19.3.2013

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19.3.2013

  1. 1. SHAREHOLDERS’ SHARE SUBSCRIPTIONAGREEMENT AGREEMENT Shareholders’ agreement is an  Share subscription agreement is agreement amongst the an agreement to subscribe to the shareholders of a company. shares of a company.  It is an agreement not between All shareholders are party to shareholders but, between the the agreement. company and future shareholders. The agreement lays down the  This agreement lays down the rights and liabilities of the terms of share subscription viz. shareholders. It prescribes price of the share, date of the lock in period, voting subscription, type (preference or equity) of shares, payment terms rights, conditions with regard etc. It includes price of the to transfer of shares etc. share, time limit by which subscription is to be brought in etc.
  2. 2. SHAREHOLDERS’AGREEMENT SHARE SUBSCRIPTION AGREEMENT The purpose of shareholders’  The purpose of share agreement is to ensure fair subscription agreement is to treatment of the shareholders have a commitment from the and protect their rights. Such subscribers. It lays down clear agreements are entered into terms of agreement to avoid in case of takeover of any confusion with management or shareholders or future disinvestment of holdings by shareholders. the promoter shareholders of the company.
  3. 3. Where do you need ashareholders’ agreement? Quasi-partnership-Shareholders’ agreement can ensure an equal say of shareholders in how the company runs, equal access to company information, equal share in company success etc. Outside investor-Shareholders’ agreement can be used to protect the rights of an outside investor. Joint venture company-When two businesses set up a company to carry on a joint venture, they usually want to vary the company law rules so that neither can take any decision of the company without consent of the other.
  4. 4. Why do you need a sharesubscription agreement? By entering into a share subscription agreement, rights of the subscriber or future shareholder are protected. He gets warranties and indemnities from the company and if appropriate from the existing shareholders. The shares in the company that he subscribes for are free from security interests. He has an opportunity to undertake complete due diligence before he completes his subscription. The subscription shares are issued to him on the date of completion.
  5. 5. Risks of not having shareholders’agreement Various problems arise between shareholders in the course of business. These problems may not have a simple solution in the absence of shareholders’ agreement. Without a shareholders’ agreement, there is much more potential for disagreement between shareholders, particularly if things start going wrong. In case of a partner leaving, deciding the fate of his shares can be problematic in the absence of shareholders’ agreement.
  6. 6. Risks of not having share subscriptionagreement  The subscriber may buy shares that are not free from security interests or are not properly issued by the company.  He may shares in a company without knowing the financial position of the company.  There may be limited recourse against the company or existing shareholders if the value of the company is misrepresented.

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