A shareholder agreement is a negotiation document that is formed between the investors, the promotors and the shareholders. This document lays down various commercial rights, management rights and exit rights available to the shareholders. It also regulates the transfer of shares, valuation of shares, dividend policy etc.
This document is also a safeguard mechanism for the investors who negotiate with the company at the initial stages itself. Investors negotiate favourable terms at the negotiation stage of Issue of Shares via private placement in lieu of the additional funding that they provide.
The pre-emptive rights of investors in SHA could be:
- Differential Shareholder Rights: Put Option, call Option, Rights of First Offer, Rights of First Refusal
- Additional Dividend: Right to receive additional dividends over and above what is paid to normal shareholders.
- Board Seats and Veto Rights.: Exercising veto power and a board seat in case of substantial investment and higher shareholding pattern.
- Rights to maintain their percentage shareholding by buying shares before the new round.
- Anti-Dilution Rights: Restriction of issuing the shares in the new rounds at a price which is lower than the price paid originally by the investors.
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