In what cases will a partnership agreement be concluded?
I- Creation of the company
・ Set common objectives
・ Organise governance and share transfers
II- Entry of partners or collaborators to the capital
・ Link their status as partners to the proposed partnership
・ Prohibit them from competing with society
・ Provide a mechanism for the forcible repurchase of their shares if they cease to cooperate
III- Entry of investors to the capital
・ Assign the right to information about the conduct of business
・ Assign the right to control important decisions made in the context of corporate governance
・ Organise joint exit with the majority
Which clauses are most frequently used?
I- Clauses concerning the government and the company’s operations
1. Clause for the control of important decisions in the form of a veto or a body responsible for giving its approval to important decisions
2. Enhanced information clause
3. Blocking situation resolution clause in the case of egalitarian partners
4. Dividend distribution clause
5. Financing clause setting out the financing conditions of the company by the advances in current accounts of its partners
II- Clauses concerning the capital and disposals of shares
1. Temporary Inalienable (or Intransferrable) Clause
2. Authorisation clause for any new transfer or transfer of shares
3. Preemption right clause
4. Joint exit clause
5. Rebate clause to correct the capital entry value of an investor
6. Liquidity clause to organise the exit of term investors
III- Clauses concerning partners’ key operational functions
1. Non-competition clause prohibiting operational partners from competing with the company
2. Exclusivity clause obliging operational partners to devote all or part of their time to their duties in the company
3. Good leaver or bad leaver clause obliging the operational partners (or their heirs) to sell their shares to the other partners if they cease their duties
What are the penalties for non-compliance?
In case of non-compliance with the pact, the consequences and penalties should be clear and registered the the partner’s contract
The most frequent sanctions to be provided for:
・ Damage and interest paid to partners
・ Damage and interest paid to the corporation
・ Forced transfer of shares to other partners (if applicable at a price that is subject to a discount from market value).
What Are the Pitfalls to Avoid?
It should always be borne in mind that it must provide a balance between signatories, and there mustn’t be a source of tension
The traps to avoid:
・ Draft imprecise clauses
・ Provide for clauses that are too rigid or restrictive: such clauses are often counter-productive
・ Do not provide for sanctions in case of violation of the Covenant
・ Draft clauses that contradict the statutory clauses