Introduction of Share Entrustment Agreement
Share Entrustment Agreement or Shareholder’ agreement is formed between members of a company or shareholders. It is also compared to a partnership agreement. There are some particular consequences of the agreements, but it also carries specific advantages to the members. This agreement helps in improving the confidentiality amongst the company and ensures that everyone gains benefits.
What goes into making a shares trust agreement? The parties, clauses, and obligations toward each other, which are well explained in our sample share entrustment agreement.
Who Takes the Share Entrustment Agreement?
This agreement is taken by the shareholders of the company. It can also be signed by a member of the company, which helps them to avoid leaking anything to the public.
Purpose of the Share Entrustment Agreement
Most of the company’s documents are available for public inspection, but in case of the shareholder’ agreement, it becomes a private law contract, which cannot be shared. This serves the purpose of its application, as it helps in providing confidentiality between the parties to ensure that these documents remain protected. The agreements are quite cheaper, which is another reason why they are available in many companies.
Contents of the Share Entrustment Agreement
There are various types of private information available in the Shareholder’ agreement and all this information remains protected. The information in the contract varies from company to company. However, it should include
- The name and address of the company and the shareholders
- The percentage of shares owned by each shareholder,
- The date and place of creation of this agreement
- The validity of the agreement
- The conditions under which it will be terminated
- Measures to counter the legal risks that include:
- Deterring the registered shareholder by setting significant liquidated damages in this agreement and having it notarized.
- Notifying other significant shareholders and interested parties of the existence of the shareholding entrustment to avoid a situation in which the dormant shareholder.
- Ensuring the preservation of evidences such as the entrustment agreement, contribution certificate, shareholder’s resolution, by the dormant shareholder.
- Guaranteeing the role of the controller of the company by defining the methods of execution of shareholding rights such as voting rights, dividend rights, etc.
This agreement helps in allocating the shares to the members of the company so that it can restrict the disputes. These clauses are well-defined in a startup share entrustment agreement as well.
How to Draft the Share Entrustment Agreement?
If you want to form this agreement, then you have to follow specific steps.
- Defining the counterparts that together constitute one and the same instrument.
- Meeting with the other party
- Negotiating a suitable deal
- Agreeing to the terms
- Definition of the important terms
- Governing Law that shall decide the conclusion, validity, and performance of, interpretation and dispute resolution
- Resolution Dispute in case of any disputes arising out of a misinterpretation between parties
- The validity of the agreement, and miscellaneous clauses that define the rights, powers or privileges of each party, and failure of which deters the Party from constituting a waiver to such rights, powers or privileges.
- Financial documents affirming that the party shall receive
- Exclusive Consulting and Service Agreement
- Share Disposition Agreement
- Share Pledge Agreement
- Business Owner Agreement
- Power of Attorney
- Forming a contract on the agreement
- Studying the agreement
- Signed by both parties
The negotiation is handled by the legal team of both parties. After complete research, one party can make an offer regarding the agreement and if both of them agree to it, then it will be written in the contract.
Benefits & Drawbacks of the Share Entrustment Agreement
The company can maintain the privacy of all its information by using this agreement. It can help in keeping all the private information confidential to ensure that they can do their business without any issues.
The major drawback of that it has a limited effect on third parties and to make any kind of changes in the articles, you have to spend a considerable amount of time on it, as all the deals between the shareholders, the middle man, and the company will be done by the documents organized by the company.
- The shareholding status of the dormant shareholder is unrecognized as the AIC record shows only the registered shareholder. And changing it to a registered shareholder is tough as it requires all the other shareholders to issue an approval for the change. This could get tedious!
- The registered shareholder could intentionally dispose the shares or abuse voting rights and damage the interests of the dormant shareholder.
- Also, the shares may be frozen or executed by the court owing to any unforeseen reasons of the registered shareholder.
What Happens in Case of Violation?
This agreement has certain risks as the shareholder can intentionally change the dormant shares. They can also abuse voting rights, which can give rise to a lot of problems. In case of violation, the shares might get frozen and executed by the court.
Finally, this Agreement helps in providing a lot of benefits to the company. They can keep all the information private and secure so that they can work without any type of worries. These help in maintaining the privacy and ensure the complete safety of data.
You can Download the Share Entrustment Agreement Format, customize it according to your needs and Print. Share Entrustment Contract Template is either in MS Word, Excel or in PDF.