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What is Share Holder Agreement
A shareholders agreement is a written
agreement between the shareholders or partners of a business; it is ground
rules of the relationship between the shareholders.
Indian Law and Share Holder Agreement
Shareholders’ agreements are not
mandatory under Indian law. Shareholders’ agreements are binding only on the
parties to the shareholders’ agreement and as it is a contractual arrangement
between the parties
Benefits of a Shareholders' Agreement
It is a commonly use mechanism to
regulate avoiding any disputes over the running of a business and its funding.
Main provisions, Clauses and Outline of Share Holding Agreement
Parties to Agreement
The parties to a holders' Agreement are
the shareholders of the corporation. Ideally, all holders will participate in
the holders' Agreement.
Definitions and Interpretation Clause
To avoid any misinterpretation or
minimize the dispute over a particular point, it is better to have definitions
and interpretation clauses, which provide a straight and clear meaning, and in
what manner it shall be interrelated of any word or phrases used in the
agreement.
Structure of the senior executive team
This clause defines the board of
director, the size of the board, right and liability, restrictions on board,
meeting of the board etc.
Restrictions against Transfer
A provision that prohibits one of the
shareholders from selling, transferring, or encumbering shares without the
prior written consent of the other shareholders.
Right of First Refusal
This is an agreement between the
existing shareholders whereby the shareholder wishing to sell to a third party
must first offer the shares to the holder of the first refusal right. Rights of first refusal protect the
Company and non-selling shareholders from sales of stock to unfriendly parties
or competitors.
Buyout Rights
These give the company the right to
redeem the shares of a certain shareholder in specific circumstances, such as
withdrawal or death of the shareholder.
Purchase Price
A Shareholders Agreement will generally
include some formula for valuing shares purchased. These formulas vary from
fair market value determined by one or more appraisers, to book value, or no
value, depending on the situation.
Valuation of Shares
The valuation of the Shares of the Company required to be determined under applicable Law in accordance with the method prescribed under the relevant regulations and notifications issued under.
Co-Sale Rights
These provisions can require that the
price offered by the third party must exceed a certain threshold before the
shareholders have the obligation to sell.
ESCROW ARRANGEMENT
To secure due performance of their
obligations, with an escrow agent to be mutually agreed between the Promoter
and Investors
NON-COMPETE
UNDERTAKING
The Promoters
agree shall not, without the prior approval of the Board and prior written
approval of the Investors, directly or indirectly, including through an
Affiliate or nominee, engage in or be involved in any business or commercial
activity other than the Business of the Company.
The Company and
the Promoter agree to jointly and severally indemnify, defend and hold harmless
the Investors, respective Affiliates of the Investors, and their respective
directors, officers, representatives, employees, managers and members
from and against any and all Losses.
DISPUTE RESOLUTION
The Parties agree to negotiate in good
faith to resolve any dispute between them relating to the Transaction Documents.
CONFIDENTIALITY AND NON-DISCLOSURE
In companies where shareholders have
different business interests, some being more active than others in the
company, it is essential to include confidentiality clauses so as to protect
the company from the release of commercial information to competitors or other
outsiders.
Other General Provisions
NOTICES
Notice to other party how and in
what manner it would serve, where and to whom it would serve, in case of
dispute arises.
Entire Agreement
To prevent the parties to a
contract being liable for statements or representations, made in the context of
contractual negotiations, which are not incorporated into the agreement.The purpose of such clauses is
clear - as a matter of commercial certainty, it is desirable that the entire
agreement between the parties be contained in one easily accessible document.
Governing Law and Jurisdiction
In case of any dispute what laws
are applicable and what would be the jurisdiction.
Effective Date
No
Objection
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