Shareholder Agreement Template India

Shareholder Agreement Template India

1. Document Preamble & Recitals

This Shareholder Agreement (the "Agreement") is entered into and made effective as of this _____ day of _________, 20 (the "Effective Date"), by and among:

1. [Company Name], a private/public limited company incorporated under the laws of India, having its registered office at [Registered Office Address] (hereinafter referred to as the "Company", which expression shall unless repugnant to the context include its successors and permitted assigns);
2. [Promoter/Founder Name], an individual residing at [Residential Address] (hereinafter referred to as the "Promoter"); and
3. [Investor Name], a [corporation/individual/partnership] organized under the laws of [Jurisdiction], having its principal place of office at [Address] (hereinafter referred to as the "Investor").

(The Company, the Promoter, and the Investor are hereinafter collectively referred to as the "Parties" and individually as a "Party".)

RECITALS:

WHEREAS, the Company has an authorized share capital of [Authorized Capital, e.g., INR 1,000,000] divided into [Number of Shares] equity shares of face value [Face Value Amount] each, and an issued, subscribed, and paid-up share capital of [Paid-up Capital] as of the Effective Date;

WHEREAS, the Promoter currently holds, directly or indirectly, the majority of the issued and paid-up equity share capital of the Company;

WHEREAS, the Investor desires to make an equity investment in the Company, and the Company and the Promoter have agreed to issue and allot equity shares/preference shares to the Investor upon the terms and conditions set forth herein; and

WHEREAS, the Parties desire to define their respective rights, duties, and obligations as shareholders of the Company, and to regulate the management, governance, operation, and transfer of shares of the Company in accordance with the provisions of the Companies Act, 2013 and other applicable laws of India.

NOW, THEREFORE, in consideration of the mutual covenants, promises, and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

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2. Operational Definitions

For the purposes of this Agreement, unless the context otherwise requires, the following terms shall have the meanings ascribed to them below:

1. "Act" means the Companies Act, 2013, along with the rules, circulars, and notifications issued thereunder, as amended from time to time.
2. "Affiliate" means, with respect to any specified Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with such specified Person.
3. "Board" or "Board of Directors" means the board of directors of the Company for the time being constituted.
4. "Business Day" means a day (other than a Saturday or Sunday or a public holiday) on which scheduled commercial banks are open for normal banking business in [City, e.g., Mumbai], India.
5. "Control" (including the terms "Controlled by" and "under common Control with") means the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
6. "Encumbrance" means any mortgage, pledge, lien, charge, security interest, encumbrance, option, right of first refusal, pre-emptive right, proxy, equity, or restriction of any kind (including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership).
7. "Fair Market Value" means the value of the Shares determined in accordance with applicable Indian valuation standards (such as Discounted Cash Flow method) by an independent chartered accountant or merchant banker registered with the Securities and Exchange Board of India (SEBI).
8. "Force Majeure" means any event beyond the reasonable control of the affected Party, including acts of God, war, terrorism, civil commotion, strikes, pandemics, epidemics, lockouts, or governmental restrictions, which prevents performance of obligations under this Agreement.
9. "INR" or "Rupees" means the lawful currency of the Republic of India.
10. "Person" means any individual, sole proprietorship, partnership, unincorporated association, body corporate, company, trust, joint venture, or any other legal entity or governmental authority.
11. "Securities" means equity shares, preference shares, debentures, bonds, warrants, options, or any other instruments convertible into or carrying the right to subscribe for equity shares of the Company.
12. "Shares" means the equity shares of the Company of face value [Face Value Amount] each.

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3. Substantive Terms & Obligations

3.1 Governance and Board Composition

1. The business and affairs of the Company shall be managed by the Board. The Board shall consist of not more than [Number] directors, unless otherwise agreed in writing by the Parties.
2. The Investor shall have the right to nominate [Number] director(s) (the "Investor Director") on the Board for as long as the Investor holds not less than [Percentage] of the issued and paid-up equity share capital of the Company.
3. The Promoter shall have the right to nominate [Number] director(s) (the "Promoter Director") on the Board.
4. Quorum for meetings of the Board shall be [Number] directors, which must mandatorily include the Investor Director (or their alternate) for valid transaction of business, failing which the meeting shall stand adjourned to the same time and place on the next Business Day.

3.2 Affirmative Voting Rights

The Company and the Promoter shall ensure that the Company does not take any of the following actions without the prior written consent of the Investor:

1. Alteration of the Memorandum of Association or Articles of Association of the Company.
2. Any change in the capital structure of the Company, including creation or issuance of any new Securities or stock splits.
3. Merger, amalgamation, reorganization, restructuring, or voluntary winding up of the Company.
4. Sale, transfer, lease, or disposal of the whole or substantially the whole of the undertaking or assets of the Company.
5. Incurrence of indebtedness exceeding [INR Amount] outside the ordinary course of business.
6. Approval of the annual business plan and operational budget.

3.3 Transfer Restrictions and Right of First Refusal (ROFR)

1. No shareholder shall sell, assign, transfer, pledge, or otherwise encumber any Shares held by them to any third party except in accordance with the provisions of this Agreement and the Articles of Association.
2. If any shareholder (the "Transferor") wishes to transfer any Shares to a third party, the Transferor shall first offer such Shares in writing (the "Transfer Notice") to the non-transferring shareholders on the same terms and conditions.
3. The non-transferring shareholders shall have the option to purchase all or any portion of such offered Shares within [Number, e.g., 30] days of receipt of the Transfer Notice.

3.4 Tag-Along and Drag-Along Rights

1. Tag-Along Right: If the Promoter proposes to transfer Shares representing more than [Percentage] of voting rights to a third party, the Investor shall have the right to require the purchaser to acquire all or part of the Investor's Shares at the same price and on identical terms.
2. Drag-Along Right: If shareholders holding at least [Percentage, e.g., 75%] of the paid-up equity share capital approve a bona fide sale of the Company to an independent third-party purchaser, they may require all other shareholders to sell all of their Shares to such purchaser on the same terms and conditions.

3.5 Representations and Warranties

Each Party represents and warrants to the other Parties that:

1. It has the full power, capacity, and legal authority to enter into, execute, and deliver this Agreement and perform its obligations hereunder.
2. The execution and performance of this Agreement do not violate any law, regulation, order, or agreement to which such Party is bound.
3. All Shares held by the respective shareholders are free and clear of any and all Encumbrances.

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4. Default, Termination, and Remedies

4.1 Events of Default

The occurrence of any of the following events shall constitute an "Event of Default" by a Party (the "Defaulting Party"):

1. Material breach of any representation, warranty, covenant, or obligation under this Agreement, which remains uncured.
2. Insolvency, bankruptcy, winding up, liquidation, or appointment of a receiver over the assets of the Company or any major shareholder.
3. Fraud, gross negligence, or willful misconduct by a shareholder or the Promoter causing material financial or reputational loss to the Company.

4.2 Notice and Cure Period

Upon the occurrence of an Event of Default, the non-defaulting Party may issue a written notice of default (the "Default Notice") to the Defaulting Party. The Defaulting Party shall have a period of thirty (30) business days from the receipt of the Default Notice to cure such breach to the reasonable satisfaction of the non-defaulting Party.

4.3 Remedies upon Default

If the Defaulting Party fails to cure the breach within the stipulated 30-business-day cure period, the non-defaulting Party shall be entitled to exercise any or all of the following remedies:

1. Call Option / Forced Buyout: Require the Defaulting Party to sell all of its Shares to the non-defaulting Party at a [Percentage, e.g., 20%] discount to the Fair Market Value, or at par value, whichever is lower.
2. Suspension of Rights: Suspend the voting rights, dividend rights, and information rights of the Defaulting Party under this Agreement and the Articles of Association.
3. Specific Performance and Injunctive Relief: Seek specific performance of the terms of this Agreement and injunctive relief from a court of competent jurisdiction without the requirement of posting a bond.
4. Damages: Claim actual monetary damages suffered as a result of the breach.

4.4 Termination

This Agreement shall terminate automatically upon the occurrence of any of the following events:

1. The written agreement of all Parties to terminate this Agreement.
2. The completion of an Initial Public Offering (IPO) of the Company's equity shares on a recognized stock exchange in India, subject to applicable lock-in regulations.
3. Complete liquidation, winding up, or dissolution of the Company.

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5. Boilerplate Legal Provisions

5.1 Severability

If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any applicable law, such provision shall be deemed modified to the minimum extent necessary to make it legal, valid, and enforceable. If such modification is not possible, the illegal or unenforceable provision shall be deemed severed from this Agreement, and the remaining provisions shall continue in full force and effect.

5.2 Entire Agreement

This Agreement, together with any schedules, annexures, and the Articles of Association of the Company, constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior discussions, negotiations, term sheets, understandings, or agreements, whether oral or written.

5.3 Force Majeure

No Party shall be liable for any failure or delay in performing its obligations under this Agreement if such failure or delay arises from a Force Majeure event, provided that the affected Party gives prompt written notice to the other Parties and uses commercially reasonable efforts to resume performance as soon as practicable.

5.4 Governing Law

This Agreement shall be governed by, construed, and enforced in accordance with the laws of the Republic of India, without regard to its conflict of laws principles.

5.5 Dispute Resolution and Arbitration

1. Any dispute, controversy, or claim arising out of or relating to this Agreement, including its formation, breach, termination, or validity, shall be settled amicably through good-faith negotiations between the senior management of the Parties within thirty (30) days of written notice of the dispute.
2. If the dispute is not resolved amicably within the aforesaid period, it shall be referred to and finally resolved by arbitration in accordance with the Arbitration and Conciliation Act, 1996.
3. The arbitral tribunal shall consist of a sole arbitrator to be mutually appointed by the disputing Parties, or in the absence of consensus within fifteen (15) days, by a court of competent jurisdiction under Section 11 of the Arbitration and Conciliation Act, 1996.
4. The seat and venue of arbitration shall be [City, e.g., New Delhi], India, and the proceedings shall be conducted in the English language.
5. The award rendered by the arbitral tribunal shall be final and binding on the Parties and may be enforced in any court of competent jurisdiction.

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6. Formal Execution Block

IN WITNESS WHEREOF, the Parties hereto have caused this Shareholder Agreement to be duly executed by their respective authorized signatories as of the Effective Date first written above.

For and on behalf of [Company Name]:

Signature: ___________________________________
Name: [Signatory Name]
Title: [Signatory Title, e.g., Managing Director / Director]
Date: [Date]

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For and on behalf of the Promoter ([Promoter Name]):

Signature: ___________________________________
Name: [Promoter Name]
Title: Founder & Promoter
Date: [Date]

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For and on behalf of the Investor ([Investor Name]):

Signature: ___________________________________
Name: [Signatory Name]
Title: [Signatory Title, e.g., Authorized Signatory / Director]
Date: [Date]