• Multipl Non related Individuals as party to Shareholding agreemen

Can we have 2 or 3 individuals who may not be related as a party to SHA with a Company? What are the implications, if any, of such arrangements from legal as well as Tax perspective? If this arrangement is acceptable, how can any one of them be made as a nominee speaker on behalf of all  the others to work with the Company going forward. Please advise.
Asked 2 years ago in Business Law from Noida, Uttar Pradesh
1. Yes why not. The liability of each shareholder would be distinct unless the SHA makes all the shareholders severally liable for the act of one shareholder. The tax liability will be separate for every shareholder. A mere clause in the SHA to appoint one of them as the representative of all to deal with the company shall suffice. However, there should not be a conflicting clause in AOA of the company.

2. The rights of the shareholders emanate from Indian Contract Act 1972 and other more powerfully from Companies Act. The courts tend to uphold such SHA If they are not found to contravene any company legislation
and if they are traceable to the Articles of Association (AOA).
Ashish Davessar
Advocate, Jaipur
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The above issue shall be having a guideline in the article of association.The issue of conflicting provisions in a Shareholders Agreement (SHA) and the articles of association (Articles) of a company is a never ending debate, and perhaps a rather confounding one in company law. A recent order of the Delhi High Court in World Phone India Pvt. Ltd v. WPI Group Inc USA, [2013] 178 Comp Cas 173 (Del), holding that clauses in a SHA which are not repugnant to the Companies Act but not incorporated in the articles of the Company, would be unenforceable, has only added to this confusion. This post is an attempt to expound the law surrounding this decision.
"Indian companies paid little or no regard to related-party transactions and there was little scrutiny of such transactions that were detrimental to the interests of minority shareholders," says Shriram Subramanian, founder and managing director, InGovern Research Services. Legal experts say the previous version of Securities and Exchange Board of India (Sebi)'s listing agreement under Clause 49 did not have elaborate provisions for related party transactions. The new Companies Act and the revised listing agreement brought related party transactions into focus with minority shareholders needing to approve related party transactions.
Still requirements under related party transaction provisions fall short of global best practice in this regard. Globally, the best practice is related party transactions are voted for by a majority of minority shareholders, with all related parties getting no votes. However, according to an amendment to the Act requires only the specific related party with whom the transaction was taking place getting no votes, while other connected parties to the related party get to vote.
Tax perspective can be discussed with an auditor.
T Kalaiselvan
Advocate, Vellore
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403 Consultations

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