In India, from the business registration point of view, under profit generating business kind, there are 5 major business entity types. There are quite a number of agreements that come into play based on entity type; on the other hand, there are agreements that will come to play as your business grows. This blog will enlighten you with the different kind of Corporate Agreements and contracts that the company would require during fundraising scenario.
#1: Shareholders’ Agreement:
Every shareholder, when they trade money for Shares in the company, enters a Shareholder’s agreement. This contract confers the rights and imposes obligations over and above those provided by company law.
This contract defines rules like:
- Restrictions on transfer of shares
- Restrictions on forced transfers of shares
- Nomination of directors for representation on boards
- Quorum requirements
- Veto or supermajority rights
#2: Agreement for underwriting shares of a company:
When the existing shareholders of the company or the public do not subscribe to the securities offered to them, and company decides to allot number of shares to the underwriter who subscribes to the securities.
Underwriting is an agreement, entered into by a company with a financial agency, in order to ensure that the public will subscribe for the entire issue of shares or debentures made by the company. The financial agency is known as the underwriter and it agrees to buy that part of the company issues which are not subscribed to by the public in consideration of a specified underwriting commission.
The underwriting agreement defines rules like:
- Period during which the agreement is in force
- The amount of underwriting obligations
- The period within which the underwriter has to subscribe to the issue after being intimated by the issuer
- The amount of commission if any
#3: Listing Agreement:
Listing means an admission of securities to dealings on a recognized stock exchange. The securities may be of any public limited company, Central or State Government, quasi-governmental and other financial institutions/corporations, municipalities, etc. Listing Agreement is between the company the listing platform.
The objectives of listing are mainly to:
- provide liquidity to securities;
- mobilize savings for economic development;
- protect interest of investors by ensuring full disclosures.
#4: Share Purchase Agreement:
This Agreement comes into play when an individual (generally the equity investor) buys shares from the company.
This Agreement lays down rules like:
- Terms and conditions
- Rights exercisable
- Disagreements resolutions criteria
- Criteria under which sale of the Equity Investor's shares can take place
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