What is a Shareholders Agreement and why do you need it? - YouTube

Hey everyone,

I am a Legal Associate with Vakilsearch.com Today i will be discussing a shareholder's

agreement If you are a shareholder of a company and

you want to ensure that you are treated fairly and all your rights are protected the best

way to go about it is by draft a shareholders' agreement.

So today I would be clarifying all your doubts regarding a shareholders' agreement such

as What is a shareholders agreement, why is it

necessary to have this agreement, when is the best time to draft a shareholders' agreement,

and what are the important issues that are dealt with under a shareholders' agreement

Firstly what is a shareholders agreement? As the name suggests, a shareholders' agreement

is an agreement, among some or all of the shareholders of a company. It basically lays

down the relationship between the shareholders and the company. It also describes the rights

and obligations of such shareholders in their company.

The next important question is why is it necessary to have a shareholders' agreement.

The main purpose behind having a Shareholders' agreement is to ensure that there are no disputes

between the shareholders regarding the manner in which the business is to be carried out.

An advantage of having a shareholders' agreement is that it is a private contract, the terms

and conditions in such an agreement need not be made public hence the confidentiality of

information regarding business is maintained at all times.

Also note that a shareholders' agreement will allow shareholders to make decisions

about which outside parties may become future shareholders in the company and also helps

to provide safeguards for minority shareholders. As to the question of when is the best time

to draft a shareholders' agreement. This would be right at the beginning right

after of the incorporation of your company. Wherever the shares of a company are held

by more than one person it is advisable to have a shareholders' agreement so as to

avoid future conflicts of interests. This will ensure that the act of a single shareholder

will not affect the company as a whole. However it is even more necessary to have

a shareholders agreement if your company is a small private corporation in which the shares

are held by a small number of share holders. The reason being that, in such companies the

shareholders who control the business will determine the smooth functioning of the business

and in the event of any unforeseeable circumstances where there is a change in the ownership of

shares the shareholders agreement will ensure that the rights of the other shareholders

are not affected. The first thing that you have to decide before

drafting a shareholders' agreement is how many shares are to be allotted to each person.

Lets say you are the founder of a company and you are bringing in the other partners.

In such cases it is your call as to when the share allotment has to be done and how the

share allotment has to be done. Imagine there are thousand shares that you

want to allot to a certain partner either you can do this on day one when he joins,

however this is not considered a good practice instead you can give this to him in a staggered

manner in the intervals of six months, i.e. every six months he is given hundred to two

hundred shares. However the best way of going about it would

be to link the share allotment to the revenue or profit achievement this means that if your

company is trying to achieve ten lakhs as revenue per annum then at the achievement

of the ten lakhs the partners will be given a certain amount of shares. This will also

ensure that the partners are motivated to work along your side to achieve these targets.

The shareholders agreement is a complex one consisting of numerous clauses and legal jargons,

however i would like to mention a few important issues that a shareholders' agreement usually

deals with. Including the constitution of a Board of Directors,

the voting rights of the shareholders, how shareholder loans may be paid out, how shares

are dealt with in the event of death, insolvency or marital breakdown such shareholders and

provisions regarding the purchase and sale of shares by a shareholder, provisions regarding

or limiting a shareholder's from competing with the corporation or soliciting its clients

or employees etc. That was all the basic information you needed

to know about a shareholders agreement should you further questions or doubts regarding

a shareholders' agreement please feel free to contact us at 7200 365 365

Also you can send us an email at [email protected] That is all I have for you in this video

Have a good day, Good bye