Shareholders Agreement

Introduction

A Shareholders or Stockholders Agreement is a document legally authenticated which lays down the rights and responsibilities of a Shareholder of a Company. It also states the fair pricing of shares which protects the interest of a Shareholder. It also set forth the percentage of an ownership of a shareholder in the Company. This document is very much important for a business when it comes to investment and also lists the restrictions on the transfer of shares, the manner of dispute resolution if any occurs between the company and shareholder etc.

Another most important provision in a shareholder agreement should be whether it allows the corporation to buy back its own securities in the event of a shareholder's death. More often than not, sometimes the shareholders don't want to be the co-owners with the heirs or children or spouses of their fellow shareholders as they lack the skills or the common interests of the respective original shareholder. In case the Company doesn't possess enough money to buy back its own shares, then options must be provided in the shareholder agreement stating that the other shareholders can buy the same.

The list of common provisions also includes the right of first refusal in which a right is granted to the Company or other shareholders to purchase a shareholder's securities if  he or she wants to transfer it.

Legal Window has a team of experts providing you the best assistance, timely delivery and guaranteeing the highest customer satisfaction with respect to drafting of shareholders agreement. You may get in touch with our team on 072407-51000 or email admin@legalwindow.in.

Advantages of Shareholders Agreement

Improving Clarity

For avoiding confusion regarding the relationship among shareholders and with the company the agreement involves a detailed description of the nature of work to be undertaken.


Guards The Parties

The will, rights, and duties of partners are duly expressed in an agreement which helps in minimizing the scope of disputes amongst the parties in future.



Proof of evidence

This can be served as an evidence which expresses the rights and duties of the parties as agreed on.






Confidentiality 

The Agreements can state the clauses which cannot be disclosed in public and the information is to be kept only with the respective people as mentioned under that clause of confidentiality which the parties may have prescribed in their contract.

Contents for the Shareholders Agreement

Details of the Parties to the Agreement

Purpose of executing an Agreement

Parties Signatures

Distribution pattern of shares

Control and Management

Shareholding Pattern (before and after)

Confidentiality Clause

Dividend Distribution schedule

Director's Loan

Penalty and remedy for the non-compliances

Provisions for transfer of securities

Rights and duties of a shareholder during dissolution

Process of Drafting Shareholders Agreement 

1. Placing request
 As when we receive a request from you for drafting of shareholders agreement, our expert team will share a questionnaire to be filed by you for taking your request forward.


2. Drafting of agreement
After receiving the said questionnaire and the information relevant for drafting of the agreement we will begin to draft the same and if in need we require any other information the same will be sought by us through a call. The drafting of the agreement might take 2-4 business days.

3. Sharing of Ist draft
Once the agreement is ready from our side we will share a draft of the same with you for final approval. If you find the same in order the final copy will be shared in a day and if corrections or additions are required then the same will be revised and verified by our team.

4. Sharing of Final Agreement
Our experts will do the needful and the same will be shared with you as final agreement.


Sample of Shareholders Agreement 

FAQ's on Shareholder's Agreement

What is the shareholder agreement and why is it formed?

It is a legal document which lays the relationship of a shareholder with that to a Company describing in detail the rights and duties of a Company as well as its shareholders.

Who is required to sign the shareholders agreement?

The shareholders agreement is formed in a Company and in that respect the agreement is to be signed by the Directors who are authorized by the Board to sign the same on behalf of the Company.

Can a shareholder agreement be formed for more than one class of shares?

Yes, the shareholders agreement can be prepared for different classes of shares. Also the Companies Act, 2013 will prevail for varying shares and share rights.

However, the shareholders agreement can state the additional clause for compliances for variation in the shares, rights to shareholders etc. like requiring unanimous approval.

Why to execute a shareholder agreement and why not to change the constitution of a company?

There are lots of common things that can be found in a shareholders agreement as well as in Company's constitutional documents. However, people prefer the shareholders agreements rather than amending the company's constitutional documents because of the approvals to be sought from the majority shareholders by passing Special Resolution and with this it becomes difficult for the company to run their business.

Also the applicability of the constitutional documents differs from that of the shareholders agreement as the constitutional documents apply to all the shareholders whereas a shareholder agreement can apply to a particular group/class of shareholders and is made available to them only.

Why are shareholders agreements executed?

The execution of shareholders' agreement is intended to confirm that the shareholders of the Company are being treated fairly and their rights are protected.

It also gives the right to shareholders to make their own decisions about what outside parties are entitled to become the future shareholders and should also provide the safeguards for minority positions.

Under what cases the shareholders agreement are executed?

Mostly, the shareholders agreements are executed by the Limited Companies where there are a large number of shareholders. They are also executed by the companies when any foreign entity or person is admitted as a shareholder in the Company.

Is shareholder agreement similar to the buy/sell agreement?

No, a Shareholder Agreement is not the same as a buy/sell agreement.

Can a shareholder agreement be used for trust, partnerships or other arrangements?

No technically the shareholders agreements are created for the companies and there are different types of documents for different types of legal structure.

For further discussion regarding the legal structure and best type of arrangements you may get in touch with our team of experts on 072407-51000 or email admin@legalwindow.in.