Blog Details

Author - Associate Runa Jasia

Equity can be defined as a difference between the value of the assets and the value of the liabilities of something that is owned by an individual. For example, if an individual owns a mobile phone of INR 25,000, but owes INR 10,000 on loan against that mobile phone, then the mobile phone represents INR 15,000 of equity. 

Stakes represent the percentage of its stock that an individual own.

A shareholder’s equity is the difference between the total assets and total liabilities. Total assets value is the addition of liabilities and shareholder equity. The total asset of a company can be determined through the balance sheet of a company for a particular time period.

After subtracting all the debts related to an asset what remains can be called as equity of that asset. A stock in a private company is called private equity. Equity plays a vital role in a company. When a company falls out or goes bankrupt, then equity can be defined as the amount of money remaining in a company after repaying all the debts to its creditors. This thing can be called as ownership equity. 

Shareholder’s Agreement

It is also known as Stockholders’ agreement. A stockholder or a shareholder is a person or a company who owns at least one percent of the share of company’s stock or share in public or a private company. 

A shareholders’ agreement is done between the shareholders of a company that defines and determines how the company will work, and it covers the roles, responsibilities, rights, obligations, privileges, and protections. It creates a legal relationship between the shareholders and the outlines of the running of a company. This agreement also includes information about the management of the company and other details. It’s clear from this agreement regarding what decision one can make for the company and what can’t be done so through the discussions.

Even this agreement is not compulsory legally but to protect the company from further conflicts between people the shareholders of a company; it needs to be done.

This is a private agreement and a confidential one because of what it contains.  Generally, a shareholders agreement contains:

•    Name of the shareholder.

•    The proportion of shareholders.

•    Classes/Categories of each shareholder (major, minority and founder shareholders)

•    Roles and Responsibilities.

•    Rules for transferring of shares in some dispute event.

•    Rules for stopping the transfer of shares by the board of directors

•    Issues of the shares in the new market to the existing shareholders?

•    Voting powers

•    Dividend policies. 

•    Property assignments.

•    Required dates

•    Pre-emptive rights for current shareholders about how can they purchase shares further.  

•   Important signature by both the parties/person on the agreement of all the terms mentioned in this agreement. 

There could be more points added according to the company, but these were the basis of any shareholders agreement. 

End of the shareholders’ agreement

If anyone of the shareholders wants to leave the company, they can but following the given and mentioned provision in the agreement will come to play in this kind of situation. According to the said agreement it will be further decided.

A Shareholder may get terminated if they have broken the agreement or if there is any breach with regards to the signed agreement. If they found so doing something like that, they may be terminated from the company. They may be some clauses for the remedy of this kind of situation. It depends on how it goes with the signed agreement.

A shareholder may be terminated, or they can end their agreement by agreement. This is the situation when all the current shareholders no longer want to comply with the shareholders’ agreement in the company because of various reasons. Maybe the company can be dissolving; selling their shares in a company or they can decide to leave the company according to their current value in the market.

There can be various factors playing in the role of ending of an agreement. Multiple meetings and discussion take place during this event.

 The agreement allows the majority shareholder to realize their investment at any time and price that they feel is appropriate (payments will be fair for the entire shareholder, including the minority shareholders). The majority shareholder has an advantage when they want to sell their shares over the minority shareholder.
There are various advantages of becoming a majority shareholder in a company. It is essential to sign written documents. It helps in protecting a company from an inner conflict because of the shares of a company. For startups companies and new entrepreneurs, it plays a very vital role in their life. It will affect their future. One must take this matter as a serious concern.