{"id":14281,"date":"2020-10-16T16:52:38","date_gmt":"2020-10-16T11:22:38","guid":{"rendered":"https:\/\/swaritadvisors.com\/learning\/?p=14281"},"modified":"2020-10-24T22:45:03","modified_gmt":"2020-10-24T17:15:03","slug":"concept-and-clauses-of-shareholders-agreement-format","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/","title":{"rendered":"Format of Shareholders Agreement: Its Concept and Clauses"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The term \u201c<em>Format of Shareholders Agreement<\/em>\u201d denotes an agreement that <em>aims to protect<\/em> the <em>investment made<\/em> by the shareholders by creating a <em>Transparent<\/em> and <em>Fair relationship<\/em> between the <em>Shareholders<\/em> and the <em>Company.<\/em><\/p>\n\n\n\n<p>Further, the Shareholders Agreement provides the Rights and Duties of the Shareholders, together with the Provisions for the Protection of the Minority Shareholders.<\/p>\n\n\n\n<p>&nbsp;In this blog, we will discuss the concept of Format of Shareholders Agreement and its Clauses.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a35b1538af\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a35b1538af\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Concept_of_Shareholders_Agreement\" title=\"Concept\nof Shareholders Agreement\">Concept\nof Shareholders Agreement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Need_of_Shareholders_Agreement\" title=\"Need of\nShareholders Agreement\">Need of\nShareholders Agreement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Benefits_of_a_Shareholders_Agreement\" title=\"Benefits\nof a Shareholders Agreement\">Benefits\nof a Shareholders Agreement<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Provides_Clarity\" title=\"Provides\nClarity\">Provides\nClarity<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Safeguards_the_Parties_Involved\" title=\"Safeguards\nthe Parties Involved\">Safeguards\nthe Parties Involved<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Legal_Evidence\" title=\"Legal\nEvidence\">Legal\nEvidence<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Scope_of_Confidentiality\" title=\"Scope of\nConfidentiality\">Scope of\nConfidentiality<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Intellectual_Property_Right\" title=\"Intellectual\nProperty Right\">Intellectual\nProperty Right<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Essential_Components_of_a_Shareholders_Agreement\" title=\"Essential Components of a Shareholders Agreement\">Essential Components of a Shareholders Agreement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Clauses_of_a_Shareholders_Agreement\" title=\"Clauses\nof a Shareholders Agreement\">Clauses\nof a Shareholders Agreement<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Definitions_and_Interpretations\" title=\"Definitions\nand Interpretations&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; \">Definitions\nand Interpretations&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Effective_Date\" title=\"Effective\nDate\">Effective\nDate<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Rights_of_a_Shareholder\" title=\"Rights\nof a Shareholder\">Rights\nof a Shareholder<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Provisions_governing_the_Sale_and_Transfer_of_Shares\" title=\"Provisions\ngoverning the Sale and Transfer of Shares\">Provisions\ngoverning the Sale and Transfer of Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Financial_Requirements\" title=\"Financial\nRequirements\">Financial\nRequirements<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Method_of_Valuation\" title=\"Method\nof Valuation\">Method\nof Valuation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Mode_of_Operation\" title=\"Mode of\nOperation\">Mode of\nOperation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Liabilities_of_a_Shareholder\" title=\"Liabilities\nof a Shareholder\">Liabilities\nof a Shareholder<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Protection_of_the_Minority_Shareholders\" title=\"Protection\nof the Minority Shareholders\">Protection\nof the Minority Shareholders<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Things_to_Remember_While_Drafting_a_Shareholders_Agreement\" title=\"Things\nto Remember While Drafting a Shareholders Agreement\">Things\nto Remember While Drafting a Shareholders Agreement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Sample_Format_of_Shareholders_Agreement\" title=\"Sample Format\nof Shareholders Agreement\">Sample Format\nof Shareholders Agreement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Process_to_Draft_a_Format_of_Shareholders_Agreement\" title=\"Process\nto Draft a Format of Shareholders Agreement\">Process\nto Draft a Format of Shareholders Agreement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-23\" href=\"https:\/\/swaritadvisors.com\/learning\/concept-and-clauses-of-shareholders-agreement-format\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concept_of_Shareholders_Agreement\"><\/span><strong>Concept\nof Shareholders Agreement<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As the name suggests, the term <span style=\"text-decoration: underline;\"><strong><a href=\"https:\/\/swaritadvisors.com\/shareholders-agreement\">Shareholders Agreement<\/a><\/strong><\/span> denotes an agreement signed between the shareholders of the company. It acts as the basis on which a company is incorporated. Further, it defines all the rights and duties of the shareholders of a company. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Need_of_Shareholders_Agreement\"><\/span><strong>Need of\nShareholders Agreement<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Need-of-Shareholders-Agreement-Heading.jpg\" alt=\"Why need Shareholders Agreement\" class=\"wp-image-14283\" width=\"583\" height=\"372\" srcset=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Need-of-Shareholders-Agreement-Heading.jpg 1000w, https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Need-of-Shareholders-Agreement-Heading-300x192.jpg 300w, https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Need-of-Shareholders-Agreement-Heading-768x492.jpg 768w\" sizes=\"(max-width: 583px) 100vw, 583px\" \/><\/figure><\/div>\n\n\n\n<p>The need of the Format of ths can be summarised as:<\/p>\n\n\n\n<ol><li>Acts\nas the Basis for Decision Making;<\/li><li>Restricts\nthe Power of a Director;<\/li><li>Provide\nProtection for Parties;<\/li><li>Safeguards\nMinority Shareholders;<\/li><li>Defines\nRole and Responsibilities of a Shareholder;<\/li><li>Ensures\nConfidentiality of a Business;<\/li><li>Offers\nDispute Resolution Mechanism;<\/li><li>Provides\nExit Strategy for Shareholders;<\/li><li>Clarifies\nReserved Matters;<\/li><li>Offers\nPre-emptive Rights;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Benefits_of_a_Shareholders_Agreement\"><\/span><strong>Benefits\nof a Shareholders Agreement<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Benefits-of-a-Shareholders-Agreement-heading.jpg\" alt=\"Shareholders benefits\" class=\"wp-image-14284\" width=\"440\" height=\"433\" srcset=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Benefits-of-a-Shareholders-Agreement-heading.jpg 649w, https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Benefits-of-a-Shareholders-Agreement-heading-300x296.jpg 300w\" sizes=\"(max-width: 440px) 100vw, 440px\" \/><\/figure><\/div>\n\n\n\n<p>The Benefits of the Format of Shareholders\nAgreement are as follows:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Provides_Clarity\"><\/span><strong>Provides\nClarity<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A Shareholders Agreement involves a detailed explanation\nregarding the nature of work and the relationship shared between the\nshareholders and the company. That means it will assists in reducing the\nchances of future confusion and disputes. &nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Safeguards_the_Parties_Involved\"><\/span><strong>Safeguards\nthe Parties Involved<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>It clearly and expressly defines the rights, duties, roles,\nand responsibilities of the parties, which ultimately reduces the scope of future\ndisputes between the parties.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Legal_Evidence\"><\/span><strong>Legal\nEvidence<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>It acts as a Legal Evidence for the parties regarding their duties, responsibilities, and rights.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Scope_of_Confidentiality\"><\/span><strong>Scope of\nConfidentiality<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>All the details that are of confidential nature between the\nparties are covered under the Clause of Confidentiality. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Intellectual_Property_Right\"><\/span><strong>Intellectual\nProperty Right<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>This Agreement will clearly include the details regarding the ownership rights and usage rights of the trademark or trade name. That means it will clearly establish the rights of parties involved.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Essential_Components_of_a_Shareholders_Agreement\"><\/span><strong>Essential Components of a Shareholders Agreement<\/strong><strong><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Essential-Components-of-a-Shareholders-Agreement-heading.jpg\" alt=\"Components of Shareholders agreement\" class=\"wp-image-14285\" width=\"328\" height=\"706\" srcset=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Essential-Components-of-a-Shareholders-Agreement-heading.jpg 237w, https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Essential-Components-of-a-Shareholders-Agreement-heading-139x300.jpg 139w\" sizes=\"(max-width: 328px) 100vw, 328px\" \/><\/figure><\/div>\n\n\n\n<p>The components to be involved in this Agreement are as follows:<\/p>\n\n\n\n<ol><li>Name of the Parties;<\/li><li>Details of the Parties;<\/li><li>Date of the Agreement;<\/li><li>Purpose of the Agreement;<\/li><li>Distribution of Shares;<\/li><li>Management and Control of the Company;<\/li><li>Shareholding Pattern (before and after);<\/li><li>Clause of Confidentiality;<\/li><li>Dividend;<\/li><li>Director\u2019s loan (if in case any);<\/li><li>Penalties for Non-compliance;<\/li><li>Remedies for Non-compliance;<\/li><li>Provision for the Transfer of Shares;<\/li><li>Rights and Duties of Shareholders during\nthe dissolution of the company;<\/li><li>Signatures of Parties;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Clauses_of_a_Shareholders_Agreement\"><\/span><strong>Clauses\nof a Shareholders Agreement<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Clauses-of-a-Shareholders-Agreement-heading.jpg\" alt=\"Shareholders Clauses \" class=\"wp-image-14286\" width=\"608\" height=\"190\" srcset=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Clauses-of-a-Shareholders-Agreement-heading.jpg 649w, https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/Clauses-of-a-Shareholders-Agreement-heading-300x94.jpg 300w\" sizes=\"(max-width: 608px) 100vw, 608px\" \/><\/figure><\/div>\n\n\n\n<p>The clauses of the Format of Shareholders\nAgreement are as follows:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Definitions_and_Interpretations\"><\/span><strong>Definitions\nand Interpretations&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A Shareholder Agreement needs to begin\nwith the definitions and interpretation of the legal terms used in the\nagreement. Further, the word \u201c<strong><em>Legal Terms<\/em><\/strong>\u201d includes the terms like\nAgreement, Act, Affiliate, Article, Angel Investors, Confidential Agreement,\nCCPS, Equity Shares, Encumbrance Certificate, Reserved Matters, Transfer, etc. <\/p>\n\n\n\n<p>Furthermore, the main aim of the clause is\nto reduce the chances of dispute and misconception between the parties.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Effective_Date\"><\/span><strong>Effective\nDate<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The term \u201c<strong><em>Effective Date<\/em><\/strong>\u201d deals with the date\non which the said agreement will come into force. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Rights_of_a_Shareholder\"><\/span><strong>Rights\nof a Shareholder<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The term Rights of Shareholders include\nthe rights as follows:<\/p>\n\n\n\n<ol><li>Right to Vote;<\/li><li>Right to call a General\nMeeting;<\/li><li>Right to Appoint Directors;<\/li><li>Right to Appoint a Company\nAuditor;<\/li><li>Right to have Copies of\nthe Financial Statements of the Company;<\/li><li>Right to Inspect the\nBooks and Registers of the Company;<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Provisions_governing_the_Sale_and_Transfer_of_Shares\"><\/span><strong>Provisions\ngoverning the Sale and Transfer of Shares<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>This clause includes all the rules and regulations regarding\nthe Transfer of Shares, Protection of Shareholders Rights.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Financial_Requirements\"><\/span><strong>Financial\nRequirements<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>This clause includes the process and the\nmodes for obtaining finances in a company. That means it assists in tracking\nthe progress and growth of a company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Method_of_Valuation\"><\/span><strong>Method\nof Valuation<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>As we know the value of a share\nfluctuates as the market condition changes. So, to aid the proper preparation\nof the financial statements, the methods of valuation chosen by the company\nplays a significant role. Further, the different methods of valuation are as\nfollows:<\/p>\n\n\n\n<ol><li>Assets Approach;<\/li><li>Income Approach; and<\/li><li>Market Approach;<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Mode_of_Operation\"><\/span><strong>Mode of\nOperation<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>To ensure smooth and efficient managerial operations, a company needs to place certain procedures and policies. The <strong>Format of Shareholders Agreement<\/strong><sup><a href=\"https:\/\/www.startupindia.gov.in\/content\/dam\/invest-india\/Templates\/public\/Tools_templates\/internal_templates\/startup_founders_sha_sample.pdf\n\"><strong><em>[1]<\/em><\/strong><\/a><\/sup> includes the guidelines and directions regarding the day to day affairs and workflow and also .<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Liabilities_of_a_Shareholder\"><\/span><strong>Liabilities\nof a Shareholder<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The liability clause of a Shareholder\nAgreement includes the particulars as follows:<\/p>\n\n\n\n<ol><li>A\nShareholder will not be held liable for the company acts;<\/li><li>A\nShareholder can be made liable only to the extent of shares held by him\/ her;<\/li><li>In\ncase a company is limited by shares, then a shareholder will be held liable\nonly to the extent of shares held by him\/ her;<\/li><\/ol>\n\n\n\n<p>Further, the main reason\nbehind the limited liability of a shareholder is that a company enjoys the\nstatus of a separate legal entity, i.e., distinct from its shareholders.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Protection_of_the_Minority_Shareholders\"><\/span><strong>Protection\nof the Minority Shareholders<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The term \u201cMinority shareholders\u201d denotes\nthose shareholders who do not benefit much in terms of powers and authority when\nit comes to the management and operations of the company. <\/p>\n\n\n\n<p>However, it shall be relevant to state\nthat after the introduction of the Companies Act, 2013, the rights of these shareholders\nhave been given much significance. &nbsp;Further, the rights given to these\nshareholders in the Companies Act 2013 are as follows:<\/p>\n\n\n\n<ol><li>In\nthe case of Oppression and Management, the right to apply to the Board;<\/li><li>Right\nto start a \u201cClass Action Suit\u201d against the Company and the Auditors;<\/li><li>The\nneed to appoint a Small Shareholder Director;<\/li><li>In\ncase the majority of shareholders want to sell their shares, then the rights of\nthe minority shareholders must be included as well. Further, this concept is\nknown as Piggy Backing.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Things_to_Remember_While_Drafting_a_Shareholders_Agreement\"><\/span><strong>Things\nto Remember While Drafting a Shareholders Agreement<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The things to remember while drafting a\nShareholders Agreement are as follows:<\/p>\n\n\n\n<ol><li>It is important to understand the purpose and aim behind the Shareholders\u2019 Agreement;<\/li><li>It is used to create a balance of interests;<\/li><li>All the terms and conditions of the agreement require to be clearly defined and expressed so as to avoid any further dispute and confusion;<\/li><li>All the rights, roles, duties, and obligations of the shareholder and company must be specified&nbsp;in a concise manner;<\/li><li>The agreement must be unquestionable bearing in mind the \u201c<em>Mutual Benefit<\/em>\u201d of both the company and the shareholders<\/li><li>A Shareholder Agreement must set out all the policies, procedures and guidelines in a brief&nbsp;and coherent manner;<\/li><li>All the matters defined in a shareholders\u2019 agreement must be in accordance with the&nbsp;applicable laws in place;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sample_Format_of_Shareholders_Agreement\"><\/span><strong>Sample Format\nof Shareholders Agreement<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<a href=\"https:\/\/swaritadvisors.com\/learning\/wp-content\/uploads\/2020\/10\/SHAREHOLDER-AGREEMENT.pdf\" class=\"pdfemb-viewer\" style=\"\" data-width=\"max\" data-height=\"max\"  data-toolbar=\"bottom\" data-toolbar-fixed=\"off\">SHAREHOLDER-AGREEMENT<br\/><\/a>\n<p class=\"wp-block-pdfemb-pdf-embedder-viewer\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Process_to_Draft_a_Format_of_Shareholders_Agreement\"><\/span><strong>Process\nto Draft a Format of Shareholders Agreement<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The steps involved in the Process to Draft\na Format of Shareholders Agreement are as follows:<\/p>\n\n\n\n<ol><li>Consult\nan experienced advocate who has good drafting skills;<\/li><li>Specify\nhim\/her the requirement for such an agreement;<\/li><li>Once\nthe advocate understands the aim of such an agreement, he\/she will then draft a\nsample of Shareholders Agreement accordingly;<\/li><li>Once\nthe draft is duly prepared by the advocate, he\/she will send the same for your\nreview;<\/li><li>Lastly,\nthe entire process will take around a period of 3 to 4 days;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In a nutshell, the main reason behind the introduction of Shareholders Agreement was to improve the operations concerning the functioning of the company, and to offer a clarity and structure with respect to the relationship between the shareholders and company at any given point in time and also get your <strong><a href=\"https:\/\/swaritadvisors.com\/gst-registration\">Online GST Registration<\/a><\/strong> done with us.<\/p>\n\n\n\n<p>Further, a Shareholders Agreement helps in quick dispute resolution and leads to the smooth and undeterred working of the company and its operations. <\/p>\n\n\n\n<p><b>Also, Read:<\/b> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/learning\/format-of-share-purchase-agreement\/\">Format of Share Purchase Agreement<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The term \u201cFormat of Shareholders Agreement\u201d denotes an agreement that aims to protect the investment made by the shareholders by creating a Transparent and Fair relationship between the Shareholders and the Company. Further, the Shareholders Agreement provides the Rights and Duties of the Shareholders, together with the Provisions for the Protection of the Minority Shareholders. [&hellip;]<\/p>\n","protected":false},"author":17,"featured_media":14282,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[628],"tags":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/14281"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/comments?post=14281"}],"version-history":[{"count":26,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/14281\/revisions"}],"predecessor-version":[{"id":14689,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/14281\/revisions\/14689"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media\/14282"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media?parent=14281"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/categories?post=14281"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/tags?post=14281"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}