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Preference Share Agreement Template for India

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Preference Share Agreement

I need a Preference Share Agreement for issuing cumulative, non-convertible preference shares to a foreign institutional investor, with an 8% dividend rate and redemption scheduled for March 2025, including standard minority protection rights.

Document background
The Preference Share Agreement is a crucial document in Indian corporate finance, used when a company wishes to raise capital without immediately diluting voting rights or when investors seek preferential dividend rights and priority in capital repayment. This agreement, governed by Indian law and regulated primarily under the Companies Act, 2013, outlines the complete framework for preference share issuance, including share characteristics, dividend rights, redemption terms, and investor protections. It's particularly useful for companies seeking growth capital while maintaining control, or for investors looking for fixed returns with capital protection. The document must comply with various Indian regulatory requirements, including those from SEBI and RBI if foreign investment is involved.
Suggested Sections

1. Parties: Identification of the issuing company and the preference shareholder(s)

2. Background: Context of the preference share issuance, company's capital structure, and purpose of the investment

3. Definitions and Interpretation: Definitions of key terms and rules of interpretation for the agreement

4. Subscription Details: Number, class, and value of preference shares being issued, along with payment terms

5. Preference Share Terms: Core rights attached to the preference shares including dividend rights, voting rights, and redemption terms

6. Completion: Conditions precedent, completion obligations, and timing of share issuance

7. Company Representations and Warranties: Standard and specific representations about the company's legal status, financial position, and authority

8. Subscriber Representations and Warranties: Representations regarding the subscriber's capacity and authority to invest

9. Covenants: Ongoing obligations of the company and restrictions on operations

10. Information Rights: Rights of preference shareholders to receive financial and operational information

11. Events of Default: Circumstances constituting default and consequences thereof

12. Exit Rights: Terms and mechanisms for redemption or exit

13. Notices: Process and requirements for formal communications between parties

14. Governing Law and Jurisdiction: Applicable law and courts having jurisdiction

15. General Provisions: Standard boilerplate clauses including amendments, waivers, and severability

Optional Sections

1. Conversion Rights: Include when preference shares are convertible into equity shares, specifying conversion ratio and process

2. Tag-Along Rights: Include when preference shareholders have the right to participate in sale of shares by other shareholders

3. Anti-Dilution Protection: Include to protect preference shareholders from dilution in future funding rounds

4. Board Nomination Rights: Include when preference shareholders have the right to nominate directors

5. Foreign Investment Compliance: Include when subscribers are foreign investors, detailing FEMA compliance

6. Drag-Along Rights: Include when majority shareholders can force minority shareholders to join in sale of shares

7. Put Option: Include when preference shareholders have the right to force the company to buy back shares

8. Participation Rights: Include when preference shareholders have right to participate in future funding rounds

Suggested Schedules

1. Schedule 1 - Details of Preference Shares: Detailed specifications of the preference shares including face value, premium, dividend rate

2. Schedule 2 - Completion Requirements: List of documents and actions required for completion of subscription

3. Schedule 3 - Company Information: Details of company's share capital, directors, and corporate structure

4. Schedule 4 - Representations and Warranties: Detailed list of representations and warranties by the company

5. Schedule 5 - Reserved Matters: List of actions requiring preference shareholder approval

6. Schedule 6 - Calculation Methods: Formulas for calculating dividend, conversion ratio, or redemption amount

7. Appendix A - Form of Share Certificate: Template of preference share certificate to be issued

8. Appendix B - Deed of Adherence: Template for new shareholders to become party to the agreement

Authors

Alex Denne

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

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Financial Services

Investment Banking

Private Equity

Venture Capital

Technology

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E-commerce

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Relevant Teams

Legal

Finance

Corporate Secretarial

Compliance

Treasury

Investment

Risk Management

Corporate Development

Board of Directors

Executive Management

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Company Secretary

Legal Counsel

Corporate Lawyer

Investment Manager

Fund Manager

Private Equity Manager

Venture Capital Associate

Investment Banker

Finance Director

Corporate Finance Manager

Compliance Officer

Board Director

Investment Analyst

Due Diligence Officer

Risk Manager

Treasury Manager

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