Shareholder’s Agreement

Mr. Ravi Shankar Devarkonda, a Chartered Accountant and Company Secretary by profession is a domain expert in the field of finance and secretarial practices. He is the Chief Financial Officer (CFO) of Nandi Infrastructure Corridor Enterprises Ltd, Kalyani Group and is also a registered Valuer as per Insolvency and Bankruptcy Code of India.
A shareholders’ agreement is an agreement among the shareholders of a company. It protects both the business and its shareholders. A shareholders’ agreement describes the rights and obligations of shareholders, issuance of shares, the operation of the business, and the decision-making process. While these part-owners earn profit by investing in a company’s stocks, they also play an important role in operating, financing, governing and controlling various aspects of a business. The Shareholders
Agreement is binding only on the parties to the Agreement, and it is a contractual arrangement between the parties. A properly drafted Shareholders Agreement will help to maintain a healthy relationship between the parties.
So, the session started with the discussion of various topics concerned like:

  1. The speaker started by explaining what is share capital, the basic fundamental of a company arrangement and what is a share agreement.
  2. Next, he jumped onto Due Diligence(DD) procedure and it types which are: Legal DD, Technical DD and Administrative DD
  3. Then comes Pre Negotiation Stage, wherein the first process is
    – Commercials: Commercials are foundation of all commercial contracts and the legal clause only supplements it.
    – Letter of Intent/ MoU/ Term sheet
    – Negotiation: The art of arriving at a consensus between two parties.
  4. Next comes drafting a Shareholders Agreement (SHA) , Drafting is done keeping in
    mind two clauses – Generic clause and Common clause.
  5. The speaker briefed about what are the key consideration area of SHA, that are:
    – Regulatory Framework
    – Commercial Consideration
    – Transfer provision
    – Equity Shareholding pattern
    – Minority rights protection
  6. Then he explained the Key Clauses under Shareholding Agreement:
    – Anti Dilution Right
    – Quorum Right
    – Veto Right/ Affirmative Right
    – Share Transfer restriction Right
    – Tag along Right
    – ROFR (Right of First Refusal)
    – ROFO (Right of First Offer)
    – Drag along Right
    Exit Rights:
    i) IPO
    ii) Third party sale
    iii) Share Buy Back
    iv) Sale of assets and liquidation.
  7. Then he explained the concept of Deadlock; Deadlock can occur both at the Board as well as at the shareholder level.
  8. Then he talked about Veto Rights and its matters, which are
    – Takeover of new Business
    – IPO
    – Amalgamation, M&A, Reorganisation and consolidation
    – Appointment/Removal of company auditors.
    – Modification in MOA and AOA
    – Any change in composition of Board of Director

The session was insightful and full of learnings as we were able to understand the fundamentals of share agreement, basics of secretarial practices and company working and got to know a lot about the rights governing minority shareholders

About ISBR: ISBR Business School, Bangalore-based, Top Class B School for PGDM or MBA, Consistently ranked as best B School in India, AICTE-CII Platinum Category, with multiple specializations