Fundraising & Deal

Shareholders' Agreement (SHA)

Execute on stamp paper of the value prescribed in the State of execution, or pay duty electronically. The commercial terms of this agreement must also be written into the Articles of Association — an agreement alone does not bind the Company or a transferee.

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Shareholders’ Agreement

Between the Company, the Founders and the Investors

THIS SHAREHOLDERS’ AGREEMENT is made at [PLACE] on [DATE]

BY AND AMONG:

(1)[COMPANY NAME], a private limited company incorporated under the Companies Act, 2013, bearing CIN [CIN], having its registered office at [ADDRESS] (the "Company");

(2)[FOUNDER 1], [son / daughter of ______, aged ______ years], residing at [ADDRESS], holding PAN [PAN]; [FOUNDER 2], [particulars]; and [FOUNDER 3], [particulars] (each a "Founder" and together the "Founders");

(3)[INVESTOR 1], [constitution and jurisdiction], having its [registered office / principal place of business] at [ADDRESS] (the "Lead Investor"); and

(4)[INVESTOR 2], [particulars] (with the Lead Investor, each an "Investor" and together the "Investors").

The Company, the Founders and the Investors are together the "Parties" and each a "Party".

Recitals

A.The Company is engaged in the business of [DESCRIBE THE BUSINESS] (the "Business").

B.The Founders are the promoters of the Company and hold the shares set out against their names in Part A of Schedule 1.

C.Pursuant to a share subscription agreement dated [DATE] (the "Subscription Agreement"), the Investors have agreed to subscribe to the securities set out in Part B of Schedule 1.

D.The Parties wish to record the terms governing their relationship as shareholders of the Company, the management and governance of the Company, and the rights attaching to their securities.

NOW THEREFORE the Parties agree as follows:

1. Definitions and Interpretation

1.1In this Agreement, unless the context otherwise requires:

"Affiliate" means, in relation to a person, any entity that directly or indirectly Controls, is Controlled by, or is under common Control with that person, and in the case of a fund, any other fund managed or advised by the same manager or adviser or by an Affiliate of that manager or adviser.

"Articles" means the articles of association of the Company as amended from time to time.

"Bad Leaver" has the meaning given in Clause 9.4.

"Board" means the board of directors of the Company.

"Business Day" means a day other than a Saturday, Sunday or public holiday on which banks are open for general business in [CITY].

"CCPS" means the compulsorily convertible preference shares of the Company of face value ₹ [FACE VALUE] each having the rights set out in Schedule 2.

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19 more pages in the Word file

Preview of the first page. Highlighted fields are the ones you fill in — they appear the same way in Word. Scroll the preview to read on; the full document runs to 20 pages.

Notes for use

These notes accompany the template and explain the drafting choices, the compliance points and the mistakes most often made with this document. They appear as a final page in the Word file, intended to be deleted before the document is executed.

This agreement is only half the job

A shareholders’ agreement binds the parties to it. It does not bind the Company unless the Company is a party, and it does not bind a transferee or a future shareholder at all. Every substantive right — the preference, the reserved matters, the transfer restrictions, the drag, the leaver provisions — must also be written into the Articles of Association and the amendment filed with the Registrar of Companies. Clause 15 obliges the parties to do this; make sure it actually happens within the thirty days, because it is the step that is most often forgotten and most expensive to discover late.

Transfer restrictions in a private company

Section 58(2) of the Companies Act, 2013 provides that securities of a public company are freely transferable, with a proviso making a contract or arrangement for the transfer of securities enforceable as a contract. For a private company, Section 2(68) requires the Articles to restrict the right to transfer shares. The practical consequence is unchanged: put the pre-emption, tag and drag mechanics in the Articles, and the agreement supports rather than substitutes for them.

Drag-along and the dragged minority

Drag rights are enforceable in India but are attacked when they are one-sided. The protections that make a drag defensible are a minimum holding period, a floor price or minimum return, the same terms for everyone, no business warranties or uncapped indemnities from dragged shareholders, and a power of attorney to complete the paperwork. Clauses 8.7 and 8.8 include all five. Removing the floor price to please an investor materially weakens the clause.

Assured exits to non-residents

Clause 10.4 is not optional drafting. An exit right that guarantees a person resident outside India a fixed return, or a put at a pre-agreed price, converts an equity instrument into debt for exchange-control purposes and is impermissible. Structure the exit as an obligation of efforts, a right to run a process, a drag, or a put at fair market value determined at exercise. Do not agree an internal-rate-of-return floor in favour of a foreign investor.

Reserved matters — too many is as bad as too few

Twenty-four reserved matters is a normal Series A list. What makes it workable is the monetary thresholds. Leave them blank and the investor holds a veto over routine purchases; set them sensibly and the list becomes an escalation policy rather than an obstruction. Also agree a deemed-consent mechanism if the investor is slow to respond — many companies add one after the first missed deadline.

Quorum and the deadlock trap

Requiring the Investor Director for quorum gives an effective veto over everything, not just the reserved matters, because the board simply cannot meet. Clause 4.7 solves this with a second-meeting mechanism: the adjourned meeting proceeds without the Investor Director, but reserved matters still require consent. This is standard and both sides should insist on it.

Founder vesting protects founders too

Reverse vesting on shares a founder already owns feels punitive until one of three co-founders leaves in month eight holding a third of the company. Negotiate the terms that matter: credit for time already served, a tightly drawn Bad Leaver definition confined to genuine misconduct, a Good Reason limb so that constructive dismissal does not convert a founder into a bad leaver, and acceleration on a change of control.

Buy-back mechanics have hard legal limits

Clause 9.6 flags this. A company can only buy its own shares within the limits of Sections 68 to 70 of the Companies Act, 2013 — out of free reserves or securities premium, within the 25 per cent limit, with a debt-equity test, and not more than once in a year. Where the leaver’s shares cannot lawfully be bought back, the purchase must be by the other founders or a nominee. Say so, and identify who funds it.

Why there is no non-compete

Section 27 of the Indian Contract Act, 1872 voids agreements in restraint of trade. Indian courts enforce restraints that operate during the term of employment and decline to enforce those that operate after it. Clause 9.7 therefore imposes confidentiality and non-solicitation, which are enforceable, and Clause 11.3 imposes exclusivity during the engagement, which is also enforceable. An investor accustomed to Delaware or English drafting will ask for a post-termination non-compete; the honest answer is that it would not be enforced.

Data protection is now a diligence item

Clause 11.2(a) and (e) reflect the Digital Personal Data Protection Act, 2023 and the rules made under it, whose substantive obligations are being phased in. Investors are beginning to warrant and diligence against them. A company that has no consent notice, no retention policy and no breach-response process will be asked to build one as a condition precedent — building it before the round is cheaper.

Stamp duty and execution

Stamp duty on a shareholders’ agreement is State-specific and is usually charged as an agreement, though a few States charge on the value of the securities dealt with. Execute in the State whose duty you have paid, and note the place of execution correctly on the first page. If the parties sign in different States, the highest applicable duty is the safe assumption.

Read this alongside the Subscription Agreement

This agreement governs the ongoing relationship. The warranties, disclosure letter, conditions precedent, completion mechanics and indemnity sit in the Share Subscription Agreement and are not repeated here. Make sure the two documents define the same terms the same way, and that the entire-agreement clause in each preserves the other.

Current as of

Reflects Indian law current as of {{DATE OF USE}}. Company law, exchange control and data-protection positions change frequently. Have this agreement settled by counsel and the Articles amended by a company secretary before completion.

This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, company secretary, or chartered accountant as relevant) before you rely on it.