Shareholder agreement

Shareholders agreement is a legal agreement between the shareholders of a company which helps establish a relation between the stakeholders and govern the operation of the company.

Key areas covered in the shareholders’ agreement are:

  • Rights and obligations of the shareholders
  • Rights and obligations during sales of shares of the company
  • Rights and obligations of the company management
  • Rights and obligations of the investor


Features of a good shareholders agreement

  1. Nomination of Directors etc.: The agreement may allocate the rights to certain stakeholders to be a director on board as well as decide the composition of the Board.
  2. Roles and obligations of each shareholder.
  3. Financing requirements, quorum requirements and veto rights.
  4. Representation & Warranties from the Company.
  5. Restrictions on transfer of shares (right of first refusal, right of first offer).
  6. Forced transfer of shares (tag-along rights, drag-along rights) and curtailing of further issue of shares.
  7. Defining Shareholding Threshold: There can be a minimum shareholding a party must have to enjoy the rights as under the Shareholding Agreement.
  8. Determining and allocating special rights to certain shareholders.