1. Shareholders of every company have to enter into a shareholders’ agreement or only shareholders of a joint venture company can enter into shareholders agreement?
First we need to understand what a Shareholders’ agreement is? It is a set of terms and conditions in which one prospective investor is promising to infuse funds in a company on terms of getting returns from the earnings of the prospective recipients of the said funds.
Joint venture entities are formed with intention to exchange the benefits of an industry. The benefits can be exchanged in terms of:-
a. Technical benefits of investor company
b. Geographical presence of investee company/ barriers on investors company
c. Existing market presence of investee company
d. Financial arrangements – debt has high leverages thus equity infusion is treated as most convenient.
Therefore, shareholders agreement needs not to be executed by every company but only where arrangement of funds required to be secured by the investor.
2. If all provisions are given in MOA& AOA then why to enter into a shareholders’ agreement? Is it necessary?
Is this a practice in other countries also?
It is a good question.
MOA the charter of the company covers only five clauses viz. Name clause, Registered Office clause (also situation clause) Object clause, Liability clause and capital clause.
Thus a shareholders’ agreement has nothing to do with Memorandum of Association.
Shareholders’ agreement is express opinion of the investors and investee companies. They mutually agree on terms of a business proposal. But in Shareholders agreement exact interests of parties are not defined. It is thus defined in the Shareholders agreement e.g. CEO and CFO nomination, detailed business terms etc. Whereas AOA is a sole document or soul document for internal management of the Company.