The practical benefit of a shareholder agreement

Imagine starting a business together with some friends. Initially, the collaboration goes smoothly and the company grows rapidly, but after a few years the friends fall out among themselves about their vision for the company and one of them decides to sell their shares. Disagreements arise about who gets to take over the shares and at what price.

In this case, a shareholder agreement would prove useful. Indeed, such an agreement could have established how the transfer of shares should be arranged: who has priority in the purchase, how the value of the shares is determined, can the shares be sold to a direct competitor and what happens if the other shareholders do not want (or cannot) take over the shares?

Thanks to such agreements, the shareholders could have solved the problem quickly and without conflict, and the continuity of the company (and hopefully also their mutual friendship) remains assured.

What exactly is a shareholder agreement?

A shareholder agreement is a tailor-made agreement between shareholders of a company. In this agreement, agreements are made on a whole range of essential topics that go beyond what is stipulated in the articles of association or the law, for example.

These include:

• Agreements on the transferability of the shares: for example, on a period during which the shareholders agree not to sell shares (so-called “lock-up”), rules on the ability of the other shareholders to be allowed to buy over shares first before a third party can do so (so-called “pre-emption right”) as well as under what conditions and according to what procedure.
• Agreements about the management of the company, for example about which decisions should be taken by a simple majority and which decisions should be taken by a greater majority (or even unanimously). Of course, this also includes agreements on who may nominate directors and how they should conduct themselves.
• Rules on the prevention or settlement of disputes, agreements on non-competition, agreements about the long-term vision of the company, exit strategy, etc.
• The ground rules regarding the admission of new shareholders and/or financial contributions.

Relationship of a shareholder agreement to articles of association

Although the articles of association of a company and the Companies and Associations Code already contain provisions to which shareholders must adhere, in practice these often prove insufficiently tailored to the specific needs and expectations of the various parties within a company.

A shareholder agreement therefore allows more specific agreements to be recorded.

Benefits of a shareholder agreement

Working with a shareholder agreement has a number of other advantages with regard to the articles of association:

• Articles of association must be published in (the annexes to) the Belgian Official Gazette and are therefore freely available to the public, whereas this is not the case for shareholder agreements. The anonymity of the agreements made is an advantage that should not be underestimated. Especially where sensitive or confidential agreements (for example, financial) are concerned.
• The amendment of the shareholder agreement can take place privately and without compliance with the procedure for an amendment to the articles of association, whereas an amendment to the articles of association always requires a notarial deed, and thus additional costs. This allows decisions to be made with a certain flexibility and efficiency.
• A shareholder agreement also applies only for a certain period of time. This makes it possible to coordinate the agreement as closely as possible with the evolution within a company.

In short, as an entrepreneur, a shareholder agreement is a particularly useful tool for recording certain arrangements.

Our PKF BOFIDI Legal experts are happy to provide you with further assistance

Do you have any questions about this topic? Then you can always contact our legal experts.

This article was written by Flor Vertommen, he specialises in corporate law and M&A.