Notes on the shareholders' agreement
What exactly is a shareholders’ agreement?
With a shareholders’ agreement, two or more shareholders govern the joint exercising of their shareholder rights and the assumption of other rights and obligations in connection with a specific corporation (AG, Aktiengesellschaft). It's common, especially in smaller corporations, for the members to want to agree on joint commitments in order, for example, to safeguard the proper functioning of their personalized company or to have a decisive impact on its activities.
What obligations do the contractual parties have?
The AG itself is not a contractual party, in other words it is exempt from obligations in connection with membership rights. If a shareholder does not comply with the shareholders’ agreement, they may make themselves liable to pay compensation to other shareholders, for example, if they vote contrary to the voting trust agreement. The vote itself is fully valid in accordance with corporate law.
Legislators have expressly abstained from governing shareholders’ agreement by law. The principle of contractual freedom applies, although mandatory legal and statutory provisions must be adhered to. For example, the minimum voting right of a shareholder in voting trusts in accordance with Art. 692, para. 2 CO must be observed. It is also prohibited to limit the decision-making independence of the Board of Directors in the area of its inalienable functions as per Art. 716a OR.
What does a shareholders’ agreement include?
Shareholders’ agreements vary greatly in content. They often include agreements on
- voting trusts in the annual general meeting and in the Board of Directors
- principles of business and dividend policy
- disposal restrictions and purchase rights, such as the right of first offer, right of first refusal, and purchase rights.
- reserve liabilities and restructuring measures
- performance and acceptance obligations
- other duties, such as duties of confidentiality and loyalty, non-compete clauses, work responsibilities, or the duty to take on personal liability for the obligations of the AG.
Before the contractual parties can conclude a shareholders’ agreement, they must be clear on the purpose of their agreement. This depends on how the contract should be designed in detail and which agreements are important.
For how long is a shareholders’ agreement binding?
As a rule, a shareholders’ agreement covers the need for a long-term relationship between the parties in order to fulfill the contractual purpose. When setting a contractual term, you should make sure that the commitment is not excessively long. According to the Swiss Federal Supreme Court ruling, contracts cannot be concluded for an indefinite period of time. Every contract can be terminated after a certain amount of time. In the case of shareholders’ agreements, it is assumed that a commitment of up to 20 years is legally permissible. To avoid legal uncertainties, you should clarify the time of a termination option in the shareholders’ agreement. It is also permissible to make the commitment dependent on the term of shareholder status – provided an exit clause (disposal) is included.
How can a shareholders’ agreement be legally enforced?
If the obligations arising from a shareholders’ agreement are not performed or only poorly performed, then there are two options for the party whose rights were breached:
- They can enforce performance by means of legal action.
- They can require a court order for protective measures.
These options often only take effect after a breach of contract has occurred (e.g. once the vote has already been cast at the annual general meeting).
In these cases, there is only the option to demand compensation for damages. For this reason, other options are agreed in practice to prevent or at least impede breaches of contract from the outset. In particular, these include:
- contractual penalties (to act as a deterrent, without proof of damage)
- appointment of an authorized representative (e.g. to prevent a vote that is in breach of contract)
- deposit of shares
- transfer of shares to the company or to joint ownership
- right of first offer, right of first refusal, and right of usufruct.
If you would like to draft a shareholders’ agreement, our template can help.