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Silent Shareholder Agreement

Silent Shareholder Agreement Template for India

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Key Requirements PROMPT example:

Silent Shareholder Agreement

"I need a Silent Shareholder Agreement for my family-owned manufacturing business in Mumbai, where a private investor will invest INR 5 crores for a 15% stake, with quarterly profit distributions and no involvement in company management."

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Document background
The Silent Shareholder Agreement is utilized when a company seeks to raise capital from investors who wish to maintain a purely financial interest without involvement in business operations. This document is particularly relevant in the Indian business context where family-owned businesses, startups, or established companies may seek passive investment while retaining operational control. The agreement comprehensively addresses investment terms, profit distribution mechanisms, information rights, and exit provisions, all while ensuring compliance with Indian corporate law, securities regulations, and tax requirements. The Silent Shareholder Agreement must carefully balance the investor's right to financial returns with their limited role in company governance, particularly considering the regulatory framework established by the Companies Act 2013 and other relevant Indian legislation.
Suggested Sections

1. Parties: Identification of the company, existing shareholders, and the silent shareholder

2. Background: Context of the agreement, including company status and purpose of silent investment

3. Definitions: Key terms used throughout the agreement, including 'Silent Shareholder', 'Investment Amount', 'Profits', etc.

4. Investment Terms: Details of the investment amount, share class, and payment terms

5. Rights of Silent Shareholder: Specific rights including profit sharing, information rights, and transfer rights

6. Limitations on Silent Shareholder: Explicit restrictions on involvement in management and decision-making

7. Profit Distribution: Mechanism and timing of profit sharing, dividend policies

8. Confidentiality: Obligations regarding business information and existence of silent partnership

9. Term and Termination: Duration of agreement and circumstances for termination

10. Exit Provisions: Mechanisms for silent shareholder to exit the investment

11. Governing Law and Jurisdiction: Specification of Indian law and relevant jurisdiction

Optional Sections

1. Tag-Along Rights: Used when silent shareholder wants right to join in sale of shares by other shareholders

2. Drag-Along Rights: Include when majority shareholders want right to force silent shareholder to join in sale

3. Anti-Dilution Protection: Used for protecting silent shareholder's investment value in future funding rounds

4. Right of First Refusal: Include when existing shareholders want priority in purchasing silent shareholder's shares

5. Death/Incapacity Provisions: Used when specific arrangements needed for transfer of rights upon death/incapacity

6. Foreign Investment Compliance: Required when silent shareholder is a foreign entity, addressing FEMA compliance

7. Tax Indemnity: Include when specific tax arrangements or protections are needed

Suggested Schedules

1. Schedule 1: Investment Details: Detailed breakdown of investment amount, payment schedule, and share specifics

2. Schedule 2: Company Information: Key company details, shareholding structure, and corporate information

3. Schedule 3: Profit Calculation Method: Detailed methodology for calculating distributable profits

4. Schedule 4: Information Rights: List of financial and business information to be provided to silent shareholder

5. Schedule 5: Compliance Requirements: Regulatory and statutory compliance requirements specific to silent shareholding

6. Appendix A: Share Certificate: Format of share certificate to be issued to silent shareholder

7. Appendix B: Transfer Notice: Template for notice of intention to transfer shares

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant legal definitions
Agreement
Applicable Law
Articles of Association
Board
Business Day
Business Plan
Company
Completion Date
Confidential Information
Distributable Profits
Effective Date
Encumbrance
Event of Default
Exercise Notice
Exercise Period
Exit Event
Fair Market Value
Financial Year
FEMA
Investment Amount
Investment Shares
Material Adverse Effect
Memorandum of Association
Parties
Permitted Transferee
Profit Share
Related Party
Reserved Matters
SEBI
Share Capital
Shareholder
Silent Shareholder
Silent Shareholder Rights
Subscription Price
Tag-Along Notice
Tag-Along Right
Transfer
Valuation
Voting Rights
Relevant Industries

Technology and Software

Manufacturing

Real Estate

Family Businesses

Retail and E-commerce

Healthcare

Professional Services

Hospitality

Construction

Agriculture

Financial Services

Media and Entertainment

Relevant Teams

Legal

Finance

Corporate Secretarial

Compliance

Board of Directors

Investment

Tax

Corporate Governance

Risk Management

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Company Secretary

Legal Counsel

Corporate Lawyer

Investment Manager

Business Development Director

Finance Director

Managing Director

Board Director

Compliance Officer

Private Equity Manager

Investment Advisor

Tax Consultant

Corporate Governance Officer

Industries
Companies Act, 2013: Primary legislation governing company formation, management, shareholding, and corporate governance in India. Particularly relevant for shareholder rights, share transfers, and corporate compliance requirements.
Indian Contract Act, 1872: Fundamental law governing contract formation, validity, and enforcement. Essential for ensuring the agreement meets basic contractual requirements and is legally binding.
Income Tax Act, 1961: Relevant for tax implications of profit sharing arrangements and dividend distributions to silent shareholders, including TDS provisions and tax compliance requirements.
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011: Important for understanding disclosure requirements and compliance needs if the silent shareholder acquires substantial stakes in listed companies.
Foreign Exchange Management Act (FEMA), 1999: Crucial if the silent shareholder is a foreign entity, governing foreign investment regulations and cross-border financial transactions.
Indian Partnership Act, 1932: Provides legal context for silent partnership arrangements and dormant partner rights, though primarily focused on traditional partnerships.
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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