How Can Foreign Investors Structure Put Options, Call Options And Exit Rights In Indian Shareholder Agreements?

Shareholder Exit Rights are an important consideration for foreign investors entering an Indian company. A carefully drafted shareholders’ agreement can establish when an investor may sell its shares, how an exit price is determined and what happens if the founders or other shareholders cannot agree on a sale. Put options, call options, drag along rights and tag along rights can help allocate these risks before a dispute arises.

However, an exit clause is not effective merely because the parties have signed it. Foreign investors must consider the Foreign Exchange Management Act, 1999 (FEMA), applicable pricing rules, company law and the company’s constitutional documents. The objective is to create commercially workable exit mechanisms while ensuring the proposed transfer can be implemented lawfully.