When should a shareholders' agreement be signed?
I- Company formation
- Setting common objectives
• Organize governance and share transfers
II- Entry of partners or employees into the capital
- Link their partnership status to the planned partnership
- Prohibit them from competing with the company
- Provide a mechanism for the forced repurchase of their shares if they cease their collaboration.
III- Equity investment
- Granting the right to information on business conduct
- Granting the right to control important decisions made within the framework of corporate governance
• Organize the right of joint exit with the majority
What are the most frequently used clauses?
I- Governance and operating clauses
of the company
1. Control clause for major decisions in the form of a veto or a body responsible for approving major decisions
2. Reinforced information clause
3. Clause for resolving blocking situations in the case of equal partners
4. Dividend distribution clause
5. Clause of funding establishing the conditions for financing the company through current account advances from its partners
II- Clauses concerning capital and share transfers
1. Temporary inalienability (or non-transferability) clause
2. Approval clause for new share sales or transfers
3. Right of first refusal clause
4. Joint exit clause
5. Accretion clause to correct the value of an investor's equity investment
6. Liquidity clause allowing investors to exit the company at term
III- Clauses concerning partners practising a profession
key operational functions
1. Non-competition clause prohibiting operating partners from competing with the company
2. Exclusivity clause obliging operating partners to devote all or part of their time to their duties within the company
3. Good leaver or bad leaver clause obliging operating partners (or their heirs) to sell their shares to the other partners if they cease to hold office
What are the penalties for non-compliance?
The most common penalties to expect:
- Damages paid to associates
- Damages paid to the company
- Forced sale of shares to other shareholders (at a discount to market value where applicable).
What are the pitfalls to avoid?
It must always be borne in mind that it must offer a balance between the signatories, and must not be a source of tension.
Pitfalls to avoid:
- Drafting imprecise clauses
- Include clauses that are too rigid or restrictive: this type of clause is often counterproductive.
- No penalties for breaches of the covenant
- Drafting clauses that contradict statutory clauses
Drawing up a shareholders' agreement requires skill and expertise to avoid certain pitfalls.
