What is a syndication agreement?

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pacto de sindicación

What is a syndication agreement?

It is common in the life of a startup that, once the time comes to grow, there is a need to raise capital from investors. With the entry of new funds also come new shareholders to occupy an important part of the company. 

It is also common for different investment groups to enter the company, jointly providing financing and each acquiring a number of shares. In these scenarios, it is usually advisable to prepare the so-called syndication agreements to favor the agility and optimal management of the company. 

A syndication agreement is a type of shareholders’ agreement or reserved agreement that is not enforceable against the company (generally), but which has the force of law between the parties that sign it, so that non-compliance may give rise to liability assumptions. 

This agreement seeks to regulate the way in which the voting of a group of shareholders is exercised, so that they have the same meaning and can be representative in the company’s decision making. 

Therefore, by means of a syndication agreement, a group of shareholders agree to vote jointly in the same sense or to exercise their vote jointly represented by a representative chosen among the shareholders party to the syndication agreement. 

In this sense, the Judgment of the Civil Chamber of the Supreme Court, in its STS 296/2016 of May 5, 2016, determined that this type of covenants are included within the assumptions of Article 29.1 of the Capital Companies Act, where reserved covenants between shareholders are defined. 

A syndication agreement is drafted in accordance with Article 1,255 of the Civil Code, which states that the parties may freely establish all the agreements and covenants they consider, provided that they are not contrary to the law, morality or public order. For this reason, this type of agreement is perfectly valid to regulate certain situations of the company itself. 

What is a syndication agreement for?

Syndication agreements usually work so that a group of minority shareholders have more weight in the decision-making process of the company. 

Usually, when investors enter a startup, they do so in groups made up of different individuals and legal entities, dividing the percentage of the capital stock among several, with small percentages corresponding to each one. 

Without having a syndication agreement or a pre-agreement between the shareholders, the small percentage of each one of them tends to be diluted in the decision making of the company, so that, in the end, their small percentage of shares is emptied indirectly, of their political rights by exercising them, but not having any real weight in the company. 

For this reason and in order to face the phenomenon of atomized companies, that is to say, with numerous shareholders, it will be important that the shareholders syndicate their votes to be able to facilitate the taking of agreements and the management of the company. 

The syndication of votes is often a requirement that is put on the table by investors who are going to enter a company, since it not only favors the minority shareholders to achieve a greater representation, but also favors the management of the company. 

Effects of a breach of a syndication agreement

As any other contract, its content is binding and obligates the parties that have entered into it and its breach will result in the corresponding civil liability. 

In this sense, the syndication agreements will enjoy the same civil remedies as the contracts to demand their fulfillment to the parties that subscribe them or, to oblige the breaching parties to compensate for the damages and prejudices caused. 

In spite of this, it is usual to include in the syndication agreements penalty clauses for the cases of breach of the syndication agreements due to the practicality of executing the mentioned clause, in addition to the coercive effect on the shareholders so that they comply with the content of the agreement. 

One aspect that should be mentioned about the syndication agreements is the one related to its effects against the company. In this sense, it is usually stated that, if the company is not a party to the agreement and having a legal personality different from that of the shareholders, it cannot be bound by what some of them agree, leaving the syndication agreement in a position of relative relevance. 

On the other hand, there is a position that holds that these covenants will be binding for the company itself to the extent that they are subscribed by all the shareholders, being universal covenants. 

In any case, many times the judicial protection that can be offered to enforce the covenants of syndication is useless, since the judicial resolution arrives long after the non-compliance has occurred. 

Tips when preparing a syndication agreement

A syndication agreement must include different sections that favor its effectiveness and, above all, that allow its purpose to be fulfilled. 

For this reason, it is advisable to determine the mechanism to be used to determine the direction of the vote of the shareholders. For this reason, it is usually included aspects on the meeting prior to the General Meetings, in which the syndicated shareholders will determine by voting, the sense of the vote to be exercised in the Meeting. These majorities can be regulated directly in the agreement, establishing the necessary regime for the adoption of certain agreements. 

It is also usually advisable to include a clause referring to the blocking syndication. This type of clause refers to the regime to be followed in the case of the transfer of shares that are part of the syndicate. This is because the new owner of the shares, not being a party to the syndication agreement, will not be bound by it. Therefore, this type of clause seeks to limit the transfer of shares so as not to render the agreement itself ineffective. 

It will be important to include in the syndication agreements reference to the duration of the agreement, to clearly indicate the agreements that are subject to the syndication, the restrictions that apply to the transfer of the shares subject to the syndication, the consequences in the change of ownership of the shares, the inclusion of penalty clauses and the detailed regulation of the other relevant aspects of the agreement. 


At Letslaw we have professionals specialized in the preparation and drafting of shareholders’ agreements who will be able to assist you in the elaboration of a syndication agreement.

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