Shareholders' agreement

Situation analysis

In many small and medium-sized companies in Switzerland, sooner or later the question arises: do they need a shareholders' agreement (SFA)? Or are the articles of association of a public limited company sufficient to regulate the cooperation between shareholders?

The answer is: it depends. While an ABV can be dispensed with in simple constellations, there are numerous situations in which it is indispensable. Be it to clarify succession issues, to prevent power struggles on the board of directors or to safeguard the fiduciary duties of shareholders.

What is a shareholders' agreement?

A shareholders' agreement is a contract under private law between shareholders (and possibly third parties) in which they agree on the exercise of their shareholder rights and their cooperation. Unlike the Articles of Association, which are effective vis-à-vis all shareholders and the company, a shareholders' agreement is only effective between the contracting parties.

It is not expressly regulated in Swiss law. Instead, the legal basis is derived from general contract law and the law governing ordinary partnerships. In practice, however, the ABV has long been established and is standard for many companies.

Incidentally, there are various names for shareholders' agreements, such as voting agreement, pooling agreement, shareholders' agreement or shareholders' syndicate. However, it is not the title that is decisive, but always the specific content of the agreement.

When is an ABV useful?

Whether a shareholders' agreement is necessary depends largely on the structure of the company and the ownership structure:

• Clear majority ratios
  If one shareholder holds 90% of the shares and a partner only 10% for formal reasons, an ABV can usually be dispensed with.
• Company succession
  If a successor acquires a 40% stake in the company in order to take it over completely at a later date, an ABV is essential to clearly regulate the transition.
• Management buy-out
  If several successors each buy 25% of the shares, contractual agreements are required to ensure that the company remains capable of acting.
• 50/50 participation
  There is a risk of blockades in the event of equal participation. An ABV can, for example, provide for a neutral third party with a small shareholding on the Board of Directors who decides in the event of a deadlock.

In these constellations in particular, an ABV protects against partners being forced out of the board of directors or important decisions being blocked.

Typical contents of a shareholders' agreement

The structure depends on the objectives and needs of the shareholders. However, some points are particularly common:

• Voting rights
  Determining how shareholders vote at the Annual General Meeting. Often linked to the right to a seat on the Board of Directors.
• Non-competition clauses and fiduciary duties
  As the law does not recognize a general fiduciary duty of shareholders, these should be contractually regulated. These include:
  - Prohibition to engage in competitive business
  - Confidentiality obligations
  - Duty to provide information to co-shareholders
  - Prohibition to encumber or transfer shares without consent
• Financial obligations
  Regulations on additional funding obligations, for example in the event of restructuring.
• Succession regulations
  clarity as to how shares may be transferred in the event of inheritance or when a shareholder leaves the company.
• Emergency plan
  What happens in the event of death, illness, etc.?
• Family issues
  What happens in the event of a divorce?

Legal limits: no "perpetual contracts"

An ABV can be concluded for a limited or unlimited period of time. However, the prohibition of excessive commitment applies (Art. 27 ZGB): No contract may disproportionately restrict personal and economic freedom. According to the case law of the Federal Supreme Court, an ABV can be terminated after 20 years at the latest.

In addition, if a shareholder violates the voting commitment, their vote remains valid, but the other parties can claim damages or contractual penalties.

Conclusion

A shareholders' agreement is not mandatory in every case. However, as soon as several shareholders with equal or similar positions are involved or succession issues arise, it creates clarity and prevents conflicts.

Anyone considering the question of whether an ABV makes sense should carefully examine the individual company situation. It is often worth establishing clear rules in good time instead of getting involved in lengthy disputes later on.

We will be happy to support you in reviewing, drafting and implementing a customized shareholders' agreement.