Shareholder’s

Agreement Drafting

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Shareholder’s Agreement

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What is a Shareholders Agreement?

A Shareholders Agreement is a legally binding contract between the shareholders of a company that defines their rights, responsibilities, and obligations. It governs how the company will be managed, how shares can be transferred, and how key decisions will be made.

This agreement acts as a safeguard against future disputes by clearly outlining terms related to voting rights, dividend distribution, and exit strategies. It ensures transparency among shareholders and provides legal protection for both majority and minority investors, making it an essential document for any company with multiple shareholders.

Who Needs a Shareholders Agreement?

A Shareholders Agreement is required by any company that has two or more shareholders, regardless of its size or stage of growth. It is especially important for private limited companies, startups, joint ventures, and investor-backed firms where ownership and decision-making must be clearly defined.

Founders, investors, and new shareholders benefit from having this agreement as it helps prevent conflicts, protects minority interests, and ensures a smooth functioning of the company. Even family-owned businesses or small partnerships converting into companies should have a shareholders agreement to maintain clarity and long-term stability.

Shareholders-Agreement-Explained-–-Rights,-Duties-&-Obligations

When Should You Draft a Shareholders Agreement?

A Shareholders Agreement should be drafted at the time of company incorporation or before introducing new investors or partners. Creating the agreement early ensures that all shareholders understand their rights and responsibilities from the beginning. It is also essential when there are changes in ownership, capital structure, or management roles.

Drafting it before any investment round helps avoid future disputes and sets clear terms for profit-sharing, decision-making, and share transfers. In simple terms, the earlier you draft a shareholders agreement, the stronger your company’s legal foundation will be.

Why Ebizfiling for Shareholders Agreement Drafting?

Ebizfiling provides expert assistance in drafting a Shareholders Agreement that is legally valid, customized, and compliant with the Companies Act, 2013. Our team of professionals ensures that every clause is clearly defined to protect the interests of all shareholders and prevent future disputes. We help structure important terms such as shareholding patterns, voting rights, transfer restrictions, exit options, and profit distribution with complete legal precision.

From consultation to final drafting, every step is handled with confidentiality and accuracy. Our expert deliverables are, Specific Power of attorneyForeign Collaboration AgreementWeb Development Agreement, Franchise Agreement,Joint Venture Agreement and Vendors Agreement.

To get started, visit www.ebizfiling.com or call 09643203209 for expert guidance.

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  • Drafting of Shareholders Agreement

 Key Clauses in a Shareholders Agreement 

Shareholding Clause

Specifies each shareholder’s ownership percentage and total number of shares held in the company.

Voting Rights Clause

Defines how shareholders vote on company matters and which decisions need majority or unanimous consent.

Transfer Clause

Outlines the rules and restrictions for selling or transferring shares to protect existing shareholders.

Board Clause

Explains how directors are appointed or removed and the powers they hold in managing the company.

Dividend Clause

States how profits will be distributed among shareholders and when dividends will be paid.

Exit Clause

Includes terms like drag-along, tag-along, or buy-back rights that allow a smooth exit or sale of shares.

Non-Compete Clause

Restricts shareholders from engaging in businesses that directly compete with the company.

Dispute Clause

Provides a legal mechanism for resolving conflicts, typically through mediation or arbitration.

 Documents Required for Drafting a Shareholders Agreement 

Documents for Shareholders Agreement

  • Certificate of Incorporation of the company

  • Memorandum of Association (MOA) and Articles of Association (AOA)

  • List of all shareholders with shareholding details

  • Identity proof of shareholders (PAN or Passport)

  • Address proof of shareholders (Aadhaar, Utility Bill, or Driving License)

  • Board Resolution authorizing the agreement drafting

  • Details of directors and authorized signatory

  • Capital contribution and share transfer details

  • Proposed terms or clauses agreed upon by shareholders

 Advantages of Having a Shareholders Agreement 

Clear Ownership

It defines the exact ownership and shareholding structure of each shareholder, avoiding future misunderstandings.

Decision Clarity

The agreement outlines how key business decisions will be made, ensuring smooth management and transparency.

Investor Protection

It safeguards the rights of minority shareholders and sets fair rules for majority decision-making.

Transfer Control

The agreement restricts unwanted share transfers and gives existing shareholders priority rights.

Conflict Prevention

Clearly defined roles, voting rights, and dispute clauses help prevent conflicts between shareholders.

Business Stability

It ensures the company continues to operate smoothly even if ownership or management changes.

Legal Security

A written agreement provides legal protection to all shareholders under the Companies Act, 2013.

Long-Term Vision

It aligns all shareholders with the company’s long-term goals, promoting trust and business growth.

 Stepwise Process of Shareholders Agreement Drafting with Ebizfiling 

1

Information Collection

2

Requirement Discussion

3

Draft Preparation

4

Review and Revisions

5

Final Agreement Delivery

 What Does Ebizfiling Do for Shareholders Agreement Drafting? 

  • Ebizfiling understands your company structure, shareholder roles, and business goals to create a customized agreement.

  • Our experts draft a legally valid Shareholders Agreement that clearly defines ownership rights, voting powers, and profit distribution.

  • We include key clauses like share transfer rules, exit terms, dispute resolution, and non-compete obligations for full protection.

  • The draft is reviewed with you, and necessary changes are made to ensure it matches your business needs perfectly.

  • Once finalized, we deliver the ready-to-sign agreement and assist with related legal documents such as Founders Agreement, Investment Contract, and Share Purchase Agreement.

FAQs

FAQs on Shareholders Agreement in India 

Get answers to all your queries

  • What is a Shareholders Agreement?

    A Shareholders Agreement is a legal contract between the company’s shareholders that defines their rights, responsibilities, and terms of ownership.

  • Is a Shareholders Agreement mandatory in India?

    No, it is not mandatory under law, but it is strongly recommended to maintain clarity and prevent disputes among shareholders.

  • Who can enter into a Shareholders Agreement?

    All shareholders of a company, including founders, investors, and minority shareholders, can enter into a Shareholders Agreement.

  • When should a Shareholders Agreement be drafted?

    It should be drafted at the time of company incorporation or before introducing new shareholders or investors into the business.

  • Is a Shareholders Agreement legally enforceable in India?

    Yes, it is legally enforceable as long as it complies with the Companies Act, 2013, and does not contradict the Articles of Association (AOA).

  • What is the main purpose of a Shareholders Agreement?

    The main purpose is to clearly outline ownership rights, voting powers, profit-sharing, dispute resolution, and exit mechanisms among shareholders.

  • Can a Shareholders Agreement override the Articles of Association?

    No, the Articles of Association take legal precedence. The agreement should always be consistent with the company’s AOA.

  • What are the key clauses in a Shareholders Agreement?

    Key clauses include shareholding structure, voting rights, transfer of shares, dividend distribution, dispute resolution, and exit terms.

  • Can a Shareholders Agreement be changed later?

    Yes, it can be amended with the mutual consent of all shareholders who are parties to the agreement.

  • Is notarization required for a Shareholders Agreement?

    Notarization is not mandatory, but it is recommended to add authenticity and legal strength to the agreement.

  • Can a Shareholders Agreement be signed electronically?

    Yes, it can be signed electronically using valid Digital Signature Certificates (DSCs) under the Information Technology Act, 2000.

  • What happens if there is no Shareholders Agreement?

    Without it, shareholder rights and dispute resolution will depend solely on the Articles of Association, often leading to ambiguity and conflict.

  • Can foreign shareholders be included in the agreement?

    Yes, foreign shareholders can be part of the agreement, provided it complies with FEMA regulations and other applicable Indian laws.

  • Does a Shareholders Agreement need to be filed with ROC?

    No, it is a private contract between shareholders and does not need to be filed with the Registrar of Companies (ROC).

  • What is the difference between a Shareholders Agreement and a Partnership Agreement?

    A Shareholders Agreement is for companies, while a Partnership Agreement applies to partnerships or LLPs. The rights and liabilities differ legally.

  • What are drag-along and tag-along rights?

    These clauses protect minority shareholders during share sales. Drag-along allows majority shareholders to compel a sale, while tag-along lets minority shareholders join the sale.

  • Can the agreement restrict the sale of shares?

    Yes, the agreement can include transfer restrictions to prevent unwanted third parties from becoming shareholders.

  • What law governs a Shareholders Agreement in India?

    It is governed by the Indian Contract Act, 1872, along with the Companies Act, 2013, depending on its clauses.

  • How long is a Shareholders Agreement valid?

    It remains valid as long as the shareholders continue to hold shares and the agreement is not terminated or replaced by a new one.

  • Why should I draft a Shareholders Agreement with Ebizfiling?

    Ebizfiling ensures that your Shareholders Agreement is legally sound, clearly written, and customized to your business needs, protecting all shareholders’ interests effectively.

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