Shareholder Agreement

WHAT IS SHAREHOLDER AGREEMENT

A shareholder’s agreement is a legally binding agreement between the shareholders of the company that lays down the rights and obligations of the shareholders towards each other as well as the company. It is a definitive agreement which as a part of it sometimes also includes the SSA (Share subscription agreement) and SPA (Share purchasing agreement).

The purpose of the agreement is to safeguard both the business entity and the shareholders’ investments. Because it ties the shareholders to the established connection, it is also known as the “Stockholders Agreement”. It is an essential agreement that addresses the issues that might lead to disagreement or require clarification in the future. A shareholder’s agreement is not mandatory in the Indian law but it is binding in nature as it is a contractual agreement.

When it comes to shareholder’s agreement the protection of the shareholder is given more importance. Even though a shareholder’s agreement may include certain terms from AoA, it has no specific format i.e., the shareholder’s agreement can be as flexible and extensive as required by the shareholder according to their needs.

RIGHTS OF A SHAREHOLDER

• Right to call for a general meeting
• Right to vote
• Right to appoint directors and take legal action against them
• Right to appoint the company audit
• Right to inspect the registers and book the company
• Right to summon the copies of the financial statements of the company
• Right to be informed about winding of the company

ROLE OF A SHAREHOLDER’S AGREEMENT

The point of having articles of association is to ensure that the functioning of a company is done according to the provision and rules mentioned, however a shareholder agreement is not is not rigid as AoA because it allows the shareholder to create the rules according to which the company will operate in a flexible manner or as required by them. A shareholder’s agreement plays a key role in the functioning of a company because it binds the shareholder and the company together.

HOW CAN LAWTECH HELP YOU

Tailored Agreements: Legal consultants can create a customized shareholder agreement based on the specific needs and structure of your company. They’ll ensure that the terms are clear, enforceable, and aligned with your business goals.

Legal Language and Structure: Legal professionals will draft the agreement using precise legal language that minimizes ambiguity and protects the interests of all shareholders. They understand the nuances of the law and ensure that the agreement is legally sound.

Local and International Laws: A legal consultancy can ensure that the agreement complies with the relevant laws in the jurisdiction where your company is incorporated, and any other jurisdictions that might be applicable if shareholders are from different countries.

Court Representation: If there is a dispute that escalates into a legal issue, legal consultants can represent you in court or alternative dispute resolution (ADR) procedures, ensuring that your rights as a shareholder are protected.

Enforcement: In cases where one party breaches the shareholder agreement, a legal consultancy can help you enforce the agreement through legal action if necessary.