THE SHAREHOLDERS AGREEMENT

The shareholders agreement, known in Spanish as pacto de socios or pacto parasocial, is a legal instrument commonly used in the corporate world in order to regulate the relationships between the shareholders of a given corporation or limited liability company.

Although it does not have a specific definition in Spanish legislation, it is considered in literature and case-law as an agreement entered between some or all the shareholders with the aim of complementing, specifying, or modifying the legal and statutory rules applicable to the relevant company.

Types of Shareholders Agreements

There are several types of shareholders agreements:

1. Relationship agreements (Pactos de relación): These agreements regulate the direct relationships between the shareholders, without the intervention of the company. For example, non-aggression agreements (which prevent an increase in share capital above a certain percentage), lock-up obligations, or the establishment of pre-emptive rights for acquisition.
2. Attribution agreements (Pactos de atribución): These agreements do have an impact on the company, as they directly benefit the company. For example, loans or reintegration of company assets in case of losses, or agreements not to compete with the company.
3. Organizational agreements (Pactos de organización): These agreements regulate the internal organization and functioning of the company and have a direct influence on the decision-making system.

Effectiveness of the Shareholders Agreement

The effectiveness of a shareholders agreements depends on certain limitations. One of the main challenges is enforcing them against the company if it was not a party to the agreement itself. Case law has determined that shareholders agreements are only binding on the company to the extent that it is a party to the agreement and therefore it cannot be compelled to comply with agreements that have not been entered into by it.

The Spanish Supreme Court has ruled on this issue, establishing that shareholders agreements can only bind the company itself to the extent that it is a party to the agreement and cannot demand compliance with agreements it has not signed.

It is important to seek proper advice, not only regarding the content of the shareholders agreement but also regarding the parties involved.

To maximize the effectiveness of a shareholders agreement, it is advisable to follow certain guidelines:

• Include as many points of the agreement as possible in the bylaws.
• Establish penalty clauses in case of breach of the shareholders agreement to discourage the parties from reaching contradictory agreements.

Advantages of the Shareholders Agreement

Despite these challenges, shareholders agreements offer many advantages for the shareholders, including the following:

• Contractual flexibility, allowing the bylaws to be supplemented at a detailed level (tailored to the specific wishes of the shareholders).
• Regulating the internal relationships between shareholders, providing clarity and legal certainty about their rights and obligations. This can help prevent internal conflicts and facilitate decision-making. All parties involved know exactly where they stand.
• Protection of interests. With a shareholders agreement, provisions can be applied to ensure stability and continuity in the management of the company, as well as alignment between the shareholders.

Family Businesses

For our clients operating as family businesses, a “Sociedad de Responsabilidad Limitada” (SL) or “Sociedad Anónima” (SA) – equivalent to the Private Limited Company, Private Limited Liability Company, and Public Limited Company – drafting a shareholder’s agreement is highly recommended.

Especially when you are so close to each other, and therefore inclined to not document things properly (“after all, we are family”), it is important to prevent potential conflicts and thus put some clear agreements in writing.

In case of family businesses, the shareholders agreement can play an important role in planning succession and maintaining harmony within the family by establishing clear rules for decision-making and business succession.

In summary, the implementation of a shareholders agreement is an essential tool to improve corporate governance, protect the interests of the partners, and promote the stability and long-term success of the company.

Contact – OTIS Legal Group

OTIS Legal Group can assist you in drafting (or reviewing) a shareholders agreement properly in a comprehensive manner. Feel free to contact our specialists for a consultation.