Shareholders Agreement - India

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Shareholders Agreement for use in India.

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This kit includes tools and guidelines to assist you in drafting a Shareholders Agreement.

Shareholder agreements (also known as Stockholder agreements) are contracts between some or all of the shareholders of a company in which they agree to the structure, shareholding, directors, management and control of the Company and their rights and obligations inter se.

A shareholders agreement is a supplement to the company's constitution and will generally regulate shareholders rights and regulate the management and operation policy of the company.

It is a prudent practice to have a Shareholder's Agreement drafted when shareholder's come together to form a company, mainly to overcome the problems which a company constitution do not cover or is silent. A company constitution do not cover issues and mechanisms to deal with rights of minority shareholders, shareholder exit strategies in the event of death, disability, retirement etc., confidentiality agreements, operation and management of business, shareholder's warranties, dividend distribution policy etc.

A Shareholder Agreement should cover all aspects of the relationship and the mechanics by which the company is to be operated. The agreement should also protect the respective interests of the Shareholders to the agreement and outline dispute resolution provisions in the event of any disagreement between the Shareholders

Among others, this form includes the following key provisions:
  • Operation And Constitution
  • Name, Place and Business
  • Authorised Capital and Shares
  • Directors and Voting
  • Share Sale or Transfer
  • Covenants
  • Termination
  • Confidentiality
This attorney-prepared Shareholders Agreement:
  1. Description and Instructions for Shareholders Agreement
  2. Shareholders Agreement for use in India
Law Compliance: This form is designed for use in India.
This is the content of the form and is provided for your convenience. It is not necessarily what the actual form looks like and does not include the information, instructions and other materials that come with the form you would purchase. An actual sample can also be viewed by clicking on the "Sample Form" near the top left of this page.











Shareholders Agreement
(India)














This Packet Includes:
   1. General Description
   2. Instructions
   3. Shareholders Agreement (India)






 General Description
 Shareholders Agreement


Shareholder agreements (also known as Stockholder agreements) are contracts between some or all of the shareholders of a company in which they agree to the structure, shareholding, directors, management and control of the Company and their rights and obligations inter se.

A shareholders agreement is a supplement to the company's constitution and will generally regulate shareholders rights and regulate the management and operation policy of the company.

It is a prudent practice to have a Shareholders Agreement drafted when shareholders come together to form a company, mainly to overcome the problems which a company constitution do not cover or is silent. A company constitution does not cover issues and mechanisms to deal with rights of minority shareholders, shareholder exit strategies in the event of death, disability, retirement, confidentiality agreements, operation and management of business, shareholders warranties, dividend distribution policy, etc.

A Shareholder Agreement should cover all aspects of the relationship and the mechanics by which the company is to be operated. The agreement should also protect the respective interests of the shareholders to the agreement and outline dispute resolution provisions in the event of any disagreement between the Shareholders.





Instructions
Shareholders Agreement

   For incorporating a company in India, an application for registration should be submitted to the registrar of companies with the following documents:

   Memorandum of Association;

   Articles of Association;

   A declaration signed by a person named in the articles of the proposed company as a director, manager, or secretary of the company, or by an advocate of the Supreme Court or High Court, or by an attorney entitled to appear before the High Court, or by a chartered accountant practicing in India stating that all the requirements of the Companies Act 1956 and the applicable rules with respect to the registration and other matters have been complied with;

   A list of persons who have consented to act as directors of the company;

   If the proposed company is a public company, consent of very person prepared to act as a director must be submitted in a prescribed form;

   Information about directors, managing directors and managers and secretary must be submitted in a prescribed form;

   Information about the registered office in a prescribed form;

   Power of attorney in favor of one of the promoters or any other person, authorizing him/her to make corrections in the documents submitted to the registrar of the companies, if it becomes necessary; and

   Applicable registration fee payable to the registrar of the companies.













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SHAREHOLDERS AGREEMENT
This Shareholders Agreement (“Agreement”) made the __________ day of ______, 200_ BETWEEN Mr. _____ residing at _____________________ (hereinafter referred to as "First Party") (which expression shall, unless repugnant to the context or meaning hereof, mean and include his heirs, executors, administrators and assigns) of the First Part.
And
Mr. _________ residing at __________________________(hereinafter referred to as "Second Party ") (which expression shall, unless repugnant to the context or meaning hereof, mean and include his heirs executors, administrators and assigns) of the Second Part.
And individually referred to as “Shareholder” or “Party” and collectively as “Shareholders” or “Parties”.
[Add more name if needed]
WHEREAS:
A) The Shareholders hereto have agreed to jointly manage a company in India and incorporate under the laws of Companies Act 1956 (hereinafter referred to as the “Company”)
B) Both the Shareholders have agreed to become Equity Partners by investing in the shares of the Company subject to the condition that they shall enter into a Shareholders Agreement in terms of these presents;
C) The Shareholders hereto are desirous of recording the terms and conditions of their Agreement in writing;
NOW IT IS HEREBY AGREED BY AND BETWEEN THE SHAREHOLDERS HERETO AS FOLLOWS:-
1. Operation And Constitution
(a) The Company shall be structured, capitalised, organised and managed in accordance with the terms of this Agreement and the Memorandum of Association (MoA) and Articles of Association (AoA).
(b) Company amends the MoA and AoA so that the provisions of the Constitution are not consistent with the provisions, spirit and intention of this Agreement.
(c) In the event that any of the provisions of this Agreement are inconsistent with the MoA and AoA or with any other document brought into existence as required by or consequent upon this Agreement, the terms of this Agreement shall prevail, to the extent of such inconsistency.  The Shareholders shall use their best endeavours to ensure that any such inconsistency is resolved in favour of the provisions of this Agreement.
2. Name, Place and Business
(a) The Shareholders hereto agree to jointly invest in the Company to be named as XYZ Private Limited and limited by shares under the Companies Act, 1956.
(b) The registered office of the Company shall be situated at ________________, or at such other places as may be mutually agreed upon between the Shareholders in writing.
(c) The Company shall carry on the business (“Business”) of (Description of the business and complete address), either by itself or through other agencies or company industries and may carry on any other business as may be decided by the Shareholders from time to time and shall ensure that no other business activity is undertaken by the Company at any time without the consent of both the Shareholders hereto.
3. Authorised Capital and Shares.
(a) The authorised share capital of the Company is Rs.________ (Rupees ___________________ only) consisting of ______________ (________) equity shares of Rs.10/- (Rupees ten) each.
(b)  The subscription by First Party  hereto to the aforesaid authorised share capital of the Company shall be ___ (_____) equity shares of Rs.10/- (Rupees ten only) and the subscription by B to the aforesaid authorised share capital of the Company shall be ___ (_____) equity shares of Rs.10/-(Rupees ten only).
(c) It is hereby agreed that here shall be no further issue of capital without the consent of both the Shareholders hereto, and unless otherwise agreed upon in writing further investment shall be as mutually decided by both Shareholders. [OR Unless otherwise required by law or as expressly provided in this Agreement or as may otherwise be approved by the Board, the Company shall not issue or allot any further capital without first offering to each of the Shareholders such shares in proportion to their respective shareholding in the Company, nor shall the Company issue or allot any further new shares to any person who is not a Party  to this Agreement (whether originally or by way of a novation or accession) unless such person is acceptable to the Shareholders [and executes a Deed of Adherence]. All further issuance of shares by the Company, shall be made in a manner as approved by the Board.
4. Directors.
 (a) The Board of Directors (“Board”) of the Company shall consist of _______. [OR The Board (Board) of the Company shall not be less than two (2) directors and more than six (6) directors, and shall initially be fixed at four (4) directors.]
(b) Each of the Shareholders shall have the right to nominate two (2) additional directors onto the Board. Both Shareholders shall be entitled at any time to remove any of the representatives on the Board by written notice to the other Party  and to appoint another or other/s in their place.
(c) The day to day management of the Company shall be looked after by a managing director (Managing Director) to be appointed unanimously by the Board.
(d) The quorum for a meeting of the Board of Company will consist of two (2) Directors, one of which will be the nominee each of the nominees of the Shareholders. If a quorum is not present on the date on which a meeting is convened, the meeting will automatically stand adjourned and shall be reconvened 7 (seven) days after the original meeting, and the Directors who are present at the reconvened meeting being not less than 2 (two), as the case may be, will constitute a valid quorum. For the purposes of this Agreement, Directors shall mean the directors of the Company from time to time.
(e) The Chairman of the Company will be appointed by the Board from amongst the Directors nominated by the Shareholders, initially being [Insert name]. The Chairman shall not have any second or casting vote. The Chairman of the Board shall also be the Chairman of all general meetings of the Company.
5. Voting. Both Shareholders hereto jointly and severally agree that:
Notwithstanding anything contained herein, so long as the Shareholders continue to hold shares of the Company, no resolution shall be passed or decision taken by either the Board or the Shareholders on any of the following matters unless the prior written consent of the Shareholders and/or Directors is obtained in order for it to be validly passed or taken:
(a) amendment or repeal of any provision of, or adding any provision to, the Company's rules;
(b) changing the scope or nature of the Business of the Company;
(c) incurring any capital commitment in excess of Rs. [Mention Amount in Figures and in Words] in any single transaction or in excess of an aggregate of Rs. [Mention Amount in Figures and in Words] in any one financial year of the Company other than those already agreed to in the annual budget;
(d) borrowing or raising more than Rs. [Mention Amount in Figures and in Words] in any single transaction or more than Rs. [Mention Amount in Figures and in Words] in aggregate, outstanding at any one time, other than in the ordinary course of business;
(e) declaring dividend; and
(f) approving the annual budget of the Company.
(g) ________________________________________________________[Add more if agreed upon]
6.  Auditors.
(a) The Auditors of the Company shall be M/s.______________________.
(b) The Auditors of the Company shall not be changed without the prior written consent of both Shareholders or the Directors.
7. Share Sale or Transfer.
(a) Any sale or transfer of shares in the Company by either Party shall be as provided in Clause 7(b). If at any time during the term of this Agreement either of the Shareholders, desire to sell or transfer all or any of their respective shares held by them in the Company, they shall do so strictly in accordance with the provisions hereinafter written.
(b)  If either of the Shareholders desires at any time to sell the whole or part of their shares in the Company, he shall first offer such shares in writing to the other. If the other does not accept the offer in writing within fifteen (15) days of receipt of the offer, the first Party  shall then be at liberty within thirty (30) days thereafter to sell the shares so offered to any other persons of its choice at the same price and on the same terms and conditions as contained in its written offer to the other Party  hereto in the first instance, failing which the procedure contained in this sub-clause will have to be repeated by a Party  desiring to sell his shares.
8. Covenants.  Both Shareholders jointly and severally undertake:
(a) that they shall ensure that they, their representatives, proxies and agents representing them at general meetings of the shareholders of the Company shall at all times exercise their votes in such manner so as to comply with, and to fully and effectually implement, the provisions of this Agreement.
(b) That if any resolution is proposed contrary to the terms of this Agreement, the Shareholders, their representatives, proxies and agents representing them shall vote against it. If for any reason such a resolution is passed, the Shareholders will, if necessary, join together and convene an extraordinary, general meeting of the Company in pursuance of section 169 of the Companies Act, 1956 for implementing the terms of this Agreement.
(c) They shall procure and/or ensure that the Director or Directors of its choice on the board of the Company shall at all times fully and effectually implement and comply with (including by exercise of voting rights at meetings of the Board or resolutions by circulation and on resolutions passed at a meeting of any Companies of the Directors) the provisions of this Agreement.
9. Termination 
This Agreement shall come into effect from the date of mentioned above  and shall remain in full force and effect until terminated upon the happening of any of the following events:
(a) if any of the Parties are declared insolvent or bankrupt, the Agreement shall stand terminated vis-à-vis that Party;
(b) if a trustee or receiver is appointed to take over the assets of any Party, the Agreement shall stand terminated vis-à-vis that Party; 
(c) if Company shall be otherwise dissolved or wound up, either voluntarily or involuntarily, or if an order shall be made or an effective resolution passed for winding up of Company; or
(d) the non-breaching Parties may terminate the Agreement vis-à-vis a breaching Party if the breaching Party has committed any material breach of this Agreement which is not cured within thirty (30) days from the date of written notice by the other Party / Parties to cure such breach.

10. Claims to survive termination
(a) The termination of this Agreement or the purported termination of this Agreement shall be without prejudice to any claim or rights of action previously accrued to any Party hereto against the other Party.
(b) Except for provisions of this Agreement that expressly survive termination, all rights and obligations of the Parties shall cease upon termination of this Agreement.

11. Confidentiality. 
(a) Each of the Shareholders undertakes to each of the other Shareholder and the Company that he will not at any time hereafter use or divulge or communicate to any person other than to officers or employees whose province it is to know the same or on the instructions of the Directors any confidential information concerning the business, accounts, finance, contractual arrangements or intellectual property (whether owned or licensed by the Company) or other dealings, transactions, affairs or property of the Company which may come to his knowledge and he shall use all reasonable endeavours to prevent the publication or disclosure of any confidential information concerning such matters and so that these obligations shall continue to apply after that Stockholder shall cease to be a Party to this Agreement or otherwise involved in the affairs of the Company without limit in point of time but shall cease to apply to information which shall come into the public domain other than by a breach of this Clause or which for any other reason, other than through the default of that Stockholder, shall have ceased to be confidential.

(b) Each of the Parties hereto shall use all reasonable endeavours to procure that the Company observes and ensures that the officers, employees and agents of each of them observe a corresponding obligation of confidence to that set out in sub-clause (a) in relation to the Shareholders themselves.

(c) No announcement or publicity concerning the terms of this Agreement or the interests of any Stockholder in the Company shall be made or issued by any of the Parties hereto without the prior written approval of the other Parties hereto other than as required by law or by the rules of any regulatory organisation to which any of the Parties hereto is subject (in which case the Shareholders shall consult with each other on the form of the announcement).

12. Governing Law & Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws  the State of ______ of India and the Parties hereto irrevocably submit to the sole and exclusive jurisdiction of the Courts at _______ in respect of any dispute or matter arising out of or connected with this Agreement.

13. Arbitration. In the event a dispute arises in connection with the interpretation or implementation of this Agreement, the Parties shall attempt in the first instance to resolve such dispute through friendly consultations and conciliation proceedings. If the dispute is not resolved through friendly consultations and conciliation proceedings within sixty (60) days after commencement of discussions or such longer period as the Parties agree to in writing, then either Party may refer the dispute for resolution by arbitration to be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996.  The Arbitration shall be conducted in Bangalore, and shall be conducted as follows:
(a)   All proceedings shall be conducted in English.
(b)   The arbitrator shall be appointed by the Chief Justice of the High Court of ______.
(c)   The arbitration award shall be final and binding on the Parties, and the Parties agree to be bound thereby and to act accordingly.
(d)   The Arbitrator may, (but shall not be required to), award to a Party that substantially prevails on merits, its costs and reasonable expenses (including reasonable fees of its counsel).
(e)  When any dispute is under arbitration, except for the matters under dispute, the Parties shall continue to exercise their remaining respective rights and fulfil their remaining respective obligations under this Agreement.

14. Notice.
(a) All approvals, consents and notices required to be given or served hereunder by either Party hereto to the other shall be deemed to be given or served if the same shall have been delivered to, left at, sent by international courier, registered airmail or by facsimile by either Party to the other at their following respective addresses:
(i)   If to First Party:
   [Insert name]
Address:         
Attention:   
Telephone:   
Facsimile:   
(ii)   If to Second Party,

   [Insert name]
Address:         
Attention:   
Telephone:   
Facsimile:   
(b)   Provided always that any of the Parties aforesaid shall have the right to inform the other of any other address or communication numbers at which such approvals, consents or notices may be served on it by giving at least 5 (five) days prior notice of such change.
(c)   A notice will be deemed to have been received :   
(i)   If sent by internationally recognised courier services, 10 (ten) business days after dispatch.
(ii)   If sent by registered airmail, 14 (fourteen) business days after dispatch.
(iii)   If sent by facsimile, on receipt of confirmation of successful transmission.

15.  Assignment. Neither Party may assign or encumber its rights under this Agreement, in whole or in part, without the prior written approval of the other Party.

16.  Entire Agreement. This Agreement supersedes any previous agreement between the parties thereto in relation to the matters dealt with therein, and represents (together with the documents referred to herein) the entire agreement between the Parties hereto in relation to such matters and may not be varied except by a written instrument signed by all the Parties hereto. Each of the Parties hereto hereby acknowledges that in entering into this Agreement it has not relied on any representation or warranty save as expressly set out herein or in any document referred to herein.

17. Waiver.

(a) No failure to exercise and no delay in exercising on the part of any of the Parties hereto any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies otherwise provided by law.

(b) Each of the Parties hereto may release or compromise the liability of any of the other Parties hereto under this Agreement or grant to such Party time or other indulgence without affecting the liability of any other of the Parties hereto under this Agreement.

18. No Partnership. Nothing in this Agreement shall constitute or be deemed to constitute a partnership between any of the Parties hereto and none of them shall have any authority to bind the others in any way.

19. Severability.

(a) Notwithstanding that the whole or any part of any provision of this Agreement may prove to be illegal or unenforceable, the other provisions of this Agreement and the remainder of the provision in question shall continue in full force and effect. In relation to any illegal or unenforceable part of this Agreement, the Parties hereto agree to amend such part in such manner as may be requested from time to time by any of the Parties hereto provided that such proposed amendment is legal and enforceable and to the maximum extent possible carries out the original intent of the Parties in relation to that part.

(b) If any part of this Agreement shall be held by any court of competent jurisdiction to be unenforceable against or by the Company, such part shall be treated as being severable from the remainder or this Agreement and the Shareholders shall promptly exercise their powers in relation to the Company to procure (insofar as they have the power lawfully to do so) that the severable part is nevertheless put into or given effect in accordance with, or to the maximum extent possible in accordance with, the original intent of the Parties hereto in relation to that part.

20. Counterparts. This Agreement is in four (4) counterparts in English language, and each such counterpart shall be deemed an original hereof.  In case of any conflict between the English version and any translated version of this Agreement, the English version shall govern.

IN WITNESS WHEREOF the Parties hereto have executed this writing on the day and the year first hereinabove written.
 
SIGNED AND DELIVERD by )
MR. ___________________(First Party)
in the presence of )
SIGNED AND DELIVERD by )
MR.____________________(Second Party)
in the presence of )

Number of Pages10
DimensionsDesigned for Letter Size (8.5" x 11")
EditableYes (.doc, .wpd and .rtf)
UsageUnlimited number of prints
Product number#33483

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Reviews: 1


Palm Desert,

CA

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I would have appreciated an addendum of alternate / optional clauses but I found that the agreement itself was very thorough and well laid out. The instructions were very clear. I got what I expected in a very professional form.


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