Drafting a shareholders' agreement that protects every partner

What is a shareholders' agreement for?

The articles of association set the company's public framework. A shareholders' agreement governs the relationship between partners. It is a contract between all the shareholders or some of them. Belgian contract law, in Book 5 of the Civil Code, applies to it.

Unlike the articles, the pact stays confidential. The articles go through the court registry and the Belgian Official Gazette.

Articles or pact: who does what?

• Publicity: the articles appear in the Gazette, the pact stays private.
• Scope: the articles bind the company and third parties, the pact binds only its signatories.
• Amendment: the articles need a general meeting and a notary, the pact needs the signatories' consent.
• Conflict: towards the company, the articles prevail.

When should you sign a shareholders' agreement?

The right time comes before the first dispute.

• Two or more founders start a company together.
• An investor joins the capital.
• A family business prepares its succession.
• Two companies set up a joint venture.

Without a shareholders' agreement, a 50/50 split can block every decision. A key partner can also leave while the others cannot buy the shares. Then, a former partner can launch a competing business. Finally, a capital increase can dilute minority holders with no compensation.

Clauses on share transfers

These clauses of a shareholders' agreement keep unwanted partners out.

Pre-emption and approval

With a pre-emption right, partners buy a leaver's shares first, at the price the third party offered. An approval clause requires the other partners' consent before any sale to an outsider.

The Companies Code already sets some transfer rules for the SRL. The pact can add to them.

Tag-along and drag-along

Tag-along protects minority holders. If a majority holder sells, they can sell their shares on the same terms. Drag-along serves the buyer. If a qualified majority accepts an offer, it can force the others to sell too. The pact sets that threshold, for example 75% of the shares.

Lock-up

A lock-up clause bans any transfer for a set period. The Companies Code requires it to stay limited in time and rest on a legitimate interest.

Governance clauses

The pact also organises day-to-day power.

• Seat allocation on the board.
• Reserved matters that need unanimity or a qualified majority.
• An investor's veto on certain strategic decisions.
• Regular financial reporting to the partners.
• A deadlock procedure: mediation, arbitration or a shotgun clause.

Voting arrangements remain possible within the limits of the Companies Code. They can never run against the company's interest.

Exit, valuation and a partner's departure

These clauses prevent the most painful negotiations.

Good leaver and bad leaver

A shareholders' agreement often distinguishes two kinds of departure. A good leaver leaves for a legitimate reason, such as illness or an amicable exit. They transfer their shares at fair value. A bad leaver leaves after serious misconduct or in breach of the pact. They accept a discount set in advance.

Put and call options

A put option lets a partner sell their shares at an agreed price. A call option lets a partner buy another partner's shares.

Valuation method

Fix the method at signing, not in the middle of a dispute. Common formulas rely on the annual accounts, an EBITDA multiple or an independent expert. You thus avoid months of tense negotiation.

Non-compete and anti-dilution

A non-compete clause protects the company's client base. It must stay reasonable: limited duration, a precise area and a clearly defined activity. In practice, many pacts choose one to three years after the exit. An overly broad clause risks nullity.

An anti-dilution clause gives a partner priority in a capital increase. They thus keep their percentage.

What happens if someone breaches the shareholders' agreement?

The pact remains a contract, so a breach makes its author liable.

• Damages to make good the loss.
• Specific performance in some cases, with a penalty payment.
• A penalty clause: a lump sum agreed in advance.

Note that a transfer in breach of the pact normally remains valid towards the company, unless the articles prohibit it. That is why the most sensitive clauses often appear in the articles as well.

Mistakes to avoid

These are the flaws we come across most often.

• Copying a template without adapting it to the real split of capital.
• Drafting a shareholders' agreement that contradicts the articles.
• Forgetting the pact's duration or the position of new partners.
• Leaving valuation to a future negotiation.
• Including a non-compete with no time limit.

Preparing a shareholders' agreement with solid numbers

A good shareholders' agreement rests on a shared view of the project. First, build your financial forecast with your partners. With Juristelo, you test several scenarios for growth and funding rounds. Valuation and anti-dilution clauses then become easier to negotiate. If a partner wants out, the company can also run a share buyback. Still weighing the structure? Read our comparison of the SRL and SA legal forms.