Shareholder Agreements In Family Business India

WHY SHOULD A COMPANY HAVE A SHAREHOLDERS AGREEMENT?

“Owners agreeing and documenting the ownership policies and to how to work together is the foundation for businesses to last long”

Family businesses start off with a great entrepreneurial and family spirit. But, the ownership and the family business face challenges in their journey of growth. Conflicts increase with business growth and family growth. The disputes become difficult to resolve due to the relationships within the family members. When the business is not progressing in harmony, the shareholder/shareholders Agreement, which helps sort out the challenges and conflicts effectively.

WHAT IS A SHAREHOLDERS AGREEMENT?

The shareholder/shareholders agreement establishes a framework for a fair congenial environment in the business and sets out the rights and obligations of the shareholder/shareholders . It gives clarity to the shareholder/shareholders as to how the business will be managed on day-to-day basis.

The shareholder/shareholders agreement gives a total ownership and operating structure, which has to be followed to by all the shareholder/shareholders and resolve the routine challenges before they turn into conflicts.

WHAT DOES A SHAREHOLDERS AGREEMENT INVOLVE?

A shareholder/shareholders agreement of a family business has several provisions for maintaining harmony within the family members ensuring business continuity for generations.

The shareholder/shareholders agreement provides:

A well-defined conflict resolution mechanism
Policies for protecting the rights of the minority shareholder/shareholders
Policies for sale / transfer of shares
Policies to deal with the demise / incapacitation of shareholder/shareholders
Roles and responsibilities of shareholder/shareholders

The shareholder/shareholders agreement does not have a standard format it can be either in brief or as in as much details possible, as per circumstances and requirements of the shareholder/shareholders and the demands of the family business.

HOW DOES A SHAREHOLDERS AGREEMENT HELP A FAMILY BUSINESS?

The shareholder/shareholders agreement is important for operating the day-to-day operations of the business and also for ensuring that the family businesses last for generations.

The shareholder/shareholders agreement, clearly defines and protects:

Share Ownership and Allocation
Minority shareholder/shareholders
Policies of ownership
Policies for sale / transfer of shares

SHAREHOLDERS AGREEMENT FOR SUCCESSION PLANNING:

The shareholder/shareholders Agreement serves as a great framework for succession planning.

In the event of the sudden demise of a shareholder/shareholders , the distribution of shares of the deceased and responsibilities can be debatable, challenging, painful and quite stressful.

Provisions can be made in the shareholder/shareholders Agreement to address such sensitive situations and for maintain harmony within the family business.