The shareholders' agreement: what, why and how?

A shareholders’ agreement is a contract between shareholders, setting out the agreements reached between them to structure their relations around a number of themes (such as the organization of the company’s management, the composition of the board of directors, rules governing the transferability of shares, dividend policy, etc.). These agreements apply for the entire duration of the agreement, and have the force of law between the parties.

Unlike articles of association, which are published and therefore accessible to all, a shareholders’ agreement is known only to the parties who sign it, and can generally be amended at any time with the agreement of all parties. Apart from the difference relating to confidentiality, bylaws can only be amended by notarial deed, which requires a majority of at least 75% at the Annual General Meeting. This is a procedure that involves a great deal of effort and represents a certain cost.

The life of any company is marked by many changes. It is not at all inconceivable that, at some point, certain initial agreements no longer correspond to reality, or that shareholders change, or that a new strategy is put in place. A shareholders’ agreement has the advantage of enabling rapid adaptation to these changes.

Framing relations, anticipating scenarios and possible changes. What can be included in a shareholders’ agreement?

There is a great deal of freedom in determining the agreements to be set out in a shareholders’ agreement. Although there are legal restrictions, practice gives the parties considerable freedom to determine the content of their agreements, enabling them to draw up a truly “tailor-made” agreement.

The essential subjects to be covered in a shareholders’ agreement are as follows:

• The mission, vision or objectives that shareholders pursue within the company: do shareholders have a common goal or opposing visions?
• Rules governing the acquisition and sale of shares: who can become a shareholder, how can a shareholder exit the capital or sell shares, what are the rules in the event of an offer from a third party, how is the price determined?
• Agreements on how the company will be managed and run: who will be responsible for management, who will make up the board of directors, how will supervision be organized, what governance structure will be put in place?
• How do shareholders interact: when do they meet and how do they make decisions, how are they represented on management or supervisory bodies?
• How will the capital be remunerated: what will be the dividend policy, will the other financial aspects be settled between the parties?
• Additional provisions may also be included concerning non-competition, confidentiality, conflict resolution, etc.

Thinking ahead. How can we identify our needs so that we can efficiently draft a shareholders’ agreement?

We’re often asked whether it’s essential to draw up such a document, or whether there isn’t a standard format for a shareholders’ agreement. We regularly hear the following reflections: “We’ll see later”, “We don’t want to allocate a budget to legal issues”, “The shareholders know each other and get on well, so we don’t see the point in framing our relationship”.

In our practice, we regularly observe that the absence of clear, established rules between shareholders can have harmful relational, operational or economic consequences, both for the company and for the parties involved. Today, this reality is reinforced by the fact that shareholders often wear several hats (entrepreneur, director, manager, etc.), amplifying – in the absence of a framework and in the event of disagreement – the scope of these consequences.

This observation leads us to underline the importance of initiating a preliminary reflection on the establishment of a more or less structured framework, depending on needs.

Contrary to popular belief, the first step is not to draw up the document on the basis of the usual legal concepts and mechanisms, but to examine the common intentions, major concerns and priority issues/rules. This will enable us to identify the relevant themes to be incorporated into the convention, and to assess the extent to which a consensus does or does not exist on them.

The deminor NXT team guides shareholders from A to Z, from the preliminary thinking phase, through the drafting of the document, right up to signature.

The various stages of the process can be summarized as follows:

Step 1: Analysis of existing structures and bodies, and – where applicable – of existing rules.

Step 2: Preparation of a checklist of topics for discussion

Step 3: Individual or collective discussions with shareholders

Step 4: Reach a consensus on the topics to be discussed

Step 5: Drafting and signing the shareholders’ agreement

It goes without saying that, depending on the parties involved (family shareholders in the case of a transfer, founders and investors in the case of a fund-raising operation), the content and timing of the various stages are likely to change.

The hazards. What should you avoid when setting up a shareholders’ agreement?

Not structuring the approach and the thought process could lead to discussions on subjects that are irrelevant to your situation, which could waste time or lead to disagreement (which could have been avoided).

Always make sure that there is a way out, whether it’s a method of resolving disputes by appointing an external expert or mediator, or exit clauses whereby the parties part company according to a strict procedure. All too often, shareholder agreements contain mechanisms which, once put into practice, fail to achieve the desired objective, with the result that the deadlock may crystallize further.

Don’t make the shareholders’ agreement too complex either, so that not only the current shareholders but also their successors understand what is at stake in what they are signing, what their obligations are and what their rights are.

In some cases, the emotional and personal aspects of the discussion need to be taken into account. Not including sensitive topics in the discussion is not a solution, as they are bound to come up again.

Make sure that the shareholders’ agreement is concluded for a sufficiently long period (generally between 10 and 15 years) to ensure a degree of stability, while providing for the possibility of adjusting the rules at any time, subject to a reinforced majority (see unanimity).

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Would you like more information on this subject? Feel free to contact Thibaut Claes for an informal discussion, or leave your contact details below and download our “Shareholders’ agreement checklist”.