Shareholders’ Agreement: Control and Protection Mechanisms in the Corporate Structure

Shareholders’ Agreement: Control and Protection Mechanisms in the Corporate Structure

The shareholders´ agreement is a crucial legal instrument within the corporate structure, designed to establish the rules of governance, protection and control among the shareholders of a company, and between the shareholders and the company. This type of agreement not only seeks to preserve the rights and interests of the founding shareholders, investors and other key stakeholders, but also serves to resolve potential conflicts and clarify responsibilities in strategic decision-making.

In the business context, a well-structured shareholders´ agreement is essential for the long-term success of a company, especially in situations involving multiple stakeholders with different levels of participation. In the following, we will explore in depth the concept of the shareholder´s agreement, its control and protection mechanisms, and the importance of its implementation to ensure the stability and sustainability of the company.

The shareholders´ agreement is a private agreement that is signed between the shareholders of a company, and if required by the parties, it is made public. Although this document is not mandatory by law, it is considered a highly recommended tool in companies where several stakeholders are involved. The shareholders´ agreement complements the articles of association, which are of a public nature, and makes it possible to introduce more specific and detailed conditions on key aspects of the relationship between the shareholders.

The main objective of the agreement is to foresee and regulate the different scenarios that could arise in the operation of the company, from the distribution of profits to the departure of a shareholder, and how to handle possible internal disputes.

One of the pillars of the shareholders’ agreement is the establishment of control mechanisms that allow the shareholders to have a clear and fair participation in corporate decisions. Some of the most important mechanisms:

1. Voting rights: one of the most common mechanisms is the regulation of voting rights. Although the company’s bylaws may establish a distribution of votes based on the shareholding, the shareholders’ agreement may introduce modifications to this scheme to protect minority shareholders or assign differentiated votes in certain strategic decisions.
2. Quorums and enhanced majorities: for major decisions, such as the sale of the company or the amendment of the bylaws, the agreement may require special majorities or enhanced quorums, so that certain decisions cannot be made without the consent of a qualified majority of the shareholders.
3. Board of directors: the covenant may also provide for how the board of directors will be composed and how key decisions will be made within the company. This may include, for example, the appointment of directors nominated by different groups of shareholders or the creation of committees to oversee key areas such as audit or business strategy.
4. Restrictions on the transfer of shares: to prevent the entry of new shareholders without the consent of existing shareholders, the covenant may include right of first refusal clauses, which give existing shareholders the opportunity to buy out a departing shareholder’s shares before they are offered to third parties.

In addition to control, the shareholders’ agreement seeks to provide protection mechanisms for both majority and minority shareholders, ensuring that everyone has a fair and protected interest in the company.

1. Anti-dilution clauses: in scenarios where the company issues new shares, these clauses protect existing shareholders from having their shareholding diluted without adequate compensation or the possibility of acquiring new shares to maintain their percentage stake.
2. Drag-along right: this clause allows the majority shareholders to drag the minority shareholders into the sale of the company if an attractive offer involving 100% of the capital stock is received. In this way, the majority shareholders can prevent the minority shareholders from blocking a beneficial sale.
3. Tag-along right: on the contrary, this clause protects minority shareholders by giving them the right to accompany the majority shareholders in the sale of their shares, ensuring that they can sell their shares under the same conditions as the majority shareholders.
4. Non-competition and confidentiality clauses: to protect the commercial interests of the company, the shareholders’ agreement may include non-competition clauses that prevent the shareholders from competing with the company for a certain period after their exit. Likewise, confidentiality clauses are essential to protect sensitive company information.

A well-designed shareholders’ agreement not only protects the interests of the shareholders, but also fosters trust and cooperation, key elements for the success of any business.