Did you create your business two or more years ago? Your business is growing and you are wondering how to protect your interests and those of your partners and shareholders? Are you wondering how to secure the future of your company ?
This is where the shareholders' agreement proves to be an eminently useful tool for structuring relations between shareholders by clearly defining their rights and obligations.
But what exactly is it? What is it used for? And what are the risks to be aware of?
Let’s dive behind the scenes of this essential tool together.
What is a Shareholders' Agreement?
A shareholders' agreement is a private agreement which supplements the statutes of a company by providing details on the rights and duties of shareholders, the terms of transfer of shares, and the rules of governance of the company.
This agreement is crucial to preventing conflicts between shareholders by anticipating difficult situations and offering concrete solutions.
At Blendy, international accountant, we often see entrepreneurs neglecting this crucial aspect. However, it is a powerful tool to avoid future conflicts and ensure smooth management of the business.
What is a shareholders' agreement for?
Goals
With a well-designed shareholders' agreement, companies benefit from increased clarity in managing shareholder relations, which is essential during transition or growth phases.
The agreement also helps prevent conflicts by clearly defining the rights and obligations of each person, thus facilitating collective decisions and the distribution of profits.
Protect everyone's interests: It guarantees that each shareholder has their place and their say.
Anticipate the future: Anticipates delicate situations such as the departure of a partner or the arrival of new investors.
Maintain control: It helps define who makes important decisions and how.
Resolve conflicts: It proposes solutions in the event of disagreement between shareholders.
Organize the exit: It provides the terms of sale of shares if a shareholder wants to leave.
Advantages
Thus, with a shareholders’ agreement companies benefit from:
Increased legal certainty: Less risk of costly litigation.
Operational stability: A clear structure that facilitates daily operations and major transitions.
Protection of personal and professional interests: Managers can operate with the assurance that their rights are protected.
For what legal structure?
In France, the shareholders' agreement is applicable to different legal forms of companies provided that they have shareholders or partners.
It is commonly used in joint stock companies (SA, SAS) , where it is particularly useful for organizing relations between shareholders. Logically, for individual companies which do not have shareholders, this type of pact is not applicable.
When should a shareholders’ agreement be put in place?
The ideal time to set up a shareholders' agreement is generally when the company is created or when new investors enter.
This makes it possible to clearly define the rules of the game from the start, avoiding misunderstandings and making it easier to manage shareholder relations.
It is also a good practice to review and adjust the pact during major business milestones, such as a significant fundraising or a major change in the company structure.
Risks to be aware of
The shareholders' agreement is not without risks:
Rigidity: An agreement that is too strict can block the development of the company.
Conflicts of interpretation: Poorly drafted clauses can lead to arguments.
Obsolescence: The agreement may become unsuitable if the company's situation changes radically.
Cost: Drafting a tailor-made agreement can be expensive.
Country specificity
It should also be noticed that shareholder agreements vary from one jurisdiction to another, with each country having its own laws governing agreements between shareholders. In France, for example, shareholders' agreements are governed by the French Commercial laws and the company's legal structure.
In the United States, the United Kingdom and Canada, although the fundamental principles are similar, the specific details and terminology may differ according to local laws. Companies must therefore adapt their shareholders' agreement to the legal and practical requirements of each country in which they operate.
The key elements of a good shareholder agreement
The shareholder agreement includes several essential clauses, such as:
Governance clauses: They define who makes decisions and how.
Voting and veto rights: These rights can be assigned to protect minority interests.
Pre-emption clauses: They give priority to existing shareholders to purchase the shares of an outgoing partner.
Exit clauses: They organize the transfer of shares, often crucial in the event of a major disagreement or the exit of an investor.
Joint exit clause: It requires a buyer to buy back the shares of all shareholders.
Inalienability clause: It prevents the sale of shares for a certain period.
Non-competition clause: It prohibits partners from creating a competing business.
Conflict resolution clause: It defines how to resolve disagreements.
Let's take an example
Four friends created a company with a shareholders' agreement. After 3 years in business, three of the founders want to separate from the 4th without needing his consent.
What should be included in the shareholders' agreement for this scenario?
To allow the three founders to separate from the fourth without his consent, it is essential to include certain specific clauses in the shareholders' agreement when drafting it:
Forced exit clause (Drag Along): This clause allows a majority of shareholders to force other shareholders to sell their shares under certain conditions, often linked to a sale of the majority of the capital or the company.
Share buyback clause: Provide an option which allows the company or certain shareholders to buy back a shareholder's shares under certain predefined conditions.
Obviously, these clauses must be clearly defined and accepted by all parties at the time of signing the pact to avoid subsequent conflicts and litigation.
How Blendy can help you?
Blendy, an English-speaking French accounting firm, specialist in Pennylane and digital accounting solutions for businesses, advises you on the financial aspects to include in your agreement.
We ensure that your shareholders' agreement is perfectly aligned with the strategic objectives of your business and adapted to the specific challenges of your industry. Blendy also helps businesses navigate the legal and strategic complexities related to expansion and financing.
We can thus:
Help you identify the key points to address in your shareholders' agreement.
Connect you with specialized legal experts.
Support you in implementing the financial clauses of the pact.
Ensure monitoring of the application of the agreement over time.
An investment for the future
The shareholders' agreement is therefore like an insurance for your company. It may seem complex or expensive at first, but it's an investment that can save you a lot of hassle later.
Our goal is to build the foundations of sustainable growth together. For businesses ready to take flight, Blendy offers the tools and support needed to ensure every financial aspect, including the shareholders' agreement, is managed with precision and aligned with a long-term vision.
Don't wait until the last moment. Contact Blendy today to anticipate the implementation of a shareholders' agreement adapted to your company.
Would you like to know more about our consulting services and support? Contact the experts at Blendy today!
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