Partnership agreement: your best ally is your lawyer

A company’s success often depends on good relations between the partners. However, many sources of conflict between shareholders can emerge and persist at any stage in the company’s development:

• The onset of the first financial difficulties ;
• Divergence over the company’s development strategy;
• Disagreement over how to go about raising funds;
• Disagreement over commercial strategy in the face of competition, etc.

Such differences can paralyse the company’s day-to-day operations. This can lead to the sale or even dissolution of the company.

To avoid such situations, it is necessary to anticipate relations between the partners, whether through clauses in the articles of association or extra-statutory legal documents such as a partners’ agreement.

In a nutshell, a shareholders’ agreement can be defined as an extra-statutory agreement signed by all or some of the partners that organises their relations throughout the life of a company.

From a purely semantic point of view, common parlance confuses the partners’ agreement with the shareholders’ agreement.

The term shareholders is used in companies such as SAs and SASs, whose share capital is divided into shares. In contrast, companies such as SARLs, EURLs, SELARLs, SNCs, SCPs, SCIs and SCSs, whose share capital is made up of company shares, are referred to as partners.

When should a shareholders’ agreement be drawn up?

We regularly work alongside young entrepreneurs or during capital increases, and one of the first questions our clients ask us is: “When should a shareholders’ agreement be drawn up?

Is it necessary to draw up a shareholders’ agreement with my new partners?

Our answer is clear: yes! And it doesn’t matter what form your company takes.

What’s more, the risk of conflict between shareholders is all the greater if they decide to play an operational role within the company. In this case, a shareholders’ agreement is needed to govern relations between shareholders.

It is therefore essential to draw up a shareholders’ agreement at the outset of your partnership, and to amend it over time as new shareholders enter the capital.

In the case of companies developing innovative projects that require successive rounds of financing, it is essential for the founding partners to draw up shareholders’ agreements with new investors to avoid the negative effects of dilution of the share capital.

Confidentiality: a definite advantage of shareholders’ agreements

By its very nature, and unlike the company’s articles of association, the shareholders’ agreement is not published, so it remains confidential.

Confidentiality therefore makes it possible to maintain a certain degree ofopacity in relations between shareholders.

Let’s take the specific example of special benefits. If the articles of association of an SAS provide for special benefits, a special benefits auditor will be required, at considerable cost. This can be avoided by including such benefits in the shareholders’ agreement. In addition, only a certain number of shareholders may be signatories to the agreement. The shareholders’ agreement binds only its signatories and is not enforceable against third parties.

The shareholders’ agreement is one of the first fuses that can be used to defuse conflicts between shareholders, in particular by stipulating the role of each shareholder at different stages of the company’s growth and development.

the two keys to a shareholders’ agreement

A lawyer: your best ally in drafting a shareholders’ agreement

The key word when drafting a shareholders’ agreement is anticipation.

Our team of lawyers will be able to guide you and adapt the content of the shareholders’ agreement according to the relationships you wish to establish with your partners, the nature of your business and the rate of growth of your business.

There is a wide range of clauses that can be included when drafting your shareholders’ agreement :

• approval clause: any transfer of shares is subject to the prior agreement of the partners
• shareholding clause: each signatory partner undertakes not to acquire more than X% of the company’s share capital
• pre-emption clause: shareholders have priority to buy another shareholder’s shares
• profit-sharing clause: this enables the terms and amount of dividends paid to be anticipated
• buy or sell clause: this clause provides that any conflict between shareholders is resolved by the sale of shares at an agreed price
• mediation clause: this clause organises the use of mediation and the terms and conditions thereof, in order to avoid paralysis of the company
• non-competition clause: the partners who sign the agreement undertake not to work for or set up a competing company after leaving the company
• joint exit clause: partners may sell their shares at the same time if a signatory partner sells his stake

In addition, it is essential to stipulate a limited duration for your partnership agreement: this will enable you to avoid cases of unilateral termination at the initiative of one of the signatories. Goldwin’s lawyers will suggest a term that suits your practice and avoids any reclassification by the courts as an open-ended agreement.

Breach of the partnership agreement

What happens in the event of a breach of the partnership agreement?

The answer is simple: the penalties for breaching a clause in the shareholders’ agreement usually consist of financial compensation in the form of damages.

Failure to comply with the clauses of the agreement may result in compensation for the damage caused to one of the signatory partners, or in the termination of the shareholders’ agreement or the forced departure of the signatory.

A third party to the shareholders’ agreement may also obtain compensation for his loss under ordinary law. However, a decision taken in breach of the shareholders’ agreement and in accordance with the Articles of Association and legal regulations will not be annulled.