A Preference Shares Agreement is a crucial document used when a company wishes to raise capital without diluting voting control, while offering investors preferential rights to dividends and capital repayment. This agreement, governed by Indian law, particularly the Companies Act, 2013, and SEBI regulations, is commonly used in corporate fundraising, restructuring, and investment scenarios. The document outlines the complete framework for preference shares issuance, including dividend rights, redemption terms, conversion options (if applicable), and various protective provisions for both the issuing company and preference shareholders. It's particularly valuable when companies need to attract investors with assured returns while maintaining existing shareholder control structures.
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1. Parties: Identification of the issuing company and the preference shareholder(s)
2. Background: Context of the preference share issuance, including corporate approvals and purpose
3. Definitions and Interpretation: Key terms used in the agreement and rules for interpretation
4. Issuance and Subscription: Details of preference shares being issued, including number, face value, and premium
5. Dividend Rights: Terms of dividend payment, including rate, cumulative/non-cumulative nature, and payment schedule
6. Redemption Terms: Conditions and process for redemption, including timing and redemption price
7. Representations and Warranties: Statements of fact and assurances from both parties
8. Covenants: Ongoing obligations of the company and shareholders
9. Transfer Restrictions: Limitations and procedures for transferring preference shares
10. Notices: Process for formal communications between parties
11. Governing Law and Jurisdiction: Applicable law and courts having jurisdiction
12. Miscellaneous: Standard boilerplate provisions including amendments, waivers, and severability
1. Conversion Rights: Terms for converting preference shares to equity shares (for convertible preference shares)
2. Voting Rights: Special voting rights, if any, granted to preference shareholders
3. Anti-dilution Protection: Provisions protecting preference shareholders from dilution in certain events
4. Foreign Investment Compliance: Special provisions for compliance with FEMA and other foreign investment regulations
5. Tag-Along Rights: Rights of preference shareholders to participate in sale of shares by other shareholders
6. Drag-Along Rights: Rights to force preference shareholders to join in sale of shares
7. Information Rights: Special rights to receive company information and financial statements
8. Board Nomination Rights: Rights to nominate directors to the company's board
1. Schedule 1 - Share Certificate Details: Format and particulars of preference share certificates
2. Schedule 2 - Corporate Authorizations: Copies of board and shareholder resolutions approving the issuance
3. Schedule 3 - Payment Terms: Detailed payment schedule and mechanics for subscription amount
4. Schedule 4 - Dividend Calculation Method: Formula and examples for calculating preference dividend
5. Schedule 5 - Company Information: Key corporate and financial information about the issuing company
6. Schedule 6 - Redemption Process: Detailed procedure and timeline for redemption
7. Appendix A - Form of Transfer Notice: Template for notifying transfer of preference shares
8. Appendix B - Compliance Certificates: Templates for various compliance certificates required under the agreement
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