Two friends start a company in Okhla, fifty-fifty, and never write anything down; four years later one wants to sell to a competitor and the other cannot stop him. A family company signs a careful agreement restricting who may buy shares, and learns in court that the company was never bound by it because the articles said nothing. An investor puts in money for twenty per cent and a veto over new borrowing, and the founders discover what that means only when they need a working capital loan. A shareholders agreement decides who controls a company and how people leave it. This page explains what goes in it, what the law allows, and the one step most agreements miss.
A company is owned by its shareholders and run by its board. The Companies Act supplies a default set of rules for how the two relate — how directors are appointed, how shareholders vote, how shares are issued and transferred — and the company’s articles of association add its own rules on top. For many companies those defaults are not enough. A founder with thirty per cent has no say in who becomes a director. An investor with fifteen per cent cannot stop the majority issuing new shares to themselves. Nothing stops a shareholder selling to a competitor.
A shareholders agreement fills those gaps by contract. Its parties — some or all of the shareholders, and usually the company itself — agree how control will be shared and how ownership may change. In practice the agreement covers four subjects:
It is not a filing, a registration or a certificate; it is a private contract. That gives it flexibility — it can be as detailed as the parties want and it is not public — and it also creates its main weakness, discussed below: a contract binds only those who sign it.
The agreement is a document for companies. A partnership firm is governed by its partnership deed, and a limited liability partnership by its LLP agreement, which does much of the same work. Our partnership deed guide covers firms. A joint venture between two companies that creates a new company will usually have a shareholders agreement as its main document, often called a joint venture agreement; our joint venture agreement service drafts those.
Equally, a shareholders agreement is not the same as a share purchase agreement, which records one sale of shares, or a subscription agreement, which records the issue of new shares to an investor. Those transactions are often signed on the same day as a shareholders agreement, and the three documents must be consistent with each other.
Every company that has more than one shareholder and any prospect of disagreement benefits from an agreement. The common situations are these.
Co-founders. Two or three people start a company with equal or near-equal holdings. The agreement records roles, what happens if one stops working in the business, whether his shares vest over time, and how deadlocks are broken. It is the document most founders mean to sign and do not, until a dispute makes it impossible.
An incoming investor. An angel or a fund subscribes for shares. It will insist on an agreement, usually based on its own template, giving it information, a board seat or observer, consent rights over key decisions, anti-dilution protection and a route to exit. The founders’ job is to understand and negotiate those terms rather than sign them because everyone signs them.
A family company. Shares are held by members of two or three branches of a family, and the next generation is arriving. The agreement keeps shares within the family, sets out how each branch is represented, and provides a way out for those who want to leave without forcing a sale of the business.
A joint venture. Two businesses combine in a new company. The agreement allocates control, management, funding obligations and what happens if the venture fails.
A minority shareholder. Anyone holding less than a controlling stake — particularly less than twenty-six per cent, which cannot block a special resolution — is exposed to decisions of the majority. The Companies Act gives some protection, mainly through the Tribunal, but that protection is slow and uncertain. A negotiated agreement gives certain protection at the start.
Where a company has a single shareholder, or a parent and a nominee holding one share, an agreement serves little purpose. Everywhere else, its absence is a decision to rely on the default law, which was not written with any particular company in mind.
Every company has articles of association. They are its constitution: filed with the Registrar, available to anyone who inspects the company’s records, and binding on the company and each member by force of the Companies Act. A shareholders agreement is none of those things. The practical relationship between the two decides whether the agreement works.
| Articles of association | Shareholders agreement | |
|---|---|---|
| Who is bound | The company and every member, present and future | Only the parties who sign, and those who later adhere |
| Public or private | Public; filed with the Registrar | Private |
| How changed | Special resolution (three-quarters of votes cast), subject to any entrenchment | As the agreement provides, usually all parties |
| Enforced by | The company, and members against the company | The parties, as a contract |
| Subject to the Act | Yes | Yes |
Two statutory points frame everything else. First, the Act prevails over both documents:
Second, the articles can be made harder to change than the ordinary special resolution. Section 5 allows entrenchment: specified provisions of the articles may be altered only if conditions more restrictive than a special resolution are met, such as the consent of a named shareholder. In a private company, entrenchment provisions can be included on formation or later by an amendment agreed to by all the members; the Registrar must be notified. Entrenchment is how an investor’s veto is kept from being removed by the majority simply amending the articles.
The result is that the agreement and the articles work as a pair. The agreement records the bargain in full, including matters that are purely contractual and that the parties would rather keep private. The articles carry those terms that must bind the company and future shareholders — transfer restrictions, board nomination rights, reserved matters — with the most important entrenched.
In V.B. Rangaraj v. V.B. Gopalakrishnan, decided in 1992, the Supreme Court considered an agreement among members of a family that restricted the transfer of shares in their private company. The restriction was not in the articles. The Court held that such a restriction, not being contained in the articles, was not binding on the company or on the shareholders. The shares were governed by the articles, and a private arrangement outside them could not change that.
The decision has been discussed and distinguished many times since, and later cases have taken varying views depending on the facts — for example, where every shareholder signed, or where the company was itself a party. For public companies, the Companies Act now expressly preserves contracts between shareholders about transfer:
The Bombay High Court had earlier upheld a pre-emption arrangement among shareholders of a public company under the equivalent provision of the old Act, in the Messer Holdings litigation. But note the words “as a contract”: the proviso allows the parties to sue each other, not to compel the company to refuse registration of a transfer made in breach.
The practical lesson has not changed in thirty years. A term that must bind the company — that it will not register a transfer in breach of a right of first refusal, that a named shareholder may appoint a director, that certain decisions need a particular consent — should be written into the articles. The procedure is a special resolution of the shareholders altering the articles, filed with the Registrar within the prescribed time, and, for the most important terms, entrenchment.
Many agreements add an express clause requiring the parties to vote to amend the articles to match the agreement, and providing that the agreement prevails between the parties if the two conflict. That clause is useful, but it is a promise to fix the problem, not the fix. The articles should be amended at signing, not left for later.
Draft the agreement and the matching articles
The agreement binds only its parties, so the question of who signs is not a formality.
All shareholders, if possible. An agreement signed by the founders and an investor, but not by a small shareholder who received shares early on, leaves that shareholder outside the transfer restrictions, the drag-along and the deadlock mechanism. Where there are many small holders, such as employees who exercised options, the articles carry the terms that must bind them and a short form of adherence can be used.
The company. Making the company a party lets the other parties enforce its obligations — to provide information, to register or refuse transfers according to the agreement, to convene meetings — and reduces the Rangaraj difficulty, though it does not remove the need to amend the articles. The company can only agree to what the Act permits it to agree to; it cannot, for example, contract away its board’s statutory duties. Its signing should be approved by a board resolution; our board resolution guide explains the process, and our board resolution service drafts it.
Promoters or founders in a personal capacity. Where an investor wants personal commitments from the founders — to work full time, not to compete, to assign intellectual property — the founders sign in their own names as well as through their shareholdings.
Holding entities. Where a shareholder holds through a company or trust, that entity signs. The agreement should deal with a change in control of the holding entity, which is otherwise an easy way round a transfer restriction: nobody sells shares in the operating company, but the company that owns them changes hands.
Spouses and heirs do not usually sign, but in family companies it is sometimes wise to have adult family members who may inherit shares acknowledge the agreement.
The agreement starts with a picture of who owns what, usually in a schedule, and then deals with how that picture may change.
The cap table. The schedule should list every shareholder, the class and number of shares, and the percentage on a fully diluted basis — counting options, convertible instruments and warrants as if exercised. A difference between the schedule and the company’s register of members is a problem waiting to happen. Our statutory registers service can bring the registers up to date before signing.
Funding obligations. Does any shareholder have to put in more money, and on what trigger? Joint ventures usually set out a funding plan. Most other agreements impose no obligation, but provide what happens if money is needed: a rights issue first, then loans from shareholders, then outside capital.
Issue of new shares. Under section 62 of the Companies Act, when a company increases its subscribed capital by issuing further shares, it must ordinarily offer them to existing shareholders in proportion to their holdings, unless the shareholders approve a different issue by special resolution — for example, a preferential allotment to an investor, which also needs a valuation, or an issue under an employee stock option scheme. The agreement usually tightens this: new shares need the consent of the investor or a stated majority, and existing holders have a contractual right to maintain their percentage.
Authorised capital. A company can only issue shares up to its authorised capital, and increasing it needs a shareholders’ resolution and a filing with the Registrar. Our authorised capital increase service handles it, and it is worth doing before an investment rather than during it.
Classes of shares. Investors often take preference shares, sometimes compulsorily convertible, rather than equity. The rights of each class — dividend, conversion, liquidation preference, voting — are set out in the terms of issue and the articles; the agreement cross-refers to them.
Shareholders own the company; the board manages it. For most shareholders, influence over the board matters more than any vote in a general meeting.
By default, directors are appointed by an ordinary resolution of the shareholders, which means the majority chooses the whole board. The agreement changes that by giving named shareholders the right to nominate directors: for example, each founder holding more than ten per cent may nominate one director, and the investor may nominate one. The other parties agree to vote for the nominees, and the articles should say the same. The appointment must still comply with the Companies Act — the nominee needs a Director Identification Number, gives consent, and the company files the appointment. Our director appointment service does the filings.
A nominee director is still a director. Under the Companies Act, every director owes duties to the company, including to act in good faith in the interests of the company as a whole and to avoid conflicts of interest. A nominee cannot simply follow instructions from the shareholder who appointed him, and the agreement should not require him to. Most agreements permit the nominee to share information with his appointor, subject to confidentiality, and that clause should be drafted with care.
Other board matters the agreement usually addresses:
What the board may and may not do by itself, and when a matter must go to shareholders, is set by the Act; our board resolution guide covers those rules.
Reserved matters, also called affirmative vote matters or consent matters, are decisions the company may not take without the approval of a named shareholder or a stated majority. They are the principal protection of any minority or investor, and they are where the balance of control actually sits.
A typical list includes:
Three drafting points matter more than the list itself. Thresholds: a veto over “borrowing” without a monetary limit gives the investor a say in every overdraft. Level: whether the consent is given at board level by the nominee, or at shareholder level in writing; the first is faster, the second avoids placing the nominee in a conflict. Deemed consent: if the shareholder does not respond within a stated time after a proper request, consent should be deemed given, or the company can be paralysed by silence.
Reserved matter rights usually fall away if the protected shareholder’s holding drops below a threshold. A founder negotiating with an investor should look hard at every item and ask whether the business can run with it. A minority shareholder should ask the opposite question: which decisions could the majority use against him, and are they covered?
A private company’s articles must restrict the right to transfer its shares; that is part of the statutory definition of a private company. The standard restriction — the board may decline to register a transfer — is blunt. The agreement replaces it with a precise set of rules.
Lock-in. For a period, usually from investment until a stated date or event, named shareholders may not transfer at all, except to permitted transferees. Investors impose lock-ins on founders to keep them committed; founders sometimes ask for the same on the investor.
Permitted transfers. Transfers that are allowed without triggering the other restrictions: to a wholly owned company, to a family trust, to a spouse or child, or between funds under common management. Each permitted transfer should be conditional on the transferee signing the agreement and on the shares coming back if it ceases to qualify.
Right of first refusal. A shareholder who has found a buyer must first offer the shares to the other shareholders at the same price and on the same terms. They have a set period to accept; if they decline, the seller may sell to the buyer, but only at that price or higher, and within a set period.
Right of first offer. A shareholder who wants to sell must first invite the others to make an offer. If they do not, or the seller rejects their offer, the seller may sell outside, but not at a price lower than the offer he rejected. A right of first offer is friendlier to sellers, because an outside buyer does not have to be found and then risk being pre-empted.
Prohibited transferees. Commonly, no transfer to a competitor, or to a person on a sanctions list, without consent.
Every mechanism needs definitions of price, notice, time limits, the treatment of non-cash consideration, and what happens if the pre-empting shareholders want only part of the shares offered. Transfers themselves are completed by the statutory transfer form and stamp duty, and our share transfer documentation service prepares them.
These two rights deal with a sale of control, from opposite sides.
Tag-along protects the minority. If a majority shareholder, or a group, agrees to sell shares that would give the buyer control, the minority may require the buyer to buy their shares too, at the same price and on the same terms. Without it, the minority could find itself owned alongside a stranger it would never have chosen, with no market for its shares. The drafting questions are when the right is triggered — any sale by the majority, or only a sale of control — and whether the minority can sell all its shares or only a proportionate part.
Drag-along protects the majority, and often the investor. If holders of a stated percentage agree to sell the whole company, they may require all the other shareholders to sell on the same terms. Buyers usually want one hundred per cent, and a single holdout can otherwise block a sale that everyone else wants. The protections the dragged shareholders should insist on are:
Where preference shares carry a liquidation preference, the proceeds of a sale may not be shared equally per share even if the price per share is the same. The agreement should state how sale proceeds are distributed, and every shareholder should work through the numbers at a few possible sale prices before signing.
A drag-along is a contractual obligation; enforcing it against an unwilling shareholder may need proceedings. Well drafted agreements give the company or a director a power of attorney to sign transfer documents on behalf of a defaulting shareholder, and the articles should back that up.
Dilution is the reduction of a shareholder’s percentage when new shares are issued. It is unavoidable if a company raises capital; the question is who bears it and on what terms.
Pre-emption is the right to take up new shares in proportion to one’s holding, so as not to be diluted at all. The statutory rights issue under section 62 gives existing shareholders this right by default, but the shareholders can waive it by special resolution. A contractual pre-emption right in the agreement protects a shareholder whose vote alone could not block that resolution. It only helps a shareholder who has the money to subscribe.
Anti-dilution protects an investor against a later issue at a lower price — a “down round”. If the company issues shares cheaper than the investor paid, the investor’s conversion price is adjusted so that it receives more shares on conversion. There are two main formulas:
Anti-dilution is normally delivered through the conversion terms of preference shares, or through an issue of further shares to the investor, and both routes must comply with the Companies Act and, for foreign investors, the foreign investment pricing rules. Carve-outs — employee stock options, shares issued on conversion, shares issued in an approved acquisition — should be listed so that routine issues do not trigger an adjustment.
Founders should also watch for pre-emption drafted so widely that every employee option grant needs the investor to waive its rights. An agreed option pool, excluded from pre-emption and anti-dilution, solves this. Our ESOP documentation service prepares the scheme and the approvals, and our ESOP guide explains how such a plan works.
An investor invests in the founders as much as the company, and the agreement records what the founders owe in return.
Time and attention. Founders commonly undertake to work full time for the company and not to take on other business roles without consent. This is usually backed by an employment or service agreement between each founder and the company, which should be consistent with the shareholders agreement.
Vesting. A founder who leaves early should not keep the same stake as one who stays. In many countries founders’ shares are issued subject to repurchase by the company; in India a company cannot freely buy back its own shares, so founder vesting is usually structured differently — the departing founder’s unvested shares must be transferred, at a nominal or formula price, to the other founders, to an employee trust, or to a person the board nominates. The agreement should distinguish a “good leaver” (death, disability, dismissal without cause) from a “bad leaver” (resignation within the lock-in, dismissal for cause), with different prices. The tax consequences of such transfers should be checked with a chartered accountant.
Non-competition and non-solicitation. A restriction on competing while the founder is a shareholder or director is generally treated differently from one that applies after he leaves. Post-exit restraints face section 27 of the Indian Contract Act, which our non-disclosure agreement guide and employment agreement guide explain; the statutory exception for a seller of goodwill may support a restraint where the founder is selling his stake and the goodwill that goes with it, within reasonable limits. Non-solicitation of employees and customers is more commonly upheld than a flat bar on competition.
Intellectual property. Everything a founder created for the business before incorporation — code, designs, brand, domain names — should be assigned to the company in writing. An investor’s due diligence will ask for this, and its absence is one of the commonest problems found.
Confidentiality. Every party undertakes to keep the company’s information confidential. A separate non-disclosure agreement is usually signed at the negotiation stage, before the shareholders agreement exists.
A deadlock arises when the company cannot take a decision it needs, because the board or the shareholders are evenly split, or because a party with a veto refuses consent. The Companies Act offers no quick remedy. An agreement that does not deal with deadlock leaves the parties with a Tribunal petition or a winding up, which can destroy the value both sides are fighting over.
Good agreements set out a ladder, in which each step is tried before the next:
The best-known buy-sell mechanisms have colourful names. Under a Russian roulette clause, one party names a price per share, and the other must either buy at that price or sell at it; the first party therefore has every reason to name a fair price. Under a Texas shoot-out, both parties submit sealed bids, and the higher bidder buys the other out. Both assume that each side can raise the money to buy, which is often untrue when one shareholder is an individual and the other a larger business. A mechanism that favours the richer party should be recognised as such.
Two other points. Deadlock provisions should define what counts as a deadlock — a matter of real importance, raised at two meetings, not resolved — so that one party cannot manufacture a deadlock on a trivial matter to trigger a buy-out. And the company’s day-to-day business should continue under the last approved budget while the deadlock is being resolved.
Every shareholder eventually leaves, and an investor invests with the exit already in mind. The agreement sets out the routes, usually in an order of preference:
The critical term in every exit route is price. The agreement should say how price will be fixed: fair market value determined by an independent valuer appointed in a stated manner, a formula, or the price in a genuine offer. Vague language such as “a fair price to be mutually agreed” is a dispute deferred.
Put options against individual founders deserve particular attention. A founder who has promised to buy the investor out at a stated return may be personally liable for a sum far larger than anything he owns. Founders should resist personal put obligations, or cap them.
Where an exit involves the sale of shares, the purchase itself is documented separately. Our share purchase agreement service drafts it, with the warranties and indemnities the buyer will ask for.
A shareholder who is not resident in India brings the foreign exchange regime into the agreement. The rules are made under the Foreign Exchange Management Act, principally the non-debt instruments rules, and are administered by the Reserve Bank. They are detailed and change, so what follows is only an outline.
Sectoral limits. Foreign investment is permitted automatically in most sectors, with approval in some, with caps in others, and prohibited in a few. The company’s business decides which.
Pricing. Shares issued or transferred to a non-resident generally may not be priced below fair value determined by an internationally accepted method, and shares transferred from a non-resident to a resident generally may not be priced above it. Every exit clause, anti-dilution adjustment and conversion formula must work within those limits.
Optionality. Put and call options in favour of a non-resident are permitted subject to conditions, including a minimum lock-in, and on the basis that the investor has no assured return; the exit price must comply with the pricing rules at the time of exit. An agreement promising a foreign investor a guaranteed return on exit is likely to be unenforceable to that extent, and may be treated as a breach of the regulations.
Reporting. Issues and transfers involving non-residents must be reported to the Reserve Bank through authorised dealer banks within set periods. Late reporting attracts compounding or late fees.
We draft the agreement; the foreign exchange structuring and filings should be confirmed with a chartered accountant or an advocate who practises in this area.
A shareholder who is not on the board sees very little of the company by right: the annual financial statements, the notice of general meetings, and certain registers. For an investor or a substantial minority, that is not enough.
The agreement usually gives each significant shareholder a right to receive:
These rights should come with confidentiality obligations, and, for listed companies, restrictions arising from insider trading rules. For private companies, the main concern is that information given to a shareholder who also invests in competitors does not leak; the agreement can restrict what goes to such a shareholder.
Information rights cost the company time. The schedule and form of reporting should be realistic for the company’s size. A small company promising monthly audited-quality accounts will be in breach within a quarter.
Start your shareholders agreement
Shareholders are people, and people die, fall ill, divorce and go bankrupt. The agreement should say what happens to shares in each case, because the default law does not care about the balance the parties negotiated.
On death, shares pass by transmission to the nominee registered with the company or to the legal heirs, who apply to the company with the death certificate and proof of entitlement. A nominee under the Companies Act holds for the heirs, and the question of who ultimately owns the shares is decided by succession law. The agreement can give the surviving shareholders an option to buy the deceased’s shares at a fair value, or can provide that the heirs take the shares subject to the agreement. Without such terms, the heirs inherit the shares free of any obligation they never signed.
Incapacity, insolvency and a material breach of the agreement are usually treated as “default events” giving the others an option to buy the affected shares, often at a discount for breach.
When anyone new becomes a shareholder — by transfer, by issue or by inheritance — they should sign a deed of adherence, agreeing to be bound by the agreement as if an original party. The agreement and the articles should make signature a condition of registration of the transfer. A register of who has adhered should be kept with the agreement.
Keeping the agreement current matters too. A shareholders agreement signed for a two-founder company rarely fits after two funding rounds. Each round is an opportunity, and usually a necessity, to amend and restate it.
Most shareholders agreements provide for arbitration, and for most contractual disputes that works well: it is private, can be quicker than court, and the parties choose the arbitrator. The clause should state the seat, the institution or rules, the number of arbitrators, and the language. A party can still apply to court for interim relief, such as an injunction to stop a transfer, before or during the arbitration.
But not every shareholder dispute is arbitrable. The Companies Act gives members a right to apply to the National Company Law Tribunal for relief where the company’s affairs are conducted in a manner oppressive to any member or prejudicial to the company’s interests, under sections 241 and 242. Eligibility is set by section 244 — in a company with share capital, broadly at least one hundred members or one-tenth of the members, or members holding one-tenth of the issued capital, with the Tribunal able to waive the requirement. The Tribunal can make wide orders, including regulating the company’s conduct, ordering a purchase of shares, or setting aside transactions. Supreme Court decisions on arbitrability have indicated that such statutory remedies generally lie with the Tribunal, not an arbitrator.
In practice, parties often face both: an arbitration about breach of the agreement, and a Tribunal petition about oppression. A well drafted agreement anticipates this, reduces the scope for overlap, and requires notice and negotiation before either begins.
A formal demand before proceedings is often the first step; our legal notice service drafts one. Arbitration, Tribunal and court proceedings are for your advocate, engaged and paid by you directly; we do not quote, collect or share that fee. Our find an advocate page explains how to choose one with company law experience.
Stamp duty. A shareholders agreement is ordinarily stamped as an agreement not otherwise provided for, which in Delhi carries a small fixed duty. Other States’ rates vary. Where the agreement itself effects a transfer of shares or contains other operative terms, further duty may apply. Stamp duty on the issue and transfer of shares is separate and, since 2020, has been levied at uniform national rates; for shares in demat form it is collected through the depository system. Our e-stamp paper guide explains buying and checking stamps, and its section on stamping and arbitration explains why an unstamped agreement causes trouble when a dispute arrives.
Signing. Every party signs, and the company signs through an authorised person under a board resolution. Electronic signatures are generally valid for agreements of this kind; the stamp duty must still be paid. Each party should keep a complete signed copy, and the company should keep one with its statutory records.
The articles. The special resolution altering the articles is passed at a general meeting or, where permitted, by postal ballot, and filed with the Registrar within thirty days. Our board resolution and statutory registers and minutes services prepare the notices, resolutions and minutes.
Share records. Many private companies that are not small companies have been required to issue and hold their securities in dematerialised form, under rules introduced in 2023 with a compliance date later extended. Whether the requirement applies to your company should be checked. Where it does, transfers under the agreement will be effected through the depository, and the agreement’s mechanics should allow for that.
Equal ownership feels fair at the start, and it is the arrangement most likely to end in paralysis. With two shareholders at fifty per cent, neither can pass an ordinary resolution alone, neither can appoint or remove a director alone, and nothing in the default law resolves a disagreement.
A fifty-fifty agreement therefore needs, at the very least:
An alternative some founders choose is a small imbalance — fifty-one and forty-nine, with the minority protected by reserved matters. That gives the company a way to decide ordinary matters while protecting the smaller holder on fundamental ones. It is a commercial choice, not a legal requirement, but it should be made deliberately.
Our co-founder agreement service is designed for this situation, and is best signed at incorporation. Our private limited company registration service can include it.
Family companies have their own pattern. The founders divided shares among children or brothers years ago, often equally; the business grew; the next generation includes people who work in it and people who do not; and the rules were never written down because nobody expected to need them.
The agreement for a family company usually focuses on:
Rangaraj itself was a family case, and the lesson applies with particular force here: the articles must carry the transfer restrictions. Family arrangements that divide businesses between branches involve other documents too; our family settlement agreement guide covers those.
Two engineers incorporate a software company in Noida, holding fifty per cent each. A year later an angel investor agrees to invest for fifteen per cent, subscribing for compulsorily convertible preference shares.
The investor sends its template. It includes a full ratchet anti-dilution clause, a veto over any borrowing, a drag-along at fifty-one per cent of the investor’s class, and a put option against the founders personally at twice the investment after five years.
The founders negotiate. The anti-dilution becomes broad-based weighted average, with an agreed option pool excluded. The borrowing veto applies only above a monetary threshold and outside the approved budget. The drag-along requires the holders of a clear majority of all shares, including the founders, and a minimum price. The personal put is deleted; a put against the company, subject to the Companies Act’s buy-back limits, replaces it. The founders’ shares vest over four years, with good-leaver and bad-leaver prices, and each founder assigns his pre-incorporation code to the company.
On completion, the company alters its articles by special resolution to include the transfer restrictions, the investor’s director nomination right and the reserved matters, entrenching the investor’s consent rights. The agreement is stamped before signing. Two years later, when one founder leaves, the vesting clause resolves in a week what would otherwise have been a year-long dispute.
A trading company in Chandni Chowk was founded by two brothers with equal shareholdings. Both have died. Their shares have passed to six heirs: three who work in the business and three who do not. The articles are the standard ones adopted at incorporation.
One heir who lives abroad wants to sell her shares and has an offer from a competitor. Nothing in the articles stops her, and an old family letter restricting sales to family members is, after Rangaraj, of doubtful value against the company.
The family agrees a shareholders agreement. Each branch nominates two directors. Shares may be transferred freely within a branch; any other transfer is subject to a right of first refusal, first for the same branch and then for the other, at a value fixed annually by an independent valuer. Working members receive fixed remuneration approved by the board; dividends are declared under a policy. A member who wants to exit can require the others, or the company within its buy-back limits, to buy at the annual value in instalments over three years.
The articles are altered and the key provisions entrenched with the consent of all members. The heir abroad sells to her cousins at the agreed value. The competitor never gets a seat at the table.
Shareholders agreement drafting is ₹5,999 and usually takes 3 – 7 days. We draft and review documents; we are not valuers, chartered accountants or investment bankers, and we do not advise on whether to invest or at what price.
| What is included | Why it matters |
|---|---|
| A structured discussion of shareholding, control and plans | The agreement reflects your bargain, not a template |
| A draft agreement with governance, transfer, deadlock and exit terms | The situations that cause disputes are covered in advance |
| One round of revisions, or a review of an investor’s draft | You know what each clause does before signing |
| A note of terms to be mirrored in the articles | The Rangaraj gap closed |
| Stamping and execution checklist, and a deed of adherence form | A valid document now and for future shareholders |
Stamp duty and Registrar fees are at actuals, and we tell you the total before we start. Valuation, tax and foreign exchange advice are for your chartered accountant. Arbitration, Tribunal and court matters are for your advocate, whose fee is engaged and paid by you directly; we do not quote, collect or share it.
Most shareholders agreements fail in the same way: the terms that were meant to bind the company were never written into its articles. Agree the transfer rules, the board seats, the reserved matters, the deadlock ladder and the exit price while everyone still agrees on everything — and then put the key terms where the company and future shareholders are bound by them. Tell us who owns what and what you are worried about. We will draft the agreement and the matching articles.
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