and minority shareholders. A shareholder's agreement states the role and protects the rights of minority shareholders, within a company.

Purchase of Shares:

A minority shareholder will have access to purchasing shares from other shareholders, just like a majority shareholder.

Gaining Control:

A shareholder's agreement will ensure that shareholders will have legal association with the company, including setting or modifying rules and guidelines.

Protects Position:

Shareholder's agreement ensures the position or roles of shareholders within a company is protected.

Shareholder Restrictions:

Restrictions on matters that can be decided by shareholders can be included in the agreement.

Ensures Privacy:

While the articles of association are made public, the terms of a shareholder's agreement is private.

Process of Preparing a Shareholder’s Agreement at Actolegal

• Step 1: Upon contact, your request to file for a shareholders’ agreement will be received and our representative will be in touch with you to take your request forward
• Step 2: If we need more information from your end, we will call you as and when required
• Step 3: After we receive all your details, our in-house lawyers and legal experts will create the shareholder's agreement draft and send it across for your view within 5- 6 business days.

Note: Your original price includes two rounds of iterations. Therefore, if you need any changes done to the shareholder's agreement format, our lawyers will do the needful and send it across to you for your approval once again.