Legal Importance & Sanctity of Shareholders Agreement
The professional team of Advocates & Lawyers of My Lawyers Advice are taking up an initiative solely to educate and enlighten the public at large with respect to the various aspects of different laws and/or legislations vis a vis their legal implications and importance while duly considering the legal procedures involved. The professional Advocates & Lawyers are sharing their experiences solely for the purpose of spreading legal education. The name of the actual entity and/or person is hidden and shall be hereinafter mentioned and referred to as “Querist”.
A Querist, who happens to be shareholder and a Director in a Private Limited Company which was incorporated in the year 2011 had approached us with a grievance. The Querist had invested Rs. 25,00,000/- into the Company by way of his share in the working capital of the Company. There were two other shareholders & Directors in the company having 40% and 35% shareholding respectively. The business grew well and was making good profits, however, there were repeated quarrels and tussles between the shareholders as there existed no Agreement between them, to define and outline their rights and liabilities. The clashes rose to an all time high level and the Company stood on the verge of closure in spite of the fact that it was doing extremely well in the last six years with a strong EBITA and profit margins.
The idea behind sharing this case study is to enlighten the Entrepreneurs & Corporates that had the Querist would have executed a proper Shareholders Agreement before commencing the operation the situation in hand would not have arisen. The Shareholders Agreement defines and outlines the entire relationship along with the rights and responsibilities of the shareholders vis a vis their duties and obligations. Thus, every Entrepreneur & Corporate should execute a Shareholders Agreement before commencing the operations of their business in order to avoid embarassments and friction in future.
We hope that the case study would envisage the legal importance and sanctity of the Shareholders Agreement to our readers and increase their knowledge about the basics of business laws and/or corporate laws.