# Shareholders' Agreement & Term Sheet Review

> A shareholders' agreement sets the investors' rights and the founders' obligations: board seats, reserved matters, pre-emption, ROFR, tag-along and drag-along, anti-dilution, liquidation preference, information rights and exit. In India, transfer restrictions bind the company only if they are in its articles, and put options for foreign investors can't guarantee a return — the exit price can't exceed fair value.

Practice: Startup Funding, ESOP & Valuation — https://www.industax.com/services/startup-funding/

We review term sheets and SHAs from the founders' side, explaining what each clause means commercially and where it can be negotiated, and flag terms that won't work under Indian company law, FEMA or tax rules.

After signing, the articles of association are amended so the key rights are enforceable, and the transaction filings — allotment, FC-GPR, stamp duty — are completed.

## Key facts

| Item | Detail |
| --- | --- |
| Common rights | Board seat, reserved matters, ROFR, tag/drag, anti-dilution |
| Liquidation preference | Commonly 1x non-participating |
| Enforceability | Transfer restrictions must be in the articles |
| Foreign investor exits | No assured return; price ≤ fair value |
| Stamp duty | Varies by state |

## Who needs this

- Founders reviewing a term sheet or SHA
- Companies adding investors
- Shareholders in a joint venture or family company

## What's included

- Clause-by-clause review
- Negotiation notes
- Articles amendment
- Closing filings

## Documents

- Term sheet / draft SHA
- Current articles
- Cap table

## Process

1. **Review** — Clauses explained and risks flagged.
2. **Negotiate** — Mark-ups and talking points prepared.
3. **Implement** — Articles amended and filings made.

Work that legally requires a advocate (for drafting and stamping) is signed by a partner professional; Indus Tax coordinates it.

## FAQs

### Why must the SHA be reflected in the articles?

Courts have held that share-transfer restrictions not in a company's articles don't bind the company, so key rights are copied into the articles.

### Can a foreign investor have a put option on founders?

Yes, after the minimum lock-in, but without an assured return — the exit price must not exceed the fair value at the time.

### What is a 1x non-participating liquidation preference?

On an exit, the investor gets the higher of its investment back or its pro-rata share of proceeds, not both.

## Official sources

- Ministry of Corporate Affairs — MCA21: https://www.mca.gov.in/
- RBI — Master Direction on Foreign Investment: https://www.rbi.org.in/Scripts/BS_ViewMasterDirections.aspx

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Canonical page: https://www.industax.com/services/startup-funding/shareholders-agreement
Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.