A #Shareholders #Agreement is a critical agreement which decides the relationship between the Shareholders, the Directors and the Investors in a company!
This video will clear all your doubts on Shareholders Agreement, mainly
1. What is a Shareholders Agreement?
2. Why do you need a Shareholders Agreement?
3. When should you draft a Shareholders' Agreement?
4. What does a Shareholders Agreement contain?
A shareholders agreement normally contains the following details / clauses:
Names of the shareholders,
Rights of the shareholders,
Restrictions on Transfer of shares
and more!
You could find more on drafting a shareholders agreement at https://vakilsearch.com/shareholders...
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What is a Shareholders Agreement and why do you need it?
If you are a shareholder of a company and you want to ensure that you're treated fairly and all your rights are protected. The best way to go forward is by drafting a shareholder’s agreement. So today I would be clarifying all your doubts as to what is the shareholder’s agreement, why is it necessary to have this agreement. When is the best time to drop the shareholder’s agreement and what are the important issues that are dealt with under a shareholders agreement?
What is the shareholder’s agreement?
As the name suggests a shareholder’s argument is an agreement among some or all of the shareholders of a company. It lays down the relationship between the shareholders and the company. And it also describes the rights and obligations of the shareholders in their company.
Why is it necessary to have a shareholder’s agreement?
The main purpose behind drafting a shareholder’s agreement is to ensure that there are no disputes between the shareholders regarding how the business is to be carried out. An advantage of having a shareholders agreement is that it is a private contract.
The terms and conditions of this agreement need not be made public hence the confidentiality of the information regarding the business is maintained at all times. Also, note that a shareholder’s agreement will allow the shareholders to make decisions regarding which outside parties may become future shareholders in the company and also helps to provide safeguards for minority shareholders.
When is the best time to draft a shareholders agreement?
This would be right at the beginning just after the incorporation of your company. Wherever the shares of a company are headed by more than one person it is advisable to have a shareholders agreement so to avoid future conflicts of interest.
This will ensure that the act of a single shareholder will not affect the company as a whole. However, it is even more necessary to have a shareholders agreement if your company is a small private corporation. In which the shares are held by a small number of shareholders.
The reason being that in such companies the shareholders who control the business will determine the smooth functioning of its operations and in the event of any unforeseeable circumstances, there is a change in the ownership of shares. The shareholder’s agreement will ensure that the rights of the other shareholders are not affected.
How many shares have to be allotted to each person?
Let's say you’re the founder of the company and you are bringing in the other partners. In such cases, it is your call as to when the share allotment has to be done and how they share allotment has to be done. Imagine there are a thousand shares you want to allot to a certain partner. Either you can do this on day one when he joins.
However, this is not considered a good practice. Instead, you can give this to him in a staggered manner in six months. That is every six months he's given a hundred to two hundred shares. However, the best way of going about it would be to link the share allotment to the revenue or the profit achievement.
Details should be mentioned in the shareholder’s agreement:
The shareholder’s agreement is a complex one consisting of numerous classes and legal jargon. However, I would like to mention a few important issues that the shareholder’s agreement usually deals with including
1.The constitution of a board of directors,
2. The voting rights of the shareholders,
3. How the shareholder’s loan may be repaid,
4. How the shares are dealt with in the event of death, termination, insolvency is the marital breakthrough of such shareholders.
5. Provisions regarding the purchase and sale of shares by the shareholders.
6. Provisions regarding or limiting the shareholders from competing with the corporation or soliciting their clients are employees etc.