The agreement that unites shareholders

Tue, 21.11.2023, 12:00

The creation of a shareholder agreement is important to establish clear rules regarding share ownership and clarify relationships among shareholders. This agreement helps define the company's governance and understand how dividend policies are established. When should a shareholder agreement be considered? What are the key points it can clarify?

What is a shareholder agreement?
A shareholder agreement is a private law contract that regulates relationships among shareholders and safeguards the company in case of disagreement among them. While the Articles of Association and the Code of Obligations usually govern these relationships, the shareholders' agreement offers more flexibility, precision, and confidentiality. It may contain hundreds of clauses related to corporate governance, dividend policy, purchase rights, transfer, and veto rights, general meeting formation, and more. It provides answers to many questions shareholders may have, such as share sales, the death of a shareholder, or the obligation to sell shares.
 
When should a shareholder agreement be drafted?
To ensure the smooth functioning of a company with multiple shareholders, a shareholder agreement is necessary to bind them together. Swiss law only requires shareholders to contribute their shares, but other obligations like loyalty, non-competition, preemptive, and preferential rights are crucial to protect shareholders and the company. This agreement shields the company from a shareholder seeking to create competition or sell all their shares to third parties. It doesn't hinder the company's operation, but failure to comply may hold the shareholder responsible towards others without directly impacting the cash flow. This agreement is a long-term commitment limited by Swiss law, advising against contracts lasting over 20 years.
 
Points clarified by the shareholder agreement
The shareholder agreement can encompass various elements depending on the agreements between parties. However, a general list of key elements often addressed in such an agreement can be outlined. One such element is the dividend distribution policy, playing a crucial role in capital structure, the company's future growth, and its value for creditors and future shareholders. The shareholder agreement can include provisions on balancing shareholder remuneration and the company's needs in this area.
 
Preferential acquisition rights
A clause regarding preferential acquisition rights is commonly found in shareholder agreements. While this clause might be briefly mentioned in the company's bylaws, in the shareholder agreement, the complete details of this clause are meticulously defined to ensure each shareholder's security. It allows the company's shareholders to purchase shares from a shareholder wishing to sell them before any external party.
 
Preemptive rights
Preemptive rights arise in various defined situations in the shareholder agreement, including death, termination of the agreement, invalidity, breach of the agreement, acts harmful to the company, violation of agreement clauses, termination of an shareholder's employment contract, or reduction in business activity. Shareholders can also define other preemptive cases.
 
Joint transfer rights
Joint transfer clauses are often included in shareholder agreements. It allows a minority shareholder to avoid becoming a co-shareholder with an unknown new shareholder. It grants a shareholder the right to sell their shares to a third-party buyer at the same price as other shareholders. This clause is often put in place if a significant percentage of share capital is sold to a third party or if there are only two shareholders, and more than half of the share capital is sold. The percentage must be specified in the agreement.
 
Director nomination clauses
Through this clause, parties can customize profit distribution beyond the rules set by law and the company's bylaws. This can enable certain shareholders to ensure their right to a minimum return and allow others to benefit from dividends based on the company's performance.
 
The shareholder agreement regulates corporate governance beyond the rules on shares.
Shareholders can include clauses regarding the compensation of members of the Board of Directors, the majorities required for decisions at the Annual General Meeting, and rules for the company's liquidation. It's possible to determine voting per capita instead of voting per share, allowing shareholders to make decisions such as amending the company's bylaws, increasing share capital, nominating or revoking members of the board of directors, and more. The shareholder agreement must also specify clauses for tied votes and veto rights. Additionally, shareholders can commit to certain obligations, such as confidentiality, loyalty, non-competition, and personal liability for the company's debts. There are no restrictions on what can be included in a shareholder agreement.