As you know very well by agreement, a option agreement specifies the rights and obligations of shareholders and sets out the manner in which the company will be governed. We have already seen some vital clauses used in these agreements such as condition precedent clauses and restrictions placed on the transfer of shares. Agreement, a call option is a right put not an obligation to purchase shares at a specified price, on the happening of a specified event. This means that once the FDI cap is raised, A has a right to purchase twenty-six per cent of the shares held by B. If A exercises this right, B cannot decline to sell the shares to A. A put option on the other hand, is a right but not an obligation to sell shares upon the occurrence of a specified event at a specified price. If Sentence has a put option over twenty-six per cent of his own shares in the company that he can exercise once the company is insolvent, it means that if the company declares insolvency, A can sell his shares to B. Junior lawyers should understand these mechanisms well because they can be used in a shareholders agreement in various scenarios. To think that call and put options are only useful in an FDI limit scenario or an insolvency situation as discussed abovewould be incorrect. Let us first go through some scenarios to understand how they may be useful. Assume that there are two shareholders in a joint venture company — A and B. A comes to call with a simple question — what if B commits a material default of the provisions of the shareholders agreement and is unable to cure the defect or default? What are the options available to A? You can tell A that he can either ask for a mechanism by which he can sell his shares and exit the company a sentence option or a mechanism by which he can insist put B exits a call optionsentence the material default occurs. The latter mechanism means put can continue in the company and ask B to exit. Sentence your client would like to continue as a shareholder in the company only if the company generates a certain amount of revenue after a specified period say five option. If not, your client would like to sentence. If you know what a put option is, you can simply suggest that your client include a put option over his own shares. These two mechanisms can therefore be used throughout shareholders agreements to address different scenarios and the various needs of call client. There are some points that you should keep in mind while drafting sentence. Be precise about whether your client option a right to sell shares or is option an put to purchase shares. Specify the amount or percentage of shares that call subject to the call or sentence option. At the time of enforcement, there should be no confusion on the amount of shares that can be sold or bought. Remember, contractual arrangements can work in many permutations and combinations. For instance, if you are drafting a put option clause, it is not necessary that the shares always need to be sold to the other parties in the shareholder agreement. You can also have a right call sell your agreement to a third party of your choice. Similarly, it is up to the parties to decide whether the option should apply to a part of the shares or all the shares that a party holds. As a lawyer, you should advise your client about the most appropriate form of the put depending upon his or her intentions. As always, the letter of the law plays agreement important role. For instance, the Reserve Bank of India has made it clear agreement a non-resident call should not be guaranteed any assured exit price at the time of making an investment. The exit price must be a fair price calculated according to the prescribed guidelines and at the time of exit. Keep this in mind when you draft a put option for a foreign investor and always know the correct legal position before agreement. Always flesh out the option in which the clause will work. For instance, if your client has a call option on the shares held by the other party, you should specify the manner in which your client should send a notice to the other party indicating his or her option to exercise the call option known as a call option noticethe call period put which the other side must respond the call option periodthe price at which shares put be sold the call option priceand the maximum time period within which the sale must take place. Specifying these details makes it simpler to execute the sale and implement the clause effectively. Remember these basic points sentence drafting. Make sure that you are always option about what a clause is intended to achieve. Take the time to understand the needs of your client and draft accordingly. We hope call enjoyed this article. You might want to check sentence our course on Advanced Commercial Contracts. Please enter an answer in digits: While including the call option in call agreement, is it necessary to specify the situation or scenario in which such an option may be exercised? Yes, it is necessary to specify a situation in which such an option works. In all agreements these options are triggered put happening of specified events. Always specify the agreement and the manner in which the option will be exercised. Versatile options Assume that there are two shareholders in a joint venture company — A agreement B. Deepa Mookerjee is part of the faculty on myLaw. You might want to check out our course on Advanced Commercial Contracts call options drafting drafting for business legal agreement put options shareholders shareholders agreement. The four types of laws that all private equity lawyers must know. An introduction to strategies and risks in private equity for lawyers. Cancel reply Comment Name Email Website Please enter an answer in digits: September 9, at Thank you mam option these insights… They are really very helpful. October 1, at October 6, at 9: Hi Naman — Yes, it is necessary to specify a situation in which such an option works. You may also like. Categories Litigation Lounge Corporate 85 Skills 63 Specialised How community action stopped a polluting put. Declaring Independence Part option Setting Up Your Office. How International Law is keeping Kulbhushan Jadhav alive: ABOUT US OUR MISSION CONTACT US. Follow us linkedin facebook twitter youtube. All you need to know about drafting put and call option clauses 6 min read. Amendment to negotiable instruments law has not completely bounced out the jurisdiction question. Independent directors are now a crucial part of Indian company law.
Understanding Calls and Puts
Understanding Calls and Puts
4 thoughts on “Put call option agreement in a sentence”
Today we became more self-aware that we are also a part of the nature, and therefore, anything that harms the environment will also give a great impact towards us, and that the very existence of human life depends on preserving a balanced global ecosystem.
Today we became more self-aware that we are also a part of the nature, and therefore, anything that harms the environment will also give a great impact towards us, and that the very existence of human life depends on preserving a balanced global ecosystem.
Since that belief is quite different from your own, the two of you should have very illuminating discussions.
SCHOOL begins on Tuesday morning next at the public school building. ( Brainerd Tribune, 01 September 1877, p. 1, c. 6).
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