Omnilateral Partner Covenants

Omnilateral Partner Covenants

What are the Partners’ Covenants?

Shareholders’ agreements are defined by the Supreme Court as those agreements by means of which the shareholders intend to regulate, with the force of a binding bond, aspects of the corporate legal relationship without using the channels specifically provided for this purpose in the law and the bylaws (SSTS 128/2009 and 138/2009, of March 6, 2009). 

These agreements, which complement the company’s bylaws, are intended to regulate relations between partners, protect the company’s interests and establish decision-making mechanisms. Within this framework, omnilateral shareholders’ agreements occupy a prominent place, as they include all the partners of the company and establish common rules for all of them. In this article, we will explore what omnilateral shareholders’ agreements are, their relevance in Spanish law and how they can benefit partnerships.

Article 29 of the Capital Companies Law establishes that these reserved agreements between partners shall not be enforceable against the company. This means that, although the partners may agree on certain provisions among themselves, these cannot contradict or replace the rules established in the bylaws or the decisions formally adopted at general meetings.

What are Omnilateral Partner Covenants?

An omnilateral partner agreement is an agreement involving all partners in a partnership. Unlike bilateral or multilateral agreements, which may involve only some partners, omnilateral agreements cover all partners, ensuring that all parties are subject to the same rules and commitments.

These covenants usually include clauses relating to:

1. Rights and obligations of the partners: these establish what rights the partners have in relation to the company, including voting rights, information rights, and profit-sharing rights, among others.
2. Conflict resolution mechanisms: these include procedures for resolving disputes between partners, such as mediation or arbitration, thus avoiding lengthy and costly legal proceedings.
3. Policies for the sale of shares: aspects such as the right of first refusal or the right to carry forward are regulated, ensuring that partners can protect their position in the event that another decides to sell its shareholding.
4. Decision-making: they define how important decisions will be made within the society, establishing reinforced majorities or double majorities for certain strategic decisions.
5. Confidentiality and non-competition: prevent partners from disclosing confidential information of the company or competing directly with it.

The Effectiveness and Conflict of Omnilateral Covenants

One of the main challenges faced by omnilateral covenants in practice is their effectiveness when they are not reflected in the articles of association. This can lead to situations in which two rules coexist: the one established in the bylaws and the one defined in the omnilateral covenant. Although both may be valid between the parties, the law and case law have made it clear that, in the event of conflict, the provisions of the articles of association will prevail.

The Supreme Court has reiterated that shareholders’ agreements, including omnilateral agreements, cannot serve as the exclusive basis for challenging an agreement adopted at a shareholders’ meeting or by the board of directors. However, when a corporate agreement complies with the provisions of an omnilateral agreement, the partners who participated in such agreement must act in accordance with the principles of good faith. This implies that a partner who attempts to challenge an agreement that he himself previously agreed to in an omnilateral agreement could have his challenge dismissed as contrary to contractual good faith.

Importance of Omnilateral Covenants

Despite the limitations of their opposability, omnilateral agreements remain valuable tools for regulating relations between partners and ensuring the stability of the company. They allow the partners to define their rights and obligations in a more flexible manner than in the articles of association, better adapting to the specific needs of the company. They also promote cohesion among the partners, which is essential for decision-making and the resolution of internal conflicts.

Conclusion

Omnilateral shareholders’ agreements are a key component in the legal architecture of companies in Spain, providing a framework for regulating relations between shareholders in a more detailed and flexible manner. Although they are not enforceable against the company and their effectiveness may be limited compared to the articles of association, their value lies in their ability to align the interests of all partners and prevent conflicts. In a complex business environment, well-drafted and agreed omnilateral covenants can make the difference between the success and failure of a company.

It is therefore essential that partners considering the adoption of an omnilateral covenant do so with appropriate legal advice, ensuring that the covenant is consistent with the company’s bylaws and current regulations, and that all partners fully understand and accept its implications.

At Letslaw, we have a team of experts in corporate law who can advise you on the drafting and negotiation of omnilateral shareholders’ agreements adapted to the specific needs of your company. Do not hesitate to contact us for more information!