Shareholders' Agreement (SHA)

A Shareholders' Agreement is the definitive legal document that governs the ongoing relationship between investors and founders after a funding round closes. While the Articles of Association govern the company's relationship with the public, the SHA is a private contract among shareholders that sits on top of and supplements the Articles, covering matters the Companies Act 2013 permits parties to arrange privately.

The SHA typically contains provisions on board composition and voting thresholds, reserved matters requiring investor consent (sometimes called affirmative voting rights), anti-dilution protections, information and inspection rights, transfer restrictions (right of first refusal, drag-along, tag-along), vesting schedules for founders, and exit mechanics including IPO covenants and drag-along obligations.

For founders, the SHA is where investor control is exercised between funding rounds. Reserved matter lists can be long — sometimes covering decisions as routine as hiring above a salary threshold or opening a bank account. Founders should negotiate these lists carefully to preserve operational autonomy. Investor-friendly SHAs can allow a minority investor to effectively block core business decisions.

In Indian practice, the SHA is usually accompanied by a Share Subscription Agreement (the document covering the actual share issuance). Foreign investors must also comply with FEMA pricing guidelines, and the SHA is reviewed by the Reserve Bank of India-regulated custodian bank as part of the FC-GPR filing process.