Shareholder’s agreement vs. Share purchase agreement

Last Updated at: Jun 26, 2020
Shareholder's agreement vs Share purchase agreement

Shareholder’s Agreement

Shareholders are generally considered as the true owners of the company. The agreement which is entered between both the company and the shareholders describing the obligations rights is known as the Shareholder’s Agreement.

Shareholder’s agreement is mainly entered to dissolve the problems and disputes taken place between the shareholders and the company. We cannot be always sure that nothing will go wrong and in such circumstances where nothing is certain, such agreements will help us in dissolving the problems and disputes if it occurs and to maintain a steady relationship between the shareholders and the company. It also helps in protecting the investment which is made by a shareholder and lays down the rules and regulations for the shareholders and the other parties related to the company.

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Essentials of Shareholder’s agreement

It is essential to regulate the shareholder’s agreement because not every shareholder who is a part of the company is the same. The agreement has to be drafted by keeping everyone in mind that every person is different from each other and has a different opinion on matter or subjects concerned. And that these persons may or may not agree with each other.

It will be uncertain to say that there will be no problems and disputes which might arise while investing in a company. Hence, the company has to be prepared for such situations as well. The problems and disputes not only mean problems and disputes within, but it also means the problems and disputes with the rival company or the competitive company.

To resolve such issues with shareholders, companies generally opt for out of court settlements such as arbitration, conciliation or negotiation between the company and shareholders.

Shareholder’s agreement is a mechanism which protects the company from losses and protects the company interest. Every shareholder agreement has to have the important provisions stated above to create a good balance between the company’s interests and the shareholder’s interest.

The shareholder agreement defined mainly with the relationship between the shareholder and the company. Based on the various rights and obligations of shareholders, which are mainly instrumental in safeguarding shareholders.

Most companies and shareholders prefer to conclude an agreement based on the Companies Act, which mainly allows for the provisions in all other respects. In particular, it provides accountability based on rights with a responsibility for the two parties which helps the proceedings tremendously.

Share Purchase Agreement

A share purchase agreement is an agreement made between two parties. Here the seller agrees to sell the mentioned number of shares to the buyer at a specific price. The main aim of the document is to prove that it’s terms and conditions of the agreement are mutually agreed. Such an agreement specifies the consideration and the required number of shares that need to be sold, the conditions precedent and covenants by the parties. The shares will be allotted after the parties sign it based on this agreement.

A Share Purchase Agreement is an essential business practice when a shareholder is being initiated. Absence of such a document can have several uninvited consequences.

The document gives both parties a chance to protect their interests before transferring the shares. Being a wide-ranging document, it covers each aspect of the transaction. Both parties must examine each clause mentioned in the document and understand its meaning.

What are the main features of the shareholder agreement and the share purchase agreement?

There are two common aspects that create and establish the relationship between the two parties. They are the shareholder agreement and the share purchasing agreement. One party uses this so that the other party investing can also participate in the process.

Such agreements between the two parties form the basis for the contract structuring.

The agreement will serve the party’s intent to extend the investment with the rise.

A party can obtain a significant return with other parties mainly based on two things. The two things are the rests that are made and the overall performance of the business.

Internal Approvals needed for Share Transfer SPSHA

  • In the event of an acquisition, both the Companies must pass Board Resolution as indicated in S. 179 (k) (where you acquire control / substantial stake in another company). They must also amend the company’s articles if they refrain from entering into such arrangements.
  • A certified copy of the board resolution and other permissions/approvals is one of the condition precedents in the agreement.