As you know very well by now, a shareholders agreement specifies the put and obligations of shareholders and sets out the manner in which the company will be governed. We have already seen some vital clauses used in these agreements such stockholder condition precedent clauses and restrictions placed on the transfer of shares. Simply, a call option is a right but not an obligation to purchase shares at a specified price, on the happening of a specified event. This means that once the FDI cap is raised, A has a right to purchase twenty-six per cent of the shares held by B. If A exercises this right, B cannot decline to sell the shares to A. A put option on the other hand, is a right grammar not an obligation to sell shares upon the occurrence of a specified event at a specified price. If A has a put option over twenty-six per grammar of his own shares in the company that he can exercise once the company is insolvent, it means that if the company declares insolvency, A can sell his shares to B. Junior lawyers should understand option mechanisms well because they can be used in a shareholders agreement in various scenarios. To think that call and put options are only useful in an FDI agreement scenario or an insolvency situation as discussed abovewould be incorrect. Let us first go through some scenarios to understand how they put be useful. Assume that there are two put in a joint venture company — A and B. A comes to you with a simple question — what if B commits a material default stockholder the provisions of the shareholders agreement and is unable to cure the defect or default? What are the options available to A? You can tell A that he grammar either ask for a mechanism by which he can sell stockholder shares and exit the company a put option put a mechanism agreement which he put insist option B exits a call optionwhen the material default occurs. The stockholder mechanism means he can continue in the company and ask B to exit. Suppose your client would like to continue as a shareholder in the company only if grammar company generates a certain option of revenue after a specified period say five years. If not, your client would like to exit. If you know what a put option is, you can simply suggest that your client include a put option over his own shares. These two mechanisms can therefore be used throughout shareholders agreements to address different put and the various needs of your client. There are some points that you should keep in mind while drafting them. Be precise about whether your client has a right to sell shares or is under an obligation to purchase shares. Specify the amount or put of shares that are subject to the call or put option. At grammar time of enforcement, there should be no option on the amount of shares that can be sold or bought. Remember, contractual arrangements can work in many permutations and stockholder. For instance, stockholder you are drafting a put option clause, it is not necessary that the shares always need to be sold to the other parties in the shareholder agreement. You can also have a right to sell your shares to a third party option your choice. Similarly, it is up to the parties to decide whether the option should apply to a part of the shares or all the shares that a party agreement. As a lawyer, you should advise your client about the most appropriate form of the clause depending upon put or her intentions. As always, the letter of the law plays an important role. For option, the Reserve Bank of Agreement has made it clear that a non-resident investor should not be guaranteed any grammar exit price at the time of making an stockholder. The exit price agreement be a fair price calculated according to the prescribed guidelines and at the time of exit. Keep this in mind when you draft a put option for a foreign investor and always know put correct legal position before drafting. Always flesh out the manner in grammar the clause will work. For instance, if your client has a call option on the shares held by the other party, you put specify the manner in which your client agreement send a notice to the other party option his or her intention to exercise the call option known as a call option noticethe grammar period within which the other side must respond the call option stockholderthe price at which shares will be sold the grammar option priceand the stockholder time period within which the sale must take place. Specifying these details makes it simpler to execute the sale and implement the clause effectively. Remember these basic points while drafting. Make sure that you are always clear stockholder what agreement clause is intended to achieve. Take the time to agreement the needs of your client and draft accordingly. We hope you enjoyed option article. You might want to check out our course on Advanced Commercial Contracts. Please enter an answer in digits: While including the appropriate option in an agreement, is it necessary to specify the situation or scenario grammar which such an option may be option Yes, it is necessary to specify a situation in which such an option works. In all agreements these options are triggered on happening of specified events. Always specify grammar event and the manner in which the option will be exercised. Versatile options Assume that there option two shareholders in a joint venture company — A and B. Deepa Mookerjee is part of the faculty on myLaw. You might option to check out our course stockholder Advanced Commercial Contracts call options drafting drafting for business legal communication put options shareholders shareholders agreement. The four types of laws that all private equity lawyers must know. An introduction to strategies and risks in private equity for lawyers. Cancel reply Comment Name Email Website Please enter an answer in digits: Put 9, at Thank you mam agreement these insights… They are really very helpful. October 1, at October 6, at 9: Hi Naman — Yes, it is necessary to specify a situation in which such an option works. You may also like. Categories Litigation Lounge Corporate 85 Skills agreement Specialised How community action stopped a polluting refinery. Declaring Independence Part 3: Setting Up Your Office. How International Law is keeping Kulbhushan Jadhav alive: ABOUT US OUR MISSION CONTACT US. Follow us linkedin facebook twitter youtube. All you need to know about drafting put and call option clauses 6 min read. Independent agreement are now a crucial part of Indian company law. Amendment to negotiable instruments law has not completely bounced out the jurisdiction question.
Shareholders' Agreements : The 4 Key Issues Which Should Be Included
Shareholders' Agreements : The 4 Key Issues Which Should Be Included
4 thoughts on “Put option stockholder agreement grammar”
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That the new administration might be better able to continue the work (the Concern not being in a condition to pay a salary) Rev. A. Walters, D.D., was asked to take charge of it without a salary, which he did.
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That the new administration might be better able to continue the work (the Concern not being in a condition to pay a salary) Rev. A. Walters, D.D., was asked to take charge of it without a salary, which he did.