Suppose Amazon wants to buy your business. You have a shareholder who owns 10%. Amazon doesn`t want to buy 90% of your business. You want to either buy your business or not buy your business, and that 10% can`t become a keeping handle in your deal. This is why you ensure the right to attract investors, so you and your other investors will not be delayed by a small individual investor in a market. ” (62) The shareholder contract (in abbreviated SHA) is essentially a contract between some or all other shareholders of a company whose purpose is to confer rights and impose obligations beyond those provided by the Corporations Act. SHA is a private contract between shareholders in relation to the statutory will of the company, which is a public document. As a private document, it binds the parties and not the other remaining shareholders of the company. The advantage of SHA is that it offers greater flexibility, unlike the statutes.
It also provides for the resolution of shareholder disputes and how future capital inflows are to be made. The provisions of the SHA may also violate the provisions of the statutes, in which case statutory provisions would of course be regulated and not those of the SHA. In this case, the company`s board of directors made a decision authorizing the issuance of preferential rights in accordance with the company`s AOA, although such a action required the complainant`s favourable vote, in accordance with a shareholders` pact between the company`s shareholders. The Corporate Counsel had held that the above provision was not applicable and that the Board`s decision authorizing the issue of preferential law had not been included in the AOA, since the provisions of the shareholders who gave a japtive agreement to the complainant had not been included in the AOA and the Board`s decision authorizing the issue of preferential law was valid. During the appeal process, the Delhi Supreme Court decided that while the drag-along rights themselves can be clearly detailed in an agreement, the distinction between the majority and the minority may be something to watch out for. Companies may have different types of stock categories. A company`s statutes refer to the ownership and voting rights of shareholders, which can affect the majority or minority. As a general rule, existing shareholders have the right to acquire the shares of the outgoing shareholder: in the event of the sale of a majority stake by the shareholder (s) holding a certain majority of shares, a drag-along right allows the majority selling shareholder to withdraw by forcing the remaining minority shareholders to sell their shares on the same terms to a third-party buyer in good faith. First, it increases the commercialization of the equity transaction by calming a target company without minority ownership (buyers may not be willing to participate in a joint venture structure with a group of minority shareholders with different interests).
Drag Along Rights will require a majority shareholder of a company to accept an offer to buy the entire company by a third party. The clause protects majority shareholders, since third-party buyers seek, where the dredging system applies in the same way to transfers for scriptural counterparties, this may face strong opposition from minority shareholders. This is because they may be forced to exchange their current stake for shares in an unknown company where exit opportunities are even more limited, for example.B.