What is a Shareholders’ Agreement?

A shareholders’ agreement is an arrangement among a company’s shareholders describing how the company should be operated and the shareholders’ rights and obligations. It also includes information on the regulation of the shareholders’ relationship, the management of the company, ownership of shares and privileges and protection of shareholders.

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Guide to Shareholders Agreement

One of the main documents for a company having equity investors is the shareholders agreement. Shareholders agreement is a legal agreement between the shareholders of a company, which helps establish a fair relationship between the stakeholders and govern the operation of the company. Some of the key areas covered in a shareholders agreement are:

  • Rights and obligations of the shareholders.
  • Rights and obligations during sales of shares of the company.
  • Right and obligations of the Company Management.
  • Rights and obligations of the Investor.

In this article, we decode a shareholders agreement format to understand the various parts of a shareholder agreement and its importance.

Shareholder agreement- Party

While developing the agreement parties of the shareholders need to be defined by giving the reason. The definition of parties is similar to the clause following.

“Number of shareholders in the company have agreed to become Equity Partners with the investment of their shares subjected to the condition that they shall enter into a Shareholders Agreement”

“The shareholders have agreed to manage the company unitedly, company formed under the Companies Act, 2013 (hereinafter referred to as the “Company”)

Shareholder agreement- Business activity

It is required to mention the business activity of the shareholders were they have to be together on work as a part of the shareholders agreement.

 

Shareholder agreement- Authorized paid up capital

Shareholders agreement should contain the information about the investor shares he/she purchased and also the paid up share capital of the company. A consent including the capital investment in the company will not raise for future without the knowledge of the shareholders in a written format.

Shareholders agreement- Board of directors

The board of directors in the company has to be defined like their rights and duties. The company’s quorum meeting should be defined if it is different as in Articles of Association.

 

Shareholders Agreement- Voting

A written consent meaning the process of voting resolutions in the company for the shareholders is defined in agreement along with that resolutions is defined by the board of directors.

 

Shareholders agreement- Auditors

The shareholders and directors have agreed for no change requirement of the auditors in the company for future in consent of written document.

 

Shareholder agreement- Transfer sales

The case of sales or transfer shares is detailed in the shareholders agreement. If there is any refusal of shares for selling can only be allowed in the company is defined in the agreement.

 

Shareholders agreement- Arbitration

Any disputes raised in the company has to be resolved soon as possible is clearly defined in the agreement.

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