- Commercial Contract Drafting, Review & Negotiation
- Master Service & Service Agreements
- Vendor, Supplier & Procurement Agreements
- Consultancy & Independent Contractor Agreements
- Agency, Distribution & Franchise Agreements
- Non-Disclosure & Confidentiality Agreements
- MoUs, Term Sheets & Letters of Intent
- Corporate Structuring & Governance
- Shareholders' Agreements
- Share Purchase Agreements
- Share Subscription & Investment Agreements
- Joint Venture & Strategic Collaboration Agreements
- Partnership & LLP Agreements
- Founders' Agreements
Shareholders' Agreements
A shareholders’ agreement is a contract between the shareholders of a company, and usually the company itself, that sets out how the company is controlled, how shares can be transferred and how each shareholder can exit. It adds to the rights given by the Companies Act, 2013 and the company’s articles of association.
In India the agreement cannot stand alone. Rights that are meant to bind the company, such as restrictions on transferring shares, need to be written into the articles as well. Where the agreement and the articles conflict, the articles prevail as far as the company is concerned.
When you need it
When an investor comes in
An investor’s rights to a board seat, information, vetoes and an exit are set out in the shareholders’ agreement.
When founders hold shares together
Co-founders need agreed rules on decisions, on leaving and on what happens to a departing founder’s shares.
When family members or partners own a company
Succession, deadlock between equal owners and the sale of a stake to outsiders are best settled in advance.
When a minority shareholder needs protection
Without agreed rights, a minority holder has only the limited protections in the Companies Act.
When a new round changes the balance
Each funding round usually amends and restates the earlier agreement.
How the process works
Five stages. Timings are typical, not promised.
- 1
Understand the shareholding and the deal
A call or meetingReview the capital structure, the classes of shares, the term sheet if there is one and what each shareholder expects on control and exit.
Documents
- The current shareholding (cap table)
- The articles of association
- Any term sheet or earlier shareholders’ agreement
- 2
Settle the main terms
Depends on the partiesAgree board composition, the reserved matters that need investor or special consent, restrictions on transfers, and the exit routes and their timing.
- 3
Draft the agreement
Commonly two to three weeksSet out governance, information rights, pre-emption on new shares, right of first refusal, tag-along and drag-along rights, anti-dilution, founder obligations, deadlock, default and dispute resolution.
- 4
Amend the articles
Alongside the agreementPrepare amended articles of association that carry the agreement’s rights, to be adopted by a special resolution of the shareholders and filed with the Registrar of Companies.
- 5
Sign and complete
At closingStamp and sign the agreement, pass the resolutions, and update the company’s registers. Where a foreign investor is involved, complete the reporting under the foreign exchange rules.
Common questions
No. The law does not require one. Without it, the shareholders are governed only by the Companies Act and the articles, which say little about exits, deadlock or what happens when a founder leaves.
As a contract between the shareholders, yes. To bind the company, and anyone who later buys shares, its terms need to be in the articles. The Supreme Court held in V.B. Rangaraj v. V.B. Gopalakrishnan that a transfer restriction not in the articles does not bind the company.
A tag-along right lets a minority shareholder join a sale by the majority on the same terms. A drag-along right lets the majority, or an investor, require the others to sell in a sale of the whole company. Both need clear triggers and price protection.
Decisions the company cannot take without the consent of a named shareholder or a set majority, such as issuing new shares, changing the business, taking on large debt or selling key assets. The list should protect the investment without slowing daily management.
A shareholder who wants to sell must first offer the shares to the other shareholders, on the terms offered by an outside buyer. A right of first offer reverses the order: the others are offered the shares before the seller goes to the market.
By the mechanism in the agreement: escalation to senior people, mediation, a casting vote, or a buy-out procedure in which one side names a price and the other chooses to buy or sell. Without one, a deadlock can end in a winding-up petition.
No. Under the foreign exchange rules, a non-resident can hold shares with an option to exit, but not at an assured price. The exit has to be at a price determined under the pricing rules at the time.
Related
To discuss a shareholders’ agreement, write to info@ireniclegal.com or call +91 96547 47331. Written by Adv. Kanika Marwaha Bindal; last updated 7 October 2026.