The Stock Transfer Restriction Agreement is a vital instrument for private companies in India seeking to maintain control over their shareholding structure and protect the interests of existing shareholders. This document becomes particularly relevant when companies want to prevent unrestricted transfer of shares to third parties, maintain family or founder control, or ensure compliance with sector-specific ownership requirements. The agreement, governed by Indian law including the Companies Act 2013, typically includes provisions for right of first refusal, transfer approval processes, valuation mechanisms, and specific procedures for permitted transfers. It's commonly implemented during company formation, before a funding round, or when changing share transfer policies, and must align with the company's Articles of Association and applicable regulatory requirements.
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1. Parties: Identification of the company, existing shareholders, and other relevant parties to the agreement
2. Background: Context of the agreement, including company details and reason for implementing transfer restrictions
3. Definitions: Definitions of key terms used throughout the agreement, including 'Transfer', 'Shares', 'Permitted Transfers', etc.
4. Transfer Restrictions: Core restrictions on the transfer of shares, including general prohibition and conditions for permitted transfers
5. Right of First Refusal: Process and terms for existing shareholders to purchase shares before they can be offered to third parties
6. Transfer Procedure: Detailed steps and requirements for executing a permitted share transfer
7. Valuation Mechanism: Method for determining the fair value of shares for transfer purposes
8. Board Approval Process: Requirements and procedure for obtaining board approval for share transfers
9. Term and Termination: Duration of the agreement and circumstances under which it can be terminated
10. Confidentiality: Obligations regarding confidential information shared during transfer processes
11. Notices: Process and requirements for giving formal notices under the agreement
12. Governing Law and Jurisdiction: Specification of applicable law (Indian) and jurisdiction for dispute resolution
13. General Provisions: Standard provisions including amendments, waivers, severability, and entire agreement
1. Tag-Along Rights: Rights of minority shareholders to join in the sale of shares by majority shareholders
2. Drag-Along Rights: Rights of majority shareholders to force minority shareholders to join in a sale
3. Family Transfer Provisions: Special provisions for transfers between family members, relevant for family-owned businesses
4. Death and Incapacity: Special provisions for transfer of shares upon death or incapacity of a shareholder
5. Put and Call Options: Rights of shareholders to force purchase or sale of shares under specific circumstances
6. Share Pledge Restrictions: Restrictions on pledging shares as collateral, relevant if shareholders might seek financing
7. Foreign Investment Compliance: Special provisions ensuring compliance with FEMA and foreign investment regulations
8. Dispute Resolution: Detailed arbitration or mediation procedures, if preferred over court jurisdiction
1. Schedule 1 - Details of Current Shareholding: List of current shareholders with their respective shareholding details
2. Schedule 2 - Deed of Adherence: Format for new shareholders to agree to be bound by the transfer restrictions
3. Schedule 3 - Transfer Notice Format: Prescribed format for shareholders to notify their intention to transfer shares
4. Schedule 4 - Valuation Principles: Detailed methodology and principles for share valuation
5. Schedule 5 - Permitted Transfers: Comprehensive list of circumstances under which transfers are automatically permitted
6. Appendix A - Board Resolution Format: Template for board resolutions approving share transfers
7. Appendix B - Share Transfer Form: Standard form for executing share transfers in compliance with Companies Act
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