In addition to the articles of association, which are publicly registered and generally accessible, it is often advisable to enter into a shareholders’ agreement – also known as a parasocial agreement -, which allows aspects of the relationship between shareholders that are not, or should not be, included in the articles of association to be regulated in greater detail and in confidence. This article forms part of the Corporate Law area of Araújo & Associados.
What parasocial agreements are – the Article 17 regime
Parasocial agreements are governed by Article 17 of the Commercial Companies Code, which defines them as agreements entered into between all or some of the shareholders, by which they undertake, in that capacity, to conduct themselves in a way not prohibited by law. They may be entered into before the company itself is incorporated, between future shareholders, or at any later point in the company’s life, and may cover matters such as the exercise of voting rights, dividend distribution policy, limits on the company’s borrowing, or the requirement of enhanced quorums for certain resolutions.
Legal limits on the content of shareholders’ agreements
The shareholders’ contractual freedom in drafting a shareholders’ agreement is not unlimited. Under Article 17(2) of the Commercial Companies Code, these agreements may concern the exercise of voting rights, but may not concern the conduct of directors or members of supervisory bodies in the performance of their duties – thereby preserving the functional independence of those bodies from commitments made by shareholders as such. The law also declares void, in Article 17(3), voting agreements by which a shareholder undertakes always to vote in accordance with the instructions of the company or one of its bodies, always to approve the proposals put forward by them, or to exercise the right to vote, or to abstain from doing so, in return for special advantages.
Typical clauses in a shareholders’ agreement
Although the specific content of each shareholders’ agreement must be tailored to the situation and objectives of the shareholders involved, certain clauses appear frequently in this type of agreement:
- Right of pre-emption on the transfer of shareholdings, allowing the remaining shareholders to acquire the holding of a shareholder who wishes to leave before it is offered to third parties;
- Tag-along and drag-along clauses (the terms commonly used in the market), which regulate the position of minority shareholders in a possible sale of the company to a third party;
- Deadlock-resolution mechanisms between shareholders with equal holdings, for situations in which the company is blocked for lack of a decision-making majority;
- Exit and valuation rules for the shareholding of a shareholder who wishes or is required to leave the company;
- Non-compete obligations on shareholders in relation to the business of the company itself.
About Araújo & Associados
Established in 1980, with offices in Porto and Lisbon, Araújo & Associados provides legal advice on the negotiation and drafting of shareholders’ agreements, in Portuguese, English, French, German and Spanish.
Frequently asked questions about shareholders' agreements
Can a shareholders' agreement be entered into before the company is incorporated?
Yes, parasocial agreements may be entered into between future shareholders, before the company itself is incorporated, or at any later point in the company’s life.
Can a shareholders' agreement oblige a director to vote in a particular way in the performance of their duties?
No. The law expressly prohibits these agreements from concerning the conduct of directors or members of supervisory bodies in the performance of their duties, pursuant to Article 17(2) of the Commercial Companies Code.
What is a "tag-along" or "drag-along" clause in a shareholders' agreement?
These are mechanisms that regulate the position of minority shareholders in a possible sale of the company to a third party – tag-along allows the minority shareholder to sell their holding on the same terms as the majority shareholder, and drag-along allows the majority shareholder to require the minority shareholder to sell their holding together with theirs, under certain conditions.
Is it worth having a shareholders' agreement if the company has only two shareholders?
Often yes, since companies with only two shareholders, especially with equal holdings, are particularly prone to decision-making deadlock, for which the shareholders’ agreement can provide resolution mechanisms.
Contact us
For more information on shareholders’ agreements, or to book a legal consultation, you can contact us through our Porto or Lisbon offices, by telephone, email or via the form on the website. We provide legal advice in Portuguese, English, French, German and Spanish.