SHAREHOLDERS' AGREEMENT
1. Parties and Recitals
This Shareholders' Agreement ("Agreement") is made and entered into as of __________________, by and among (i) __________________, a company having its registered office at __________________ and bearing CIN __________________ (the "Company"); (ii) __________________, residing at __________________; and (iii) __________________, residing at __________________ (each a "Shareholder" and collectively the "Shareholders"). The Shareholders collectively hold the entire issued and paid-up share capital of the Company and wish to record their mutual understanding on the management, governance, and ownership of the Company.
2. Definitions and Interpretation
In this Agreement, unless the context otherwise requires: "Affiliate" means any entity controlling, controlled by, or under common control with a party; "Board" means the board of directors of the Company; "Shares" means the equity shares of the Company of face value as set out in the capitalisation table below; "Transfer" means any sale, assignment, pledge, or other disposition of Shares, whether direct or indirect. Headings are for convenience only and shall not affect interpretation. References to statutes include re-enactments and amendments as in force from time to time, including the Companies Act, 2013 and rules made thereunder.
3. Capitalisation
As of the date of this Agreement, the total authorised share capital of the Company is __________________, and the issued, subscribed, and paid-up capital is held as follows: __________________ holds __________________ of the equity share capital, and __________________ holds __________________ of the equity share capital. The Company shall maintain an updated capitalisation table as an annexure to this Agreement and shall notify all Shareholders of any change resulting from a fresh issuance, buyback, or Transfer.
4. Board Composition and Management
The Board shall comprise __________________ directors, with each Shareholder holding more than 20% of the paid-up share capital entitled to nominate at least one director in proportion to their shareholding, as further detailed in the annexure. Board meetings shall be convened with not less than seven (7) days' prior written notice, save in case of urgent business where shorter notice may be given with the consent of a majority of directors. A quorum for Board meetings shall require the presence of at least one nominee of each Shareholder holding 20% or more of the paid-up capital.
5. Reserved Matters
Notwithstanding any provision to the contrary, the Company shall not, and shall procure that none of its subsidiaries shall, undertake any of the following actions without the prior written affirmative vote or consent of Shareholders holding not less than seventy-five percent (75%) of the paid-up share capital: (a) alteration of the memorandum or articles of association; (b) issuance of new shares, options, or convertible instruments; (c) incurring borrowings beyond an amount to be agreed between the parties; (d) related-party transactions outside the ordinary course of business; (e) merger, amalgamation, winding up, or sale of substantially all assets; and (f) change in the nature of the Company's principal business.
6. Transfer Restrictions and Right of First Refusal
No Shareholder shall Transfer any Shares to a third party unless such Shareholder has first offered the Shares to the other Shareholders, pro rata to their existing shareholding, at the same price and on the same terms as offered to the proposed third-party transferee ("Right of First Refusal"). The offer shall remain open for acceptance for a period to be mutually agreed, and if not accepted in full, the offering Shareholder may Transfer the unaccepted Shares to the third party on terms no more favourable than those offered to the other Shareholders.
7. Tag-Along Rights
If a Shareholder proposes to Transfer Shares to a third party and such Transfer is not fully absorbed under the Right of First Refusal, each other Shareholder shall have the right, but not the obligation, to participate in such sale on a pro rata basis and on the same price, terms, and conditions as the selling Shareholder, by delivering a tag-along notice within the timeframe specified in the transfer notice.
8. Drag-Along Rights
If Shareholders holding not less than seventy-five percent (75%) of the paid-up share capital (the "Majority Sellers") agree to Transfer their Shares to a bona fide third-party purchaser, the Majority Sellers shall have the right to require the remaining Shareholders to sell their Shares to such purchaser on the same price, terms, and conditions as applicable to the Majority Sellers, subject to reasonable protections for the minority Shareholders regarding representations and warranties.
9. Non-Compete and Non-Solicitation
Each Shareholder who is also engaged in the management of the Company agrees that, during the term of such engagement and for a reasonable period thereafter, they shall not directly or indirectly engage in, own, manage, or provide services to any business that competes with the Company, nor solicit the Company's employees, customers, or suppliers, except with the prior written consent of the Board.
10. Confidentiality
Each Shareholder shall keep confidential all non-public information relating to the business, finances, and operations of the Company obtained by virtue of its shareholding, and shall not disclose such information to any third party except as required by law, regulation, or order of a competent authority, or to its professional advisors under an equivalent duty of confidentiality.
11. Deadlock Resolution
In the event the Board or the Shareholders are unable to reach a decision on any matter requiring their approval after reasonable deliberation (a "Deadlock"), the parties shall first refer the matter to the senior management/promoters of each Shareholder for good-faith resolution within a period to be mutually agreed. If the Deadlock persists, the parties may explore mediation before resorting to the dispute resolution mechanism in Clause 13.
12. Term and Termination
This Agreement shall commence on __________________ and continue until terminated by mutual written consent of all Shareholders, or automatically in respect of a Shareholder who ceases to hold any Shares in the Company. Termination shall not affect any rights or obligations accrued prior to the date of termination, including confidentiality and non-compete obligations which shall survive as expressly stated.
13. Dispute Resolution and Governing Law
This Agreement shall be governed by and construed in accordance with the laws of India. Any dispute arising out of or in connection with this Agreement shall be referred to arbitration under the Arbitration and Conciliation Act, 1996, with the seat and venue of arbitration at __________________, __________________, and the proceedings conducted in the English language before a sole arbitrator mutually appointed by the parties.
14. Notices
All notices under this Agreement shall be in writing and shall be deemed duly given if delivered by hand, registered post, or email to the addresses of the parties set out above, or such other address as may be notified in writing from time to time.
15. Miscellaneous
This Agreement constitutes the entire understanding between the parties in relation to its subject matter and supersedes all prior discussions or agreements, whether oral or written. No amendment shall be valid unless made in writing and signed by all parties. If any provision is held invalid or unenforceable, the remaining provisions shall continue in full force and effect. This Agreement may be executed in counterparts.
Execution / registration notes
- Stamp duty on shareholders' agreements varies by state — check the applicable Stamp Act before execution.
- Where the agreement grants special rights (board seats, veto matters), ensure the Articles of Association are amended consistently to make such rights enforceable against the Company.
- Consider registering the agreement if it creates any interest in immovable property; otherwise execution on non-judicial stamp paper of the appropriate value is customary.
- Have a company secretary or corporate lawyer cross-check reserved matters against your Articles before circulating for signature.
General-reference format provided by PNPC Global. Not legal advice. Laws and stamp-duty requirements vary by state and change over time — have this document vetted by a qualified professional before execution.