Not everything that regulates the internal functioning of a commercial company is provided for in its statutes. In fact, it is outside their scope, with shareholders’ agreements, that shareholders define rules to govern their relationship with each other and with the company.
Provided for in Article 17 of the Código das Sociedades Comerciais, shareholders’ agreements are contracts entered into between all or some of the shareholders, with the aim of regulating corporate life in a more personalised manner. They may be signed before the company is founded or at any stage of its existence.
Shareholders’ agreements allow the establishment of obligations and rights that go beyond what is defined in the articles of the company’s statutes — from rules on the exercise of voting rights, dividend distribution policies, debt limits, increased quorums for specific decisions, among other aspects. In practice, they function as internal ‘rules of the game’, tailored to the specific needs of the shareholders.
It is important to note, however, that shareholders’ agreements only have effect between the parties that sign them. They, therefore, have an obligatory (rather than real) effect, which means that they cannot bind the company nor challenge corporate decisions that contradict them. Nevertheless, failure to comply with them may give rise to contractual liability, and so, it is common to include penalty clauses to reinforce compliance.
However, in our view, this inter partes effectiveness of the shareholders’ agreement does not render it useless, as it gives the shareholders the power to regulate important issues such as the transfer of shares — such as the so-called ‘lock-up’ (prohibition of sale for a certain period), ‘tag-along’ (right of minority shareholders to sell on the same terms as majority shareholders) and ‘drag-along’ (possibility of forcing minority shareholders to sell in the event of a global sale of the company). Another frequent group of clauses in these agreements aims to resolve deadlocks between partners, as is the case with the ‘Russian roulette’ or ‘Texas shoot-out’ mechanisms, which allow conflict situations to be resolved on the basis of purchase and sale proposals between the partners themselves.
They are therefore highly effective legal tools for mitigating risks, avoiding conflicts and ensuring the long-term stability of the company.
If you are thinking of setting up a company or are already part of a corporate structure with several partners, it is worth considering this instrument. As with almost everything in life, prevention is better than cure — and shareholders’ agreements exist precisely for this purpose.
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