Shareholders’ Agreement (SHA) Drafting
A shareholders’ agreement records who controls your company and how an owner can sell out. We draft the SHA for your review and amend your articles of association to match it, with Form MGT-14 filed within 30 days.
What it is
A shareholders’ agreement (SHA) is a private contract between the shareholders of a company, and usually the company itself. It covers what the Companies Act leaves open, such as who nominates directors and who gets the first chance to buy shares. Investors ask for one before they release money.
The SHA sits alongside the articles of association. Section 5 of the Companies Act, 2013 makes the articles the rulebook for managing the company, and Section 2(68) requires a private company’s articles to restrict share transfers. Here is the catch: an SHA works fully only when the articles say the same thing. So we amend them by special resolution under Section 14 and file Form MGT-14 on the MCA V3 portal.
Who it applies to
You share the company with co-founders or family
Two or more people own the company and want the rules in writing before a disagreement, not after it. Common in family businesses where siblings or cousins hold different stakes.
You are bringing in an investor
Investors sign a share subscription agreement for the money and an SHA for their rights. If you hold Startup India recognition and an investor sends a term sheet, the SHA turns it into binding terms.
You are forming a joint venture
Two businesses, or an Indian promoter and a foreign partner, share one company. Where a non-resident holds shares, any exit price must also follow FEMA pricing rules.
Why it matters
Settle control before the money arrives
Agree board seats and veto rights while everyone is on good terms, not in the middle of a fight.
Give every owner a way out
Transfer clauses give each holder a route to sell and a say in who joins.
Stop a deadlock from freezing the company
Two cousins run a 50:50 packaging unit and split over a machine loan. With no tie-breaker, every board vote ends level. The SHA sets an escalation path and a final buy-sell clause.
Documents required
From the company
- Certificate of incorporation and CIN
- Memorandum and articles of association
- Register of members or cap table
From each shareholder
- PAN and address proof
- Number and class of shares held
- Residential status: resident, NRI or foreign entity
- Any earlier agreements or side letters
For signing and filing
- Term sheet or the agreed commercial points
- Board resolution authorising a director to sign for the company
- E-stamp paper for the state where the SHA is signed
- Digital signature certificate (DSC) of a director for MGT-14
Key clauses at a glance
| Clause | What it does | What to watch |
|---|---|---|
| Board seats | Each major holder nominates an agreed number of directors | Nomination rights must also sit in the articles |
| Reserved matters | Listed decisions, such as new shares or large borrowing, need a named holder’s consent | Cannot override the Act (Section 6) |
| Right of first refusal (ROFR) | A seller must first offer shares to existing holders at the same price and terms | A transfer restriction, so it belongs in the articles |
| Tag-along | If a majority holder sells, minority holders can sell on the same terms | Define the trigger, such as a sale of control |
| Drag-along | If holders above an agreed threshold accept an offer, the rest must sell on the same terms | Same price and terms protect the minority |
| Anti-dilution | Adjusts an investor’s conversion price if later shares are issued cheaper | Full ratchet or broad-based weighted average |
| Exit | Strategic sale, IPO, put or call options, or a company buy-back | Buy-back limits in Section 68; FEMA pricing for non-residents |
| Deadlock | Escalation, mediation, arbitration, then a buy-sell clause | Define exactly what counts as a deadlock |
A company buy-back has its own limits under Section 68: the articles must authorise it, it cannot exceed 25% of paid-up capital and free reserves, debt afterwards cannot exceed twice the paid-up capital and free reserves, and two buy-backs need a one-year gap.
How it works
Map the shareholding and the deal
We read the cap table and term sheet and flag any non-resident holder. Then we list what is still undecided.
Draft the SHA for your review
We draft the agreement for your review and revise it after comments from all sides. Each party is free to take independent advice. Any legal notice or court filing under it must be signed by a practising advocate.
Rewrite the articles to mirror the SHA
We draft the altered articles and the special resolution under Section 14. Where a clause must be hard to change, we use entrenchment under Section 5(3). After formation, a private company can add it only with every member agreeing.
Stamp and sign the agreement
In practice, we have the e-stamp paper generated before anyone signs; in Haryana, against a GRN on the e-GRAS portal. Every shareholder signs. So does the company, through an authorised director.
File MGT-14 and update the registers
We file the special resolution and altered articles on the MCA V3 portal within 30 days, alongside your annual ROC compliance calendar.
Timelines
Stamp before or at signing
Section 17 of the Indian Stamp Act, 1899 says every instrument chargeable with duty and executed in India must be stamped before or at the time of execution.
File MGT-14 within 30 days
The special resolution altering the articles must reach the ROC within 30 days of being passed, under Section 117(1).
Lodge share transfers within 60 days
When a ROFR, tag or drag leads to a sale of physical shares, the SH-4 must reach the company within 60 days of execution, stamped at 0.015% of the consideration.
What happens if the articles don’t match
The company can ignore an SHA-only clause
In V.B. Rangaraj v. V.B. Gopalakrishnan, (1992) 1 SCC 160, the Supreme Court held that a share-transfer restriction not specified in the articles binds neither the company nor the shareholders.
Any clause that clashes with the Act falls away
Section 6 makes the Companies Act prevail over the articles and any agreement. A clause repugnant to the Act is void to that extent.
A late MGT-14 draws a penalty
Section 117(2) allows a penalty of ₹10,000 plus ₹100 a day, up to ₹2 lakh for the company and ₹50,000 per officer in default.
Picture a Faridabad auto-parts company owned by two families. Their SHA gives each family a right of first refusal, but nobody amended the articles. When one shareholder sells to an outsider, the other family finds nothing in the articles to stop it. Public companies differ: the proviso to Section 58(2) makes such a contract enforceable as a contract.
Frequently asked questions
Is a shareholders’ agreement mandatory for a private limited company?
No, the Companies Act, 2013 does not require one. Every company must have articles under Section 5, but an SHA is a contract the shareholders choose to sign. In practice, it becomes necessary once owners have different roles, or when an investor comes in, because an investor will ask for one before funding. Signed early, it costs a few meetings instead of a fight.
Does a shareholders’ agreement override the articles of association?
No. In V.B. Rangaraj v. V.B. Gopalakrishnan, (1992) 1 SCC 160, the Supreme Court held that a share-transfer restriction not found in the articles binds neither the company nor its shareholders. Section 6 of the Companies Act, 2013 also makes the Act override both documents. So we amend the articles by special resolution to mirror the SHA and file MGT-14 within 30 days. Once both say the same thing, the clause holds.
What stamp duty is payable on a shareholders’ agreement?
The duty is set by the stamp law of the state where the SHA is signed, and Section 17 of the Indian Stamp Act, 1899 requires stamping before or at execution. In Haryana, e-stamp paper is generated against a GRN on the e-GRAS portal. Rates differ between states, so we confirm the current rate before the paper is bought. Later share transfers under the SHA carry their own duty of 0.015% of the consideration.
What happens if the SHA is not stamped?
Under Section 35 of the Indian Stamp Act, 1899, an unstamped or under-stamped instrument cannot be admitted in evidence or acted upon by any authority. It can be cured only by paying the missing duty plus a penalty, which under that section equals ten times the deficient duty. A small cost at signing turns into a large one mid-dispute. Stamp on the day you sign and the issue never arises.
What is the difference between tag-along and drag-along rights?
Tag-along protects the minority; drag-along protects a sale. With tag-along, if a majority holder sells, minority holders can join at the same price and terms. With drag-along, if holders above an agreed threshold accept an offer for the company, the others must sell on those terms. In a private company both are transfer restrictions, which Section 2(68) places in the articles, so we write them there too.
How does an anti-dilution clause work?
It protects an investor if the company later issues shares below the investor’s price, by adjusting the conversion price of their preference shares. Under full ratchet, an investor who paid ₹100 a share and sees a new round at ₹80 is reset to ₹80. Under broad-based weighted average, the price lands between ₹80 and ₹100, depending on how many new shares are issued. Founders keep more equity under the weighted-average method.
What are reserved matters in an SHA?
Reserved matters are decisions that need a named shareholder’s consent on top of the usual vote. Common examples: new share issues, borrowing above a set limit, related-party deals and a change in the line of business. They cannot cut across the Act, because Section 6 voids any repugnant clause. A private company can entrench them in its articles under Section 5(3), which after formation needs every member’s agreement. A short, specific list protects investors without slowing daily work.
How can a 50:50 deadlock be broken?
Through steps written into the SHA in advance. The usual ladder runs from escalation to the two principals, through mediation and arbitration, to a buy-sell clause where one side names a price and the other must buy or sell at it. If the ladder fails, a member holding at least one-tenth of the issued share capital can petition the NCLT under Sections 241 and 244. Agreed early, the ladder gives both sides a way out short of the tribunal.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
The government costs are stamp duty on the SHA at your state’s rate, and the ROC fee for MGT-14 when the articles are amended:
| Authorised capital | MGT-14 normal fee |
|---|---|
| Below ₹1 lakh | ₹200 |
| ₹1 lakh to below ₹5 lakh | ₹300 |
| ₹5 lakh to below ₹25 lakh | ₹400 |
| ₹25 lakh to below ₹1 crore | ₹500 |
| ₹1 crore and above | ₹600 |
Filed late, the MGT-14 fee is multiplied 2× to 12× depending on the delay. A later share transfer under the SHA carries stamp duty of 0.015% of the consideration, or ₹1,500 per crore.
Ready to begin?
Share your cap table and term sheet; we will draft an SHA and matching articles that hold up when tested.