Jul 11,2020 | 10 min read

Shareholder Agreement

SHAREHOLDER AGREEMENT

A Shareholders Agreement is a Contract between the Shareholders of a private limited company which describes Rights and Obligations, governing each of the shareholders who are party to the Agreement. This agreement is entered to resolve the dispute between the Shareholders and the Company. Shareholders Agreement also helps to protect the investment made by a shareholder and lays down the rules & regulations for them. 

 SHAREHOLDER AGREEMENT- TEMPLATE

This Agreement is made at ________on the Date___of  Month in Year_________  BETWEEN,
_____COMPANY incorporated/established under the Companies Act, 2013 having it's office/resides at (ADDRESS OF THE REGISTERED OFFICE) hereinafter called the "Company"), of the ONE PART

Mr X, a person of Indian origin currently residing at__________________ hereinafter referred as the “PROMOTER 1”, which expression shall, unless it is repugnant to the context or meaning thereof, be deemed to mean and include his legal heirs, executors and permitted assigns.

Mr Y, a person of Indian origin currently residing at _____________hereinafter referred as the “PROMOTER 2", which expression shall unless it is repugnant to the context or meaning thereof, be deemed to mean and include his legal heirs, executors and permitted assigns.

Mr A, a person of Indian origin currently residing at____________hereinafter referred as the “SHAREHOLDER 1", which expression shall unless it is repugnant to the context or meaning thereof, be deemed to mean and include his legal heirs, executors and permitted assigns.

Mr B, a person of Indian origin currently residing at ____________hereinafter after referred as the “SHAREHOLDER 2", which expression shall, unless it is repugnant to the context or meaning thereof, be deemed to mean and include his legal heirs, executors and permitted assigns.

WHEREAS Promoter 1 and Promote 2 shall hereinafter where the context so permits, be collectively referred to as the “PROMOTERS OR FOUNDERS” or individually as “PROMOTER OR FOUNDER”.

The Company, The Promoters, and other Shareholders shall hereinafter, where the context so permits, be collectively referred to as “Parties” and individually as “Party"

WHEREAS pursuant the Share Subscription Agreement between the Company and the promoters, the parties have agreed to subscribe the shares in accordance with this agreement.

WHEREAS the parties wish to enter into the agreement to set the rules or terms on which they will regulate the affairs of the company.

THEREFORE IT IS AGREED THAT,

1. DEFINITIONS AND INTERPRETATIONS

Unless otherwise defined in this agreement, the terms defined in this agreement have the same meaning in this agreement:

  1. “ACT”, means the Indian Companies Act, 2013 with amendments from time to time or any such statutory enactment or rules thereof.

  2. “AGREEMENT”, means this shareholder agreement amended from time to time and entered into among __________between ________.

  3. "ANGEL INVESTOR" to be read along with additional shareholders who believe in the business plan.

  4. “ARTICLE” means Article of Association of the Company, as amended from time to time.

  5. “BOARD” means the group of Directors of the Company or as established from time to time or when at quorum where a meeting is to be convened, the Directors are present to attend.

  6. “BUDGET” means a budget for a company for a particular financial year prepared in a set format.

  7. “ENCUMBRANCE" means any form of legal, equitable or security interest, charge, pledge, right to acquire, security interest, right of first refusal, any preference agreement.

  8. “Rupees” refers to the currency of the nation.

  9. “Shares” means the equity shares of the Company__________of Rupees which are issued from time to time.

  10. “Shareholders” are the holders of the shares of the ____________and _______Company collectively, or in the case where they are being held by their legal representatives or affiliates in the Company.

2. EFFECTIVE DATE 

This agreement shall become effective from the day _________of the Month,Year___.

3. CAPITAL STRUCTURE

The Company___shall possess an authorized share capital of _________Rupees. The Subscription of the Equity Shares will be within____days from the date this agreement comes into effect to which Shareholders have willingly agreed, these Equity shares of the___company be necessary for the Shareholders to own and hold legally and beneficially issued in context to initial subscription stated above as the authorized share capital. The Parties hereto agree that in case of any additional cost that may incur directly or indirectly during this process will be reimbursed to the Party bearing such any cost/expense. The Parties agree or undertake a subscription of a such number of shares that may be called upon proportionately in accordance with the terms agreed between the Parties.

4. PURCHASE AND INVESTMENT
Each Shareholder signifies that he or she is acquiring and has acquired his/her Shares for her/his own account for investment and not with a view to, or for resale in connection with, any distribution thereof or with any present intention of selling any portion thereof.

 4. TRANSFERS OF SHARES

Except pursuant to this agreement the shareholder may not transfer give convey. pledge, charge, donate or assign his shares to another person. A Shareholder may sell, transfer, pledge, assign, convey or transfer his all shares to the company or to the Board of Directors or to any outsiders on such terms and conditions as may be mutually agreed between the Parties hereto in writing serving a prior notice seeking approval of ____number of days.

5. SHAREHOLDING RIGHTS

The Parties hereto this Agreement shall not pledge, mortgage, hypothecate, charge or otherwise encumbrance or grant any security interests of any kind on any of the Shares nor do they involve themselves in any such practices which shall result in any involuntary Transfer of Shares in favour of any person including but not limited to any lenders of the Company. The Lock-in period is of__________years to make any Transfer of Shares or its any part which is acquired by them pursuant to the provisions of this Agreement from the Closing Date____. And, the price this Shares shall be subject to acquired/sold/transferred by any Parties shall be at such price which is being mutually decided by them and agreed by the Transacting Person.

6. AGREEMENT BINDING ON ALL PERSONS INTERESTED IN SHARES:

Every subscriber who now or hereafter subscribes the shares shall be bound by the terms of this agreement.

7. ROLES AND RESPONSIBILITIES OF THE PROMOTERS AND FOUNDERS
The promoter shall be responsible for the day to day working of the company. Promoters will act in good faith and act to protect the interest of the shareholders of the company. Promoters will be equal in stature and will hold executive posts in the company. Both the Promoters and Directors will take independent decisions regarding the defined areas and will be bound by the terms of this agreement.

8. VOTING
Notwithstanding anything contained herein so long the shareholders continue to hold the shares of the company, no resolution shall be passed by the company or no decision shall be taken by either the Board or The shareholders of the company unless the prior consent of all is being obtained in a duly called meeting. Incident or affair of such nature are as follows:

1- Amendment or repeal of any provisions of, or adding any provision to, the company rules. Changing the nature or scope of the business of the company. Further, Increase in the capital of the company.

2- Declaration of dividend

3- Approving the annual budget of the company

4- Transfer of shares.

 9. BOARD MEETINGS
The meeting of the board will be subject to held ____. A number of meetings should be held as per the compliance requirement under the Indian Company Act, 2013 which may be subject to amendment from time to time. The Venue of the meetings will be at such a place where it has been agreed to travel on commercial purposes, otherwise, the fixed meeting place will be ___________ unless otherwise informed in writing. The expenses incur will be borne by the parties subject to attending these meetings. The minutes of Board Meeting and resolutions have to be passed by the circulation are being recorded and must be signed with the requirement of the Act.

10. QUORUM
The minimum __ board members in the capacity of Directors of the Company of both the Parties must be present at the meeting to make the proceedings of the Board Meeting hold validity.

11. TERMINATION
The rights and obligations of the Company and the Shareholders under this Agreement shall terminate upon written agreement of all then-existing Shareholders or upon the registration or qualification of any or all of the Common stock of the Company.

12. ARTICLE OF ASSOCIATION
The Parties agree to be willing to do all such things and take all such precautions/actions to ensure that the provisions herein of this Agreement are brought in effect and the spirit of the agreement is intact. Where there is a conflict, in respect to any provisions of the Agreement and the Articles, the provisions of this Agreement shall prevail between the Parties.

13. CORPORATE GOVERNANCE
The____and ______shall cause the Company to take all the required steps and actions to implement the provisions of this Agreement both in word and spirit and to the extent it is legally permissible.

14. BOOKS OF ACCOUNTS, RECORDS AND AUDIT
The ___Company shall make sure that all its books of account, records (including the statutory records) are well maintained as per the expected commercial practice and the figures are well accurately reflective of the financial positions and in compliance with the requirements of the Act . The books and records must be reviewed annually ___number of times with a view to transparently reflect the financial position of the Company and the compliances requirement as per the Indian Company Act, 2013.  The Company shall at the end of each fiscal year of the cause its books of accounts.

15. CONFIDENTIAL INFORMATION
Either party shall keep confidential information (oral or written) concerning the business affairs of the Company or any of its affiliates that it shall have obtained or received as a result of the disclosure due to the discussions or otherwise leading upto or the entering into or implementation of this agreement or its association with the Company or any subsidiary of the Company. Either party undertakes to take all such steps from time to time as it shall be necessary to make sure the compliance of the Agreement with respect to its provisions and agree to maintain the secrecy of the trade secrets and records to be audited by an independent chartered accountant appointed by the Shareholders at a general meeting. 

16. ARBITRATION & DISPUTE RESOLUTION
In case of disagreement between the parties, the same shall be resolved by the mutual consent of the parties in a meeting of Board and Shareholder. In case the meeting remains inconclusive the case shall be resolved by the Sole -Arbitrator and the decision of the Arbitrator shall be final and will be binding on either Parties. An arbitrator shall be appointed by the mutually appointed by both the parties hereto in respect to the Arbitration and Conciliation Act,1996(includes the amendments) and the award passed in pursuance thereof shall be final and binding upon the Parties. The Seat of arbitration will be_________, India. The Language of proceedings of arbitration will be____. The Cost of Arbitration will be borne by the Parties amongst each other in equal proportions.

17. EXCLUSIVITY
The company shall have the exclusive right to purchase all the shares of the company. The Company shall exercise this right to purchase by giving written notice to the Offering Shareholder. If the Company fails to purchase the shares then existing shareholders shall have the exclusive right to purchase those shares subject to the terms and conditions and in compliance with the rules mentioned in AOA.

18. SEVERABILITY
If any provision of this Agreement shall be determined to be illegal or unenforceable, such provision, to the extent it shall be illegal or unenforceable, shall be deemed severed from this Agreement and shall be substituted by a reasonable provision to be mutually agreed upon.

19. FORCE MAJEURE
Neither Party shall be in default under this Agreement by reason of its failure or delay in the performance of its obligations if such failure or delay is caused by actions of God, Government laws and regulations, strikes, lock-outs, war or any other caused beyond its reasonable control.

20- ASSIGNMENT
Neither party hereto may assign its rights and obligations in whole or in part hereunder without the prior written consent of the other Party.

14. NOTICES AND COMMUNICATION

1. The parties hereto agree that the persons listed below shall be the contact persons for this Agreement. All relevant notices or communications to be

delivered to such contact persons hereunder shall be deemed delivered to the Parties:

(i) Party ___

  1. Contact Person: _____________________

  2. Address/E-mail/Contact numbers etc., 

(ii) Party ___

      a) Contact Person: _____________________

      b) Address/E-mail/Contact numbers etc.,

2. Any change in the contact persons of the parties shall be communicated to the other party in writing and shall be effective __ days from issuance thereof.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the day and year set forth below.

COMPANY NAME

Authorized Signatures

Names and details of designation

 SHAREHOLDER-1

Authorized Signatures

Names and details of designation

SHAREHOLDER-2

Authorized Signatures

Names and details of designation

WITNESS -1

(Name, Address, Contact, Signature)

WITNESS-2

(Name, Address, Contact, Signature)

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