Shareholders Agreement

Are you an entrepreneur looking to draft a shareholder’s agreement for your startup? Legal Adhikari can help you in creating one.


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The shareholder agreement helps protect the interests of current shareholders from cases of abuse by future management. If there is new management or the company is acquired by another entity, the agreement helps safeguard certain decisions such as dividend distribution and issuing of new stock or debt.

Some of the issues covered in the shareholder agreement include dealing with shareholders’ issues, corporate distributions, the management team of the company and limitation on authority, rights of minority shareholders, valuation of shares, voting of shares of stock, restrictions on the transfer of shares, allotment of additional shares, etc. The agreement protects shareholders, and it can be used as a reference document if there are disputes in the future.

What is Included in a Shareholder Agreement?

The contents of a shareholder agreement may vary across companies. Some of the contents of a shareholder agreement include:

  1. Parties: The first section of a shareholder agreement identifies the corporation as one party that is different from the shareholders (another party).
  2. Board of Directors and Board meetings: The shareholder agreement describes the role of the board of directors in the company and the requirement that decisions of the board should be approved by the majority. It also states how frequently the board of directors should hold meetings and how directors are selected and replaced.
  3. Reserved Matters: The shareholder agreement should set out issues that cannot be passed without getting the approval of all signatories, not just majority support. By creating a list of reserved matters, all shareholders are given the chance to vet certain transactions to determine if they are prejudicial to their investment.


Some of the commonly reserved matters include changing share capital, acquiring or disposing of certain assets, taking on new debt, paying dividends, and changing the articles of association and memorandum.

  1. Shareholder Information and Meetings: The shareholder agreement should include a requirement that shareholders are entitled to regular updates on the company’s performance through quarterly reports and an annual report. It should state the specific period when the reports should be sent out to shareholders. The agreement should also state when shareholder meetings will be held and the time, date, and venue of the meetings.


  1. Share Capital and Share Transfers: The shareholder agreement should record the corporation’s share capital at the date when it is signed. Since changing share capital is one of the reserved matters, the directors are prohibited from issuing new shares or changing existing shares into a new share class without the signatories approving the changes.

The shareholder agreement also contains provisions relating to share transfer, such as preventing share transfer to unwanted parties and transferring shares to a new party.


  1. Amendment and Termination: The process of amending or terminating the shareholder agreement should be provided in the agreement. For example, the shareholder agreement may be terminated upon the dissolution of the company, based on a written agreement, or after the lapse of a specific number of years from the date of the agreement.


  1. Buy-Out Rights: Buy-out Rights sets out provisions for the expulsion of incompetent shareholders. It allows a company or existing shareholders to acquire the shares of a shareholder who was found unfit owing to certain major events, as shown below:
  • Death,
  • Disability,
  • Bankruptcy or marital dissolution,
  1. Non-Compete & Non-Solicitation Provision: It is quite common to find in a shareholders’ agreements (especially in a shareholders’ agreement entered into in connection with a venture capital investment), various restrictions on promoters which restrict them for the period whilst they hold shares in the company and for a certain period thereafter from:
  • competing with the business(es) carried on by the company;
  • soliciting customers of the company; and
  • soliciting employees of the company.


Key Points To Be Considered While Drafting The Shareholder Agreement

  • One needs to comprehend the fundamental concept behind the utility of a shareholder agreement.
  • Every clause should serve a particular purpose and with utmost clarity. The inclusion of vague provisions or the presence of wide interpretations shall lead to a dispute in the future.
  • Clearly, list out the norms and rights of involved parties
  • There might be instances where shareholders may no longer be interested in holding their allocated shares and wish to exit Thus, for such a departure, there should be a clause in the shareholder agreement.
  • There should be an inclusion of the following subject matter in the Dispute resolution clauses
  • mode of dispute resolution
  • place of such dispute resolution
  • powers and duties
  • Restriction on shares transferability should be explicitly set out along with the process of the same.

In what ways we can assist you?

  • Customization: We can draft a shareholders’ agreement that is tailored to the specific needs and objectives of the shareholders. We can help ensure that the agreement reflects the unique characteristics of the business and its shareholders.


  • Defining ownership and control: We can help define the ownership and control of the company by outlining the rights and obligations of each shareholder. This can include voting rights, board representation, and decision-making processes.


  • Addressing financial matters: We can help address financial matters, such as the distribution of profits, financing arrangements, and the valuation of the company.


  • Providing exit strategies: We can provide exit strategies for shareholders, such as buyout provisions, drag-along rights, and tag-along rights.


  • Resolving disputes: We can help resolve disputes that arise between shareholders, including disputes over control, valuation, and exit strategies.


  • Ensuring compliance with legal requirements: We can ensure that the shareholders’ agreement complies with all legal requirements, including securities laws and corporate governance regulations.
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