Shareholders Agreement is executed amongst the members of the Company with the management of the company relating to rights and obligation of members, shareholders and management. Shareholders Agreement contain provisions as per Companies Act 2013.
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Shareholders are the investors of the company; they are the real owners of the company who enjoys the profit of the company in the form of appreciation in their share prices. Shareholders does not take participate in day-to-day routine activities of the company, but shareholders can exercise their right to vote on certain matters related to the company.
Thus in order to ensure transparency and defining the rights and obligations of the shareholders, Shareholders Agreement comes in place. A shareholders Agreement is an agreement executed amongst shareholders of the company with the Key Management Persons (KMP) of the company who entrusted with day-to-day routine activities of the company. Shareholders Agreement is commonly abbreviated as SHA.
Purpose of executing Shareholders Agreement:
- Defining Rights and Obligations of the Shareholders
- Protecting the interest of the shareholders
- Protecting interest of minority shareholders
- Outlining the procedures for transfer and transmission of shares.
Contents of Shareholders Agreement (SHA):
- Definition: This section contains the definition of various parties, terms and also outlines the execution of SHA amongst various parties.
- Management of the Company: This section contains various Key Management Personnel (KMP) who are part of management of the company and who also entrusted for protecting the shareholders interest in accordance with SHA.
- Board of Directors: This section contains composition of Board of Directors and various committees formed under Board of Directors for proper and smooth functioning of the organisation.
- Matters requiring Consent: This section contains the matters which require consent of shareholders as per SHA in case such event arises.
- Rights of a Shareholder: This section contains various rights and obligation exercised by the shareholder in accordance with SHA. This Right includes Right to vote, Right to call for General Meeting, Right to appoint directors, Right to appoint Auditors, Right to inspect financial statement and various books and registers of the company.
- Regulation with regard to transfer and transmission of shares
- Conditions which warrant quorum.
- Valuation methods of the company which also contain the approach of valuation method need to consider while calculating EPS of the company.
- Manner of functioning of the company
- Liabilities of shareholders containing the liability for unpaid shares and the shareholders are not liable for routine activities of the company.
- Protecting interest of Minority shareholders containing the procedure to appoint the minority shareholders director on the board.
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