The importance and advantages of having a shareholders' agreement

1. Introduction. Importance of the Articles of Association.

The functioning and organisation of a company is regulated in the articles of association The company's Articles of Association, which are approved by the founding shareholders at the time of its incorporation, without prejudice to the fact that they may be subject to subsequent modification.

In view of the above, we can conclude the importance of these rules for the proper functioning of the company, however, it is very common when a company is incorporated that it follows standard articles of association without taking into consideration the different circumstances of the company.

However, in the case of a sole proprietorship or a subsidiary, the problems that could arise would be more limited, as there is no possibility of disjunction between the partners, when there is a partnership with several partners, irrespective of their relationship, it is essential to analyse the casuistry of the partnership and to draw up articles of association adapted to its circumstances.

2. Objectives of the Partnership Pact

Notwithstanding the above, there are other matters or aspects that by law cannot be regulated in the bylaws themselves, but which, nevertheless, it is essential to regulate in order to ensure the continuity of the company. For this purpose, there are the so-called shareholder or parasocial agreements whose objective is to supplementing the articles of association y regular all matters relating to the activity, organisation and functioning of the companyas well as the relationship between the partners. 

3. Types of agreements within the Shareholders' Agreements.

Among the possible agreements subject to regulation within a shareholders' agreement, we can highlight, by way of example and without limitation, the following:

(a) Enhanced majorities for the adoption of certain board resolutions

For the adoption of resolutions by the General Meeting, the law requires majorities that may be different depending on the type of resolution, for example, in the case of the amendment of the Articles of Association, where a reinforced majority is required.

However, these majorities may be modified by requiring a higher percentage than that laid down by law. In this case, the shareholders' agreement could establish a series of majorities for adopting certain resolutions (e.g. structural modifications, capital increases or reductions, etc.), in order to reinforce the majorities provided for by law.

Another possibility to reinforce the majorities provided for by law is to include that, for the adoption of certain agreementsin addition to the statutory majority, the favourable vote of a certain number of members is required.

b) Composition of the administrative body

Spanish law is based on the general principle that the appointment of directors corresponds to the General Meeting by majority resolution. 

However, we find an exception in Articles 243 and 244 of the Capital Companies Act, which allows the shareholders of a public limited company to agree in the articles of association a priori on the system of appointment by means of a proportional representation system. In the case of a private limited company, this is expressly prohibited by Article 191 of the Commercial Register Regulations.

However, a Supreme Court ruling of 6 March 2009 establishes the possibility of establishing such a proportional representation system in the case of a limited company.

This agreement would thus make it possible to provide for the possibility for all partners to have a presence on the Board of Directors and participate in the management and administration of the company.

(c) Unlocking clause

It is common to find companies whose shareholding structure consists of two partners at 50%, which could lead to a situation where the company is blocked in the event of a disagreement between the partners, resulting in the paralysis of the company or even its dissolution.

It is therefore essential to establish a series of pacts that allow these situations to be resolved, some of them have been the subject of analysis in previous articles.

d) Transfer of shares

The law establishes a series of rules for the transfer of shares by regulating certain limitations on such transfers in cases where the articles of association do not stipulate anything in this respect.

Although the shareholders may establish the transfer regime they deem appropriate, as long as it is not contrary to law, it is it is advisable to complement the mechanisms established in the statutes with a shareholders' agreement.The purpose is, for example, to limit or prevent the entry of third parties by way of sale and purchase or by way of change of control of the holding company.

(e) Right of separation

The Capital Companies Act establishes a series of specific cases in which the right of separation operates in favour of a shareholder; however, it is possible to include the shareholder's own decision as an additional circumstance of the right of withdrawal.

 In this case, it will be necessary to establish both the procedure and the time limit for its exercise, in order to avoid possible damage both to the company itself and to third parties that could be affected by such an exit.

(f) Non-competition clauses

This clause makes it possible to establish a non-competition pact on the part of the partners, so that they may not engage, either directly or through third parties, in activities that may collide with the company's own activity.

(g) Drag along rights

The purpose of this agreement is to prevent a minority shareholder from blocking a sale transaction beneficial to the majority by refusing to dispose of its shares.

(h) Tag along rights

In this case, minority shareholders are protected by granting them a right to sell their shares together with the majority shareholder's shares, when the latter has received a purchase offer issued by a third party for his or her shareholding.

i) Dividend distribution policy

This clause will regulate how dividends are to be distributed and in what amount. For example, by establishing a minimum distribution percentage each year if the targets are achieved.

4. Effectiveness of Shareholders' Agreements

The shareholders' agreements are not enforceable against the companyi.e. the partners cannot enforce them vis-à-vis society. Therefore, in the event that the pact can be transferred to The Articles of Association of the company must reflect this The shareholders' agreement is to be adopted in accordance with the terms of the shareholders' agreement, so that, in the event of non-compliance, the shareholders' agreement that has been adopted in breach of the provisions of the shareholders' agreement can be challenged.

However, as noted above, there are other resolutions which, by their nature, cannot be transferred to the Articles of AssociationIn this case, these agreements will have the force of law between the parties, i.e. they will be enforceable against the parties, but not against the company. For this purpose, there are certain mechanisms that implicitly allow these agreements to be incorporated into the articles of association by means of what are known as ancillary services.

To this end, the company's articles of association must include an ancillary provision consisting of compliance with the shareholders' agreement itself, so that failure to comply with the agreement could lead to the exclusion of the defaulting shareholder or even to the dissolution of the company itself.

5. Conclusion: the importance of having a Partners' Pact.

In view of the above, it is highly recommended that in the case of companies with more than one partner are regulated in detail in the Articles of Association. and adapted to the company's own circumstances and, likewise, those other matters that do not fall within the scope of the company's bylaws and that are regulated in an shareholders' agreement, with a view to ensuring business continuityThe company's management is also responsible for establishing mechanisms to solve problems that may arise in the future and which could even result in the dissolution of the company itself.   

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February 10, 2024
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