INDIA Law and Practice Contributed by: C R Dua, Sanjeev Kaul, Abhinav Rastogi and Ashish Malkotia, Dua Associates
The basic rights attached to shares are set out in the Act and/or the terms of the issue. A company’s arti- cles may provide for additional rights for a specific shareholder/shareholders’ group, provided that such additional rights do not conflict with the provisions of the Act. 1.4 Variation of Shareholders’ Rights Where the share capital of a company is divided into different classes of shares, the rights attached to the shares of any class may be varied through the follow- ing measures, provided that the provision with respect to such variation is contained in the company’s mem- orandum of association (“memorandum”) or articles: • with the consent in writing of the holders of not less than 75% of the issued shares of that class; or • by passing a special resolution at a separate meeting of the holders of the issued shares of that class. In the absence of such a provision in the memoran- dum or articles, such variations can still take place if the terms of the issuance of shares of that class do not prohibit them. Furthermore, if variation by one class of shares affects the rights of another class of shareholders, the con- sent of 75% of that other class of shareholders should also be obtained. 1.5 Minimum Share Capital Requirements There is currently no minimum paid-up share capital requirement under the Act for the types of compa- nies mentioned in 1.1 Types of Company , regardless of whether the company is incorporated by persons resident in India or outside India. However, for seeking certain sector-specific regulatory licences (eg, bank- ing and insurance companies), there may be a require- ment for minimum capitalisation. 1.6 Minimum Number of Shareholders The minimum number of shareholders for the types of companies mentioned in 1.1 Types of Company are as follows:
Under the Act, there is no requirement for any such shareholder to be residing in India. However, foreign direct investment (FDI) in India is limited/restricted in certain sectors/business activities; where 100% FDI is not permitted in a sector, the balance of the shareholding is to be held by a shareholder(s) who is a person resident in India. Further, as per the cur- rent regulatory regime, FDI from shareholders based in countries that share a land border with India requires the prior approval of the government of India. 1.7 Shareholders’ Agreements/Joint Venture Agreements Where there are two or more sets/groups of sharehold- ers in a company, it is common to have a sharehold- ers’ agreement (SHA) or joint venture agreement (JVA), the relevant provisions of which are also reflected in the charter documents of the company (memorandum and articles). 1.8 Typical Provisions in Shareholders’ Agreements/Joint Venture Agreements Typical provisions included in an SHA/JVA pertain or relate to: • the ownership percentage; • management of the company, the constitution and composition of the board, and the representation rights of each party thereon; • the conduct and proceedings of the board and shareholders’ meetings (including quorum, reserved matters, etc); • future funding, provisions on the transfer of shares, exit options, assignment, non-compete and non- solicitation; and • other usual provisions (such as arbitration, govern- ing law, information rights, confidentiality, termina- tion, etc). The enforceability of SHAs/JVAs has been the sub- ject of extensive litigation, with conflicting judgments of the High Courts of different states on the matter. Pursuant to the court judgments and certain chang- es in the law, it can be deduced that SHAs/JVAs are enforceable as contracts between the contracting shareholders/parties. However, for the contracting shareholders to enforce the relevant provisions of the SHA/JVA against the joint venture company or other
• for a private company – two; and • for a public company – seven.
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