Shareholders Agreement Lawyers in Delhi

When a company needs a shareholders agreement

The Companies Act, 2013 and the articles of association set default rules for every company. A shareholders agreement adds what the defaults do not cover: who appoints directors, which decisions need a particular shareholder’s consent, who may sell shares and to whom, and how the parties will part ways. It is typically signed when a company takes outside investment, when two businesses form a joint venture company, or when founders want to fix their relationship before an investor arrives.

We act for founders, for investors including foreign investors, and for joint venture partners. Most of our SHA work is drafting and negotiation; a growing part is advising on SHAs signed years ago that no longer fit, and acting in disputes when they break down. Our corporate law firm in Delhi page describes the wider company practice.

The clauses that do the work

• Board composition and nominee directors. How many seats each shareholder fills, quorum requirements, and whether an investor’s nominee must be present for quorum.
• Reserved matters. The list of decisions needing an investor’s consent, with thresholds, and the time within which consent is deemed given if the investor does not respond.
• Transfer restrictions. Lock-in periods, rights of first refusal or first offer, and prohibited transferees such as competitors.
• Drag-along and tag-along. Triggers, minimum price, and the mechanics of compelling or joining a sale.
• Anti-dilution and pre-emption. How existing shareholders are protected when new shares are issued.
• Information rights. Monthly or quarterly financials, budgets and access to records.
• Deadlock. Escalation to senior management, mediation, and buy-sell mechanisms where the shareholders are equal.
• Exit. Initial public offering, strategic sale, put and call options and buy-back, within what the law allows.
• Dispute resolution. Arbitration seat and rules, governing law, and interim relief.

Making the SHA enforceable

Two steps are routinely missed. First, the articles of association must be amended to include the transfer restrictions, reserved matters and other rights that are meant to bind the company; without that, the company can register a transfer in breach of the SHA and the remedy is only damages against the selling shareholder. Second, every term must be checked against the Companies Act, which overrides the SHA under Section 6, and, where a non-resident is involved, against India’s foreign exchange rules on pricing and options. Our India Desk handles the foreign investment side.

The dispute clause deserves equal care. An arbitration clause with a Delhi seat lets the parties seek urgent relief from the Delhi courts under Section 9 of the Arbitration and Conciliation Act, 1996 before and during the arbitration. If the clause does not name an arbitrator or a working appointment procedure, an application to the High Court under Section 11 may be needed; our note on arbitrator appointment explains how that works.

When an SHA dispute arises

The common disputes are a shareholder transferring shares in breach of a right of first refusal, the majority taking a reserved matter without consent, a nominee director being removed or kept out of board meetings, a dilutive share issue, and disagreement over the price on an exit. The first questions are what the SHA and the articles actually say, whether the dispute clause sends the matter to arbitration, and whether the facts also amount to oppression or mismanagement. A petition before the NCLT, explained in our guide to oppression and mismanagement petitions, can give relief that an arbitrator cannot, such as regulating the company’s affairs, but has eligibility thresholds and its own risks. Our arbitration and NCLT teams decide the route together.

Speed matters. If shares are about to be transferred or diluted, an application for an interim injunction, either under Section 9 of the Arbitration Act or before the NCLT, should be filed before the act is complete.

Speaking to us

For drafting, send the cap table, the term sheet and the current articles. For a dispute, send the signed SHA, the articles, board and shareholder minutes, and correspondence. We tell you at the first meeting what the documents allow and what we would do next. Call or WhatsApp 99115 44811, or email manujalawyers@gmail.com.