Shareholders Agreement

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Shareholders Agreement - An Overview

Shareholders Agreement determines the basic rights and liabilities arising out of the company. It determines a relationship between the members of the company and the company as an entity. This form of agreement is entered between the members and the company to determine their basic rights and liabilities.

Apart from this the shareholders agreement would state the business controlled by the shareholders, the amount of shares retained by the shareholders and their exit options.

What are the respective rights in a Shareholders Agreement?

Some of the respective rights in a shareholders agreement are:

What are the respective rights in a Shareholders Agreement?
  • Calling the General meeting
  • Right to Vote
  • Appointment of Company Auditors
  • Appointment of Directors
  • Inspection of Books of the Company
  • Analyse the Copies of the Financial Statements

What are main points to be included in a shareholders agreement?

Some of the information which has to be included in a shareholders agreement will be the following:

  • Sale of Shares
  • Requirements of the Business
  • Requirements of Meetings
  • Evaluation of Shares
  • Liabilities of the Shareholders
  • Minority Shareholders Rights
  • Sale of Shares

    This is one of the main provisions to be included in a shareholders agreement. Such would be the sale and transfer of shares. Such sale and transfer of shares would only happen with the respective consent of the parties.

  • Requirements of the Business

    Any requirements related to the business would also be discussed and considered in the shareholders agreement. This will include the financial requirements of the business, future funding of the business, any requirement related to seed capital of the business.

  • Requirements of Meetings

    There are two types of meetings in a company: The board meeting and the general meeting. The quorum of these meetings must be in compliance related to the companies act, 2013. Consent of the respective shareholders also has to be decided in accordance to the meetings.

  • Evaluation of Shares

    Evaluation principles would depend on the mode of evaluation of shares of the company. The type of evaluation is considered here. Whether the market approach or the income approach for evaluation is utilised or any other approach such as the asset approach.

  • Liabilities of the Shareholders

    Usually if the company is a private limited company, then the liability of the members would only be limited to a particular amount of unpaid capital on the shares of the company. If the company is a private limited or public limited company, then usually the liability would be limited. The principle of liability of shareholders comes from separate legal entity of the firm.

  • Minority Shareholders Rights

    Minority Shareholders Rights are with respect to the company. Minority shareholders have less shareholding when compared to that of majority shareholders. The rights of minority shareholders can apply for the following:

    • Apply to the Board for any instance of Oppression and Mismanagement Related to the affairs of the company

    • To bring out class action law suits against the auditors and directors of the company

    • The rights of the minority shareholders are to ask the majority shareholders to sell the shareholding.

Benefits of Shareholders Agreement

The following benefits can be enjoyed by the members entering into an agreement:

Benefits of Shareholders Agreement
  • Different Authority

    There is distinction of authority from the shareholders agreement. The respective rights and liabilities of the shareholders are underlined from the shareholders agreement. Moreover, the authority is well defined in the shareholders agreement.

  • Shareholders Agreement can be Amended

    The shareholders agreement can be amended as per the requirement of the shareholders. However, for this a special resolution has to be passed by the shareholders. Majority of vote of the shareholders is taken for this form of resolution.

  • Protection to Minority

    There is delineation between minority shareholders and the majority shareholders. Hence their respective rights and liabilities are separated.

  • Control over the Company

    By having the shareholders agreement, there can be some form of control over the affairs of the company. The authority of the company can be established by the shareholders.

  • Provides Basic Restrictions

    Specific forms of provisions related to the transfer of shares would be mentioned in the shareholders agreement. For the transfer of shares there will also be a restriction on the transfer. Specific consent related to such transfers would also be dealt with in the shareholders agreement.

Clauses in the Shareholders Agreement

There are specific forms of clauses which have to be present in the shareholders agreement. The following are the clauses which have to be present in the shareholders agreement:

1. Rights of the Shareholders

2. Special Rights or Preferential Rights

3. Transfer of Shares

4. Remuneration

5. Provisions related to Breach

6. Confidentiality

  • Rights of the Shareholders

    The specific rights of the shareholders formulate from the shareholders agreement. With this their specific responsibilities also have to be stated. The responsibilities will include managing the daily affairs of the company.

  • Special Rights or Preferential Rights

    Any form of rights related to the board would be mentioned in the shareholders agreement. Any preferential rights with respect to the agreement would be mentioned here. Preferential rights related to the sale of shares would be considered here.

  • Transfer of Shares

    Situations where the shares can be transferred or restricted from transfer would also be mentioned here. Specific consent related to the transfer of shares would also be dealt under this head.

  • Remuneration

    This clause would deal with the specific portion of remuneration for the shareholder.

  • Provisions related to Breach

    This clause would mainly deal with the provisions related to breach of the shareholders agreement. Such clause would deal with the situations related to breach of the shareholders agreement. Here the consequences of breach of the shareholders agreement would also be mentioned.

  • Confidentiality

    These provisions would deal with the confidentiality of company information with the respective shareholder. All information which is provided by the company to the shareholder must be confidential.

Procedure for Drafting Shareholders Agreement

Lot of effort and thought must be taken into consideration while drafting a shareholders agreement. The rights and respective liabilities must be understood clearly before drafting this form of agreement.

It is crucial to take the consultation or services of a lawyer before drafting a shareholders’ agreement. Provide us with information for drafting the shareholders agreement. After this we will start with drafting the agreement.

If required we would contact you further for any information relating to the shareholders agreement. After preparing the first draft for the shareholders agreement, we will forward you the same. If there are any form of amendments which required to be added then the same would be carried out.

How to reach Enterslice for Shareholders Agreement

1. Fill up the online form.

2. One of our professionals will get back to you.

3. All queries can be addressed to one of our experienced professionals.

4. Track and monitor the progress of your application.

How Enterslice will help you

Fill The Form

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Frequently Asked Questions

A shareholders agreement is an agreement between the shareholders and the company. Basically all the respective rights and liabilities are defined through a shareholders’ agreement.

Usually the rights of the shareholder would include right to vote, right to call for a general meeting, right to take decisions related to the company.

Shares can be evaluated through different methods. However, the most common methods for evaluation are the market approach, income approach and the asset approach.

Minority shareholders are individuals who do not have majority of control over the affairs of the company. However, the rights of minority shareholders come under the provisions of the companies act, 2013.

Entering into a shareholders agreement would guarantee the shareholders specific rights and liabilities with respect to the shares of the company. The main benefit of entering into a shareholders agreement is that their interests would be protected.

Yes it would be crucial to consult a lawyer for drafting the shareholders agreement. Lawyers at Enterslice would help in drafting the shareholders agreement.

Not having any primary agreement would result in litigation.

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