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.
Sprinthub Solutions 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 096436-69475 or email admin@sprinthub.in .
Contents for the Shareholders Agreement
Details of the Parties to the Agreement
Distribution pattern of shares
Confidentiality Clause
Penalty and remedy for the non-compliances
Purpose of executing an Agreement
Control and Management
Dividend Distribution schedule
Provisions for transfer of securities
Parties Signatures
Shareholding Pattern (before and after)
Director's Loan
Provisions for transfer of securities
Process of Drafting Shareholders Agreement
Placing request
Sharing of Ist Draft
Drafting of agreement
Sharing of Final Agreement
Sample of Shareholders Agreement
FAQ's On Shareholder's Agreement
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.
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.
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.
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.
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.
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.
No, a Shareholder Agreement is not the same as a buy/sell agreement.
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 096436-69475 or email admin@sprinthub.in .