Shareholder Agreement (SHA)

A company having equity investors must have an SHA which acknowledges their contribution in a safe and secure manner. A Shareholder Agreement is a contract between the shareholders of a company which helps to establish a fair professional bridge between the stakeholders and the operation of the company.

Key Terms & Conditions of a Shareholder Agreement

• Parties to be defined;

• Business activity and its scope to be outlined clearly;

• Authorized and Paid Up capital to be defined;

• Issuance of further capital must be through the written consent of the shareholders;

• Rights and Obligations of the shareholders;

• Rights of the shareholders to appoint and remove the Board of Directors. They can also appoint themselves to be the Directors;

• Board Meetings & Shareholders’ Meetings;

• Rights to appoint a Quorum, voice a VETO, etc;

• Resolutions regarding nature and business activity undertaken by the Company, taking up loans, declaration of dividends, etc. should be taken through the written consent of the Board of Directors and Shareholders only;

• Appointment of auditors by the shareholders and their removal;

• Shareholding Threshold for enjoyment of rights under SHA;

• The power to sell the shares should not be over-amplified but also shouldn’t be undermined – the shareholder desiring to sell his shares should first express his desire to the other shareholders and if they are not interested, he should be allowed to sell it to any other interested party;

• Transfer of shares and lock-in period including right of first refusal, preemptive rights, buy-back rights, right of the first offer, etc;

• Governing Laws and jurisdiction of competent court;

• Non-compete and non-solicitation clause;

• Dispute Resolution – preferably arbitration clause.

Statutory Law References

Indian Contract Act, 1872

The Companies Act, 2013

Securities Contracts (Regulation) Act, 1956

Depositories Act, 1996

Landmark Judgments

V. B. Rangaraj v. V.B. Gopalakrishnan, AIR 1992 SC 453

Messer Holdings Limited v. Shyam Madanmohan Ruia, [2010] 159 Comp. Case 29 (Bombay High Court)

Russell v Northern Bank Development Corporation Ltd, [1992] 1 WLR 588

Important Do(s) & Don't(s)

• Lawyer consultation or online legal advice should be the preferred way of drafting an SHA.

• Neatly draft the Articles of Association while your company’s incorporation and not just copy-paste them.

• SHA does not bind third parties unless their affairs form part of public domain.

World’s Most Expensive Company Settlements

Business and competition are the phases of the same coin. There is cut throat competition to expand the business and it is becoming harsher day by day in the globalized World. Every company wants to become a global brand so that its presence can be appreciated world- wide in every class of consumer. The mergers and acquisitions are one of the strategies which followed by the companies to expand its horizons. The ownership of a company is acquired by the other company dealing with the same type of services or products. A legal adviser’s consultation is very crucial to facilitate a merger or acquisition. Let’s have a look on the recent settlements which happened between two companies-

 British American Tobacco Co. is going to acquire R.J. Reynolds American Tobacco Co. – 

British American Tobacco which is based in London has entered into an agreement to buy the stake in Reynolds American, based in Winston-Salem, N.C. for $49 billion. The deal is also subject to shareholders and regulatory approval. It is expected to complete in the third quarter of 2017. 

Reynolds American reported sales of $10.7 billion in 2015. British American Tobacco reported revenue of $15.8 billion, in 2015. The purchase would create the world’s largest publicly traded tobacco business, based on net sales.

 Chem China deals with Syngenta AG-

China National Chemical Corporation’s $43 billion offer for Syngenta AG., based in Basel, Switzerland was China’s biggest overseas deal announced last year. The takeover announced a year ago, is one of a trio of mega-deals that would reshape the global agrochemicals industry. The others are Dow Chemical Co.’s bid to merge with DuPont Co. and Bayer AG’s agreement to buy Monsanto Co. The combined transactions would whittle down six industry players to three giants: one American, one German and one Chinese. Syngenta AG said the U.S. Federal Trade Commission has asked for more time to review it's $43 billion takeovers by China National Chemical Corporation. Chem China filed for U.S. approval in January 2016. Repeated delays in the approval process, which has involved authorities on four continents, have pushed back the expected closing date for the deal. Companies authorities are hopeful that Merger could still win approval before April 12 EU deadline.

 The Shire completed merger with Baxalta-

The Shire has completed it's $32 billion mergers with Baxalta, creating the global market leader in rare diseases and other specialized disorders.

The Shire projected that the combined company would generate approximately 65% of its total annual revenues from its rare disease products revenues the company has forecast as rising to more than $20 billion by 2020.The combined company would consist of more than 22,000 employees across more than 100 countries, as well as more than 50 programs in clinical development.  

 Abbott completes the acquisition of St. Jude Medical-

Abbott has completed the acquisition of St. Jude Medical Inc., establishing the company as a leader in the medical device arena. Together the company will compete in nearly every area of the $30 billion cardiovascular market and hold the No.1 or 2 positions across large and high-growth cardiovascular device markets.

SoftBank to Buy Britain’s ARM-

In the year 2016 Japan's SoftBank acquired ARM Holdings for $32 billion, Softbank has agreed to acquire ARM Holdings, the giant semiconductor firm of U.K that supplies part of the chip design used in Apple iPhones, ARM the largest London-listed tech company by market value. ARM has a major presence in mobile processing. Its processor and graphics technology is used by Samsung, Huawei, and Apple in their in-house microchips.

 Microsoft tied up with LinkedIn- 

Microsoft acquired LinkedIn for $196 per share in an all-cash transaction valued at $26.2 billion. LinkedIn is the world’s largest and most valuable professional network and continues to build a strong and growing business. LinkedIn, based in Mountain View, California, will retain a distinct brand, culture, and independence, according to Microsoft, and LikendIn current CEO Jeff Weiner will remain in his role.

"LinkedIn and Microsoft really share a mission" of helping people work more efficiently and "There is no better way to realize that mission than to connect the world's professionals," said Microsoft CEO Satya Nadella. 

 Acquisition of  Tyco International by Johnson Controls-

Johnson Controls Inc., a U.S. maker of car batteries and heating and ventilation equipment, acquired Ireland-based peer Tyco International Plc., in a $16.5 billion deal. 

By uniting Johnson Controls, the number one provider of building efficiency solutions with Tyco International, the number one provider of fire and security solutions, the new company is uniquely positioned as a leader in products, technologies and integrated solutions for the buildings and energy sectors.

Non-Disclosure Agreement (NDA)

A Non-Disclosure Agreement is a contract which enables the parties to the contract from sharing any piece of confidential information or knowledge shared between them for the purposes of business or any other kind of access but restricts such sharing to any third party to such contract. 

There are two types of NDA in practice:

 One-way NDA – Casts the obligation of non-disclosure of information on one party only;

 Two-way or Mutual NDA – Obligation on all the parties to the NDA.

Terms & Conditions of one-way and two-way NDAs are same for both with the only difference that in the latter, the obligations apply to all the parties to the contract.

General Terms & Conditions required in an NDA

• Confidential Information and its scope to be defined;

• Obligation of Non-Disclosure of the information to any third party without the permission of the party sharing such information;

• Application of NDA to apply to all the employees and directors of the recipient company;

• Exclusions/Exceptions to NDA for sharing the information to a third party;

• Notice of any unauthorized disclosure or loss is to be sent by the legal recipient of such information to the other party;

• Use of Confidential Information is to be “As is” and it is not be construed as a license or assignment of such information or any intellectual property. Moreover, the recipient is prevented from selling or registering such confidential information without prior authorization of the other party;

• No reproduction of such information without the authorization of the providing party;

• Time duration of the contract;

• Action was taken upon breach of the contract and Injunctive Relief;

• Governing law to be mentioned;

• Dispute Resolution mechanism to be stated;

• No Assignment to be carried out by the recipient without the authorization of the other party.

Statutory Law References

Sec. 2(h) of the Indian Contract Act, 1872.

Art. 39.2 of WTO Agreement on TRIPS.

Important Judgments

• John Richard Brady and Ors v. Chemical Process Equipments P. Ltd. and Anr, AIR 1987 Delhi 372.

• Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors, 97 (2002) DLT 257.

Important Do(s) & Don't(s)

• Lawyer consultation or online legal advice is preferable to remove any illegalities and ambiguities;

• The information is to be protected for eternity, even after the expiration of the contract unless authorized by the disclosing party;

• Insert a stringent penalty clause;

• It is preferable to have a two-way NDA as it keeps the information flow and protection balanced.