Shareholders’ agreement: define the foundations of your shareholder relations!
The shareholders’ agreement is an essential legal document that provides a framework for relations between shareholders and sets out certain rules governing the operation of the company. Whenever the shareholder structure changes, whether as a result of the arrival of a new shareholder, a reconfiguration of capital, a fund-raising operation or a partial sale of capital in which the initial shareholder remains in the minority, it is essential to draw up a shareholders’ agreement. AKCEAN can help you negotiate the clauses of a shareholders’ agreement, to protect your interests, prevent conflicts and establish sound governance. What is a shareholders’ agreement and why is it important? A shareholders’ agreement is a private law contract between the shareholders of a company. Its role is to establish clarity in shareholder relations and define rules for the smooth running of the company. In particular, it enables shareholders to anticipate and agree in advance on measures to be taken in the face of potential divergences. The exact name of the pact varies according to the legal form of the company: it is called a shareholders’ pact for joint-stock companies (Société Anonyme, Société par actions simplifiée) and a partners’ pact for partnerships (Société à responsabilité limitée, Société civile). Although optional, a shareholders’ agreement is essential to ensure coherent management of the company, and is strongly recommended when there are several shareholders. Distinction between articles of association and shareholders’ agreement It should be noted that the company’s Articles of Association and the Shareholders’ Agreement are two separate documents, with the Agreement supplementing the Articles of Association. Unlike the Articles of Association, the Shareholders’ Agreement is neither mandatory nor public, and enables you to set down rules that you wish to keep confidential. However, it is essential to ensure that the two documents are compatible, to avoid any possible contradictions. What clauses does it include, and why are they essential? A shareholders’ agreement includes a number of clauses categorized according to their purpose, such as those relating to governance, presence, exit and financial rights. The following is a non-exhaustive list of some of these clauses: GOVERNANCE CLAUSES Board of directors Shareholders define the structure and composition of the Board of Directors, including their representativeness, as well as the frequency of meetings. The main role of the Board of Directors is to guide and validate the company’s major strategic decisions. The shareholders’ agreement specifies the responsibilities of the Board of Directors. In particular, its role is to guide and approve the company’s key strategic choices. This includes appointing senior executives, supervising executive management, drawing up remuneration policies, establishing internal governance principles, approving financial statements, validating financing requests, monitoring and managing risks, making investment and M&A decisions, and approving the annual budget. To avoid deadlock, it’s a good idea to opt for a moderately sized board, with an odd number of the main shareholders represented. Voting rights Shareholders may wish to impose an obligation to vote for or against certain resolutions, benefit from enhanced voting rights or a right of veto on certain decisions, or require consultation before each meeting. Mediation In the event of persistent disagreements between shareholders, it may be useful to provide for a simple obligation to consult or mediate, or to envisage more binding solutions. Right to information Shareholders define the content and frequency of the reporting they wish to receive, to ensure optimum transparency and communication ATTENDANCE CLAUSES Exclusivity Directors are forbidden to become involved in other companies, including non-competing ones. The aim is to ensure total commitment to the company and prevent any potential conflicts of interest. Non-competition and non-poaching Directors and shareholders undertake not to compete with the company, either directly or indirectly. This may involve a prohibition on investing in a competing company. This clause, which must be circumscribed in its geographical and temporal scope, may continue to have effect even after the persons concerned have left the company. Non-transferability (or inalienability) Shareholders undertake not to sell their holdings in the company’s capital for a certain period, thus ensuring stability in the capital structure. EXITCLAUSES Pre-emption If a shareholder intends to sell his or her shares, he or she must inform all other shareholders. The shareholders, or some of them, have a priority right to acquire the shares before any outside third party. The price of these shares may be fixed in advance or determined according to certain conditions. Approval Shareholders may control and approve the entry of new shareholders. Any intention to transfer shares to a new entrant must be approved by the shareholders’ meeting. If approval is not granted, the shares may be acquired by the other shareholders or by the company. It is also possible to provide for the appointment of an independent expert to estimate the value of the shares. Good/Bad Leaver The “Bad Leaver” refers to a shareholder who decides to leave the company prematurely, or is excluded as a result of misconduct. Under these circumstances, the shareholder’s shares can be bought back at below market value. This provision is designed to penalize departures deemed detrimental to the company. On the other hand, a “Good Leaver” is a shareholder who separates from the company under conditions that respect the terms of the agreement, whether by achieving pre-established objectives or respecting a commitment period. In this case, the shareholder may benefit from favorable conditions for the sale of his shares. Good/Bad Leaver clauses are generally intended for key individuals with a significant operational role in the company. “Buy or Sell In the event of a major disagreement likely to compromise the company’s future, a shareholder may offer to buy the shares of another shareholder. The shareholder receiving this proposal then has the choice of selling his or her shares at the proposed price or, if he or she refuses, buying the shares at the same price. This mechanism prevents the company from being paralyzed by a conflict between shareholders. Liquidity After a defined period, or following a particular event, a coordinated exit strategy can be planned, involving
