STAMP DUTY INSTRUCTIONS
JurisdictionKarnataka
Stamp value₹200 (Karnataka Stamp Act, Art. 5(j) 'Agreement not otherwise provided for'); e-stamp via SHCIL or Kaveri
Howe-stamp via Kaveri Online (https://kaveri.karnataka.gov.in) / SHCIL e-stamp (https://www.shcilestamp.com) under Article 5(h)
Not compulsorily registrable; however certified true copy must be filed with the Registrar of Companies along with PAS-3 / SH-7 as applicable.
Shareholders Agreement
- Karnataka - [Date]
- Company
- Lead investor
- Investment
- Rs.0
- Pre-money
- Rs.0
- Post-money
- Rs.0
- Investor stake
- 0% (post-money)
- Instrument
- Compulsorily Convertible Preference Shares
- Board
- 5 directors (1 investor-nominee)
- Anti-dilution
- Broad-based WA
- Liquidation pref
- 1x non-participating
- Founder vesting
- 4 years, 12m cliff
- Targeted exit
- 5 years
Shareholders Agreement
Executed on [Date] at , Karnataka
This Shareholders Agreement ("Agreement" or "SHA") is made and entered into on [Date] at , Karnataka, by and among:
Company
CIN:
Founder 1
Pre-money holding: 0%
Founder 2
Pre-money holding: 0%
Founder 3
Pre-money holding: 0%
Investor
Investment: Rs.0 (Zero)
(the Company, the Founders and the Investor each a "Party" and collectively the "Parties").
0. Preamble
WHEREAS the Company is engaged in the business set out in its Memorandum of Association; AND WHEREAS the Investor has agreed to subscribe to Compulsorily Convertible Preference Shares of the Company in consideration of an aggregate amount of Rs.0 (Zero) on the terms and conditions set out in the Share Subscription Agreement of even date ("SSA"); AND WHEREAS the Parties wish to record their inter-se rights and obligations as shareholders, board representation, transfer restrictions, and exit mechanics - NOW THEREFORE the Parties hereto agree as follows:
1. Definitions and Interpretation
Capitalised terms shall have the meanings ascribed in Schedule I (Definitions). For the purposes of this Agreement: "Original Issue Price" means the per-share consideration paid by the Investor under the SSA; "Affiliate" means any entity controlling, controlled by, or under common control with a Party; "Down Round" means an issuance of equity or convertible securities of the Company at a per-share price lower than the Original Issue Price; "Reserved Matters" means the matters set out in Schedule II.
2. Capital Structure and Investment
Pursuant to the SSA, the Investor has subscribed to Compulsorily Convertible Preference Shares of the Company representing 0% of the post-money share capital on a fully-diluted basis at a pre-money valuation of Rs.0 and a post-money valuation of Rs.0. The capitalisation table immediately following the Closing is set out in Schedule III. The Company shall not issue any further shares (other than under the existing ESOP Pool) without the prior written consent of the Investor.
3. Board of Directors
The Board of Directors shall comprise 5 (five) Directors as follows: (a) 3 Director(s) nominated by the Founders; (b) 1 Director nominated by the Investor (the "Investor Nominee"); (c) 1 Independent Director appointed jointly. The Investor shall additionally have the right to appoint 1 (one) non-voting Board Observer who shall receive all Board materials and may attend all Board meetings. The quorum for any Board meeting shall require the presence of at least 1 (one) Investor Nominee. The Investor Nominee shall not be required to take any executive position and shall not be liable for the day-to-day management of the Company.
4. Reserved Matters (Investor Consent)
The matters set out in Schedule II (the "Reserved Matters") shall require the prior written consent of the Investor (or its Nominee Director, who shall vote in accordance with the Investor's instruction). These matters include, without limitation: (i) any amendment to the Memorandum or Articles of Association; (ii) any change in the authorised, issued or paid-up share capital; (iii) any new issuance of securities other than under the existing ESOP Pool; (iv) any merger, demerger, amalgamation, or sale of substantially all assets; (v) any related-party transaction outside the ordinary course of business or exceeding Rs.10 lakh; (vi) any borrowing in excess of Rs.50 lakh; (vii) appointment, removal, or change in remuneration of the Founders or any KMP; (viii) declaration of any dividend; (ix) commencement of any new line of business; (x) any change in the statutory auditor; (xi) approval of the annual budget and any deviation exceeding 15%; (xii) initiation or settlement of any litigation exceeding Rs.25 lakh; (xiii) any voluntary winding up or insolvency filing.
5. Information Rights
The Company shall provide the Investor: (a) audited annual financial statements within 90 (ninety) days of the financial year end; (b) unaudited monthly management accounts within 30 (thirty) days of the month-end; (c) the annual Board-approved budget at least 30 days before the start of the financial year; (d) prompt notice of any litigation, regulatory action, material adverse change, or breach of any covenant; (e) such other information as the Investor may reasonably request. The Investor and its representatives shall have customary inspection rights.
6. Anti-dilution Protection
In the event of a Down Round, the conversion price applicable to the Investor's Compulsorily Convertible Preference Shares shall be adjusted to protect the Investor's economic interest as follows: Broad-based weighted-average (market standard, founder-friendly) - the conversion price shall be adjusted using the formula NCP = OCP x (A + B) / (A + C), where A = number of fully-diluted shares outstanding immediately prior to the Down Round (including options pool), B = consideration received divided by OCP, C = number of new shares issued in the Down Round. The anti-dilution adjustment shall not apply to: (i) issuances under the ESOP Pool up to the agreed cap; (ii) issuances pursuant to a Qualified IPO; (iii) issuances pursuant to a bona-fide acquisition approved by the Board.
7. Liquidation Preference
On the occurrence of any Liquidation Event (including a winding up, dissolution, sale of all or substantially all assets, or a Deemed Liquidation Event such as a change of control / acquisition), the proceeds available for distribution shall be distributed in the following order of priority: 1x non-participating (market standard) - the Investor shall receive 1 time its Original Issue Price plus declared but unpaid dividends. The Investor shall not further participate in the residual proceeds, OR may elect to convert and share rateably - whichever is higher. For this purpose, "Deemed Liquidation Event" includes any merger, consolidation, scheme of arrangement, or sale of more than 50% of the equity share capital that results in the existing shareholders holding less than 50% of the surviving entity.
8. Pre-emptive Rights
If the Company proposes to issue any new securities, the Investor shall have a pre-emptive right (in addition to the rights under s.62 of the Companies Act, 2013) to subscribe to such number of new securities as is required to maintain its pro-rata ownership on a fully-diluted basis. The Company shall give the Investor 21 (twenty-one) days' written notice of such proposed issuance, specifying the price, terms, and identity of the proposed subscriber.
9. Right of First Refusal (ROFR) and Right of First Offer (ROFO)
The Founders shall not Transfer any shares without first offering them to the Investor on the same terms (ROFR). If the Investor proposes to Transfer any of its securities, it shall first offer such securities to the Founders pro-rata at a price determined by the Investor (ROFO); the Founders may accept within 30 days, failing which the Investor may proceed to Transfer to a third party at a price not lower than the ROFO price. No Transfer shall be made to a competitor of the Company without prior written consent of the non-transferring Party.
10. Tag-along Right
If any Founder proposes to Transfer any of its shares to a third party (a "Proposed Transfer"), the Investor shall have the right (but not the obligation) to participate in such Proposed Transfer on a pro-rata basis on the same price, terms, and conditions ("Tag-along Right"). The Founder shall ensure that the Proposed Transferee acquires the Investor's tagged shares as a condition to the Proposed Transfer.
11. Drag-along Right
If, at any time after the 5th anniversary of the Closing, the holders of at least 75% of the share capital of the Company (the "Dragging Shareholders") agree to a bona-fide sale of 100% of the share capital of the Company to a third party at a valuation that delivers the Investor at least its Liquidation Preference, the Dragging Shareholders shall have the right to require all other shareholders (the "Dragged Shareholders") to sell their shares on the same terms ("Drag-along Right"). The Drag-along Right is conditional on: (i) the Investor receiving in cash at least its Liquidation Preference under Clause 7; (ii) the representations and warranties given by Dragged Shareholders being limited to title, capacity, and authority.
12. Founder Vesting
Each Founder's equity shareholding shall be subject to reverse vesting over 4 (four) years from the Effective Date, with a twelve (12) month cliff. Until the cliff is achieved, no shares vest. On achieving the cliff, 25% of the Founder's holding shall vest, and thereafter the balance shall vest in equal monthly instalments over the remaining vesting period. Any unvested shares of a Founder who ceases to be associated with the Company (other than as a Good Leaver) shall be transferred to the Company / nominee at the lower of the Original Issue Price and Fair Market Value. A "Good Leaver" includes death, permanent disability, or termination without cause.
13. Founder Lock-in and Non-compete
Each Founder undertakes that for a period of 3 (three) years from the Closing, he/she shall: (a) not Transfer any shares without prior written consent of the Investor (other than to a permitted Affiliate); (b) devote his/her full business time to the Company; (c) not engage in any competing business; (d) not solicit any employee, customer, or supplier of the Company. The non-compete is operative only during the period of association with the Company (in line with s.27 of the Indian Contract Act, 1872).
14. Exit Mechanism
The Company and the Founders shall use best efforts to provide an exit to the Investor within 5 (five) years from the Closing through one or more of: (a) a Qualified IPO on a recognised stock exchange in India or abroad at a per-share price of at least 3x the Original Issue Price; (b) a strategic sale of the Company at a valuation that delivers the Investor at least its Liquidation Preference; (c) buy-back by the Company under s.68 of the Companies Act, 2013; (d) third-party secondary sale of the Investor's stake. If no exit has been provided by the end of the exit window, the Investor may invoke the Drag-along Right under Clause 11 or initiate a Put Option requiring the Founders to acquire the Investor's stake at the higher of the Liquidation Preference and Fair Market Value (subject to applicable RBI / FEMA pricing if cross-border).
15. Representations and Warranties
The Company and the Founders jointly and severally represent and warrant to the Investor as set out in Schedule IV (Representations & Warranties), which include warranties as to: corporate authority, valid issuance of shares, title, no encumbrances, financial statements (true and fair), tax compliance, intellectual property, material contracts, litigation, employment, and regulatory compliance. The Investor's right to claim for breach is subject to a customary basket (Rs.5 lakh), de-minimis (Rs.50,000 per claim) and aggregate cap equal to the Investment Amount, with a survival period of 24 months from Closing (or 7 years for tax warranties).
16. Confidentiality
Each Party shall hold the terms of this Agreement, the SSA, and all Confidential Information of the Company in strict confidence and not disclose to any third party except: (a) its directors, employees, advisers, auditors and Limited Partners on a need-to-know basis; (b) as required by law, regulation, or stock-exchange rule; (c) in connection with a permitted Transfer (subject to the recipient signing an NDA). This obligation survives termination for 5 (five) years.
17. Governing Law and Dispute Resolution
This Agreement shall be governed by and construed in accordance with the laws of India. Any dispute arising out of or in connection with this Agreement shall be referred to and finally resolved by arbitration administered under the Arbitration and Conciliation Act, 1996, before a sole arbitrator (or, if the dispute exceeds Rs.5 crore, a panel of 3 arbitrators) appointed by mutual agreement, failing which by the Mumbai Centre for International Arbitration (MCIA). The seat and venue of arbitration shall be , the language shall be English. Subject to the arbitration clause, the courts at , Karnataka shall have exclusive jurisdiction.
18. Amendment of Articles of Association
Within 30 (thirty) days of Closing, the Company shall, by special resolution under s.14 of the Companies Act, 2013, amend its Articles of Association to incorporate all relevant provisions of this Agreement, including: board composition, transfer restrictions, reserved matters, anti-dilution, drag, tag, ROFR, and exit. Until such amendment, in case of any inconsistency between this Agreement and the AoA, the Parties shall give effect to the spirit of this Agreement to the maximum extent permitted by law.
19. Miscellaneous
(a) Entire Agreement: This Agreement, together with the SSA and the Schedules, constitutes the entire agreement between the Parties. (b) Amendment: Any amendment must be in writing signed by all Parties. (c) Severability: If any provision is held invalid, the remainder shall continue in full force. (d) Assignment: No Party may assign this Agreement without prior written consent of the other Parties, except the Investor may assign to its Affiliate or successor fund. (e) Notices: All notices shall be in writing and delivered to the addresses set out above (or such other address as may be notified in writing). (f) Counterparts: This Agreement may be executed in counterparts, including by electronic signature, which together shall constitute one original.
IN WITNESS WHEREOF the Parties have executed this Agreement on the date first above written.
For __GAP[sha_co_name|Acme Technologies Private Limited]__
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Founder 1
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Founder 2
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Founder 3
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For __GAP[sha_inv_name|Sequoia India Capital Fund VIII]__
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WITNESS 1
Name / signature / address
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WITNESS 2
Name / signature / address
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