Shareholders’ Agreement vs. Articles of Association: What Happens When They Conflict?

Shareholders’ Agreement vs. Articles of Association: What Happens When They Conflict?

Shareholders’ agreements are a common tool used to regulate the internal relationships between a company’s shareholders. They may govern matters such as the exercise of voting rights, the transfer of shares or equity interests, the composition of the management body, or certain obligations between shareholders.

The issue arises when the provisions of the shareholders’ agreement conflict with those set out in the articles of association. In such cases, it is essential to distinguish between the corporate and contractual spheres.

Articles of Association and Shareholders’ Agreement: Different Legal Nature

The articles of association form part of the company’s legal framework, are incorporated into a public deed and are filed with the Commercial Registry. They therefore govern the company’s corporate functioning and bind both the company and its shareholders.

A shareholders’ agreement, by contrast, is contractual in nature and is entered into outside the articles of association. For that very reason, it offers greater flexibility in regulating certain internal relationships between shareholders.

This distinction is relevant because Article 29 of the Spanish Companies Act provides that agreements kept private between shareholders are not enforceable against the company. As a general rule, therefore, they bind only those who have entered into them.

What Happens if They Conflict?

If the articles of association establish one rule and the shareholders’ agreement provides for a different one, from a corporate-law perspective the regime set out in the law and the articles of association will prevail.

However, this does not mean that the shareholders’ agreement is ineffective. It remains fully binding between its signatories. Accordingly, a shareholder who acts in breach of the agreement may incur contractual liability, giving rise to claims for specific performance, damages, or any other remedies provided for in the agreement itself.

This may therefore give rise to an apparently paradoxical situation: a corporate resolution may be valid while, at the same time, involving a breach of the shareholders’ agreement by one of its signatories.

Can the Corporate Resolution Be Challenged?

The issue is particularly controversial where the agreement has been signed by all shareholders. Some legal scholars have argued that, in such cases, principles such as good faith, abuse of rights, or the corporate interest should be taken into account.

However, the Supreme Court case law analysed in the materials provided holds that the mere breach of a shareholders’ agreement is not, in itself, sufficient to invalidate a corporate resolution. There must also be a statutory ground for challenge, such as a breach of the law or the articles of association, or harm to the corporate interest (STS 941/2009, of 6 March).

Conclusion

Shareholders’ agreements and articles of association operate on different legal levels. The articles govern the corporate sphere, while the shareholders’ agreement contractually binds its signatories. For this reason, the best way to avoid conflicts is to coordinate both documents carefully, incorporating into the articles those rules that are intended to have corporate effect and reserving the shareholders’ agreement for internal obligations between shareholders.