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yuvjay   28 November 2018

Contract or shareholder agreement

Hi, My friend started a small startup company of 10 lacs and registered it around 10 months ago. Later I invested 5 lacs into it making it 33.33 share. when I ask my friend to signup an investor agreement and mentioning the returns percentage, He says that his auditor is suggesting that I have to be made as Director and create an new share holder agreement. I trust him, but I am looking for a legal document for a proof of my investment? I am being confused by the auditor. What is the right agreement that I need to sign up here? Kindly advise.


 4 Replies

G.L.N. Prasad (Retired employee.)     28 November 2018

There are two things involved.  If you are a share holder there is no security for investment.  If you want security for your investment with fixed returns you have to obtain stamped receipt, agreement for the amount lent by you.  Contact a local advocate either for opting as a shareholder risking your investment or as a lender securing your investment for a fixed amount of return and with a charge on company's assets.

H.M.Patnaik (Proprietor)     28 November 2018

Dear Yuvjay,

First of all ,pl. find out whether the business entity initially  registered by your friend is an One man company under Ministry of Company affairs or a Sole proprietorship firm. This you can ascertain by checking the incorporation doc.i.e.a) The certificate of incorporation and Article & memorandum of Association in case it is an One man Company or b) Copy of business PAN and GST Regn. certificate. 

In case ,the existing entity isan One man company, it can be converted into a Private limited company or LLP(Limited Liability Partnership) inducting you as a new shareholder/Director as per requirement of business.

In case ,the entity is found to be a Sole proprietorship firm, it can be converted to a Partnership firm/LLP/Pvt. Ltd. company for accomodating you as a co-owner of business.

You have stated that you invested funds worth Rs. 5.00 lakh in the on-going businss for a secured return,as rightly pointed out by Expert above, it is possible only if you lend money to the business as an outsider and not as a co-owner or Director.Because,the return on Capital invested in a business can only be knownafter completion of its accounting period which is normally a financial year.

Besides, sharing of profits of a business in the ratio of 33:66 is possible between you and your friend in the given investment ratio of Rs.5.00 lakh : Rs.10.00 lakh in a Partnership firm or LLP as the same is mentioned in the Deed of partnership.

Hope, this clears your confusion.

Dr J C Vashista (Advocate)     29 November 2018

Well advised by experts, I agree and nothing more to add except the fact to consult a local lawyer practicing company matters in case any guidance or proceeding to secure your interest.

yuvjay   29 November 2018

Thanks so much for your replies and providing clarity.

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