Best practice in company law: Articles of association or shareholders' agreement? Don't leave the decision to chance!

This ruling concerns anyone responsible for a company’s finances and taxes. It clearly demonstrates the importance of proactive action and a thorough understanding of tax obligations to avoid personal liability. This article provides you with the essential knowledge to make legally sound and forward-looking decisions.

Shareholders agreement: Secure long-term stability with the right governance framework

Particularly within a public limited company (Ltd/AG/SA) or a limited liability company (LLC/GmbH/Sàrl), the organisation of the relationships between the shareholders/partners is of crucial importance for the stability and success of the company. Although in Switzerland the articles of association of a Lt/limited liability company regulate a large part of the internal organisation, there are often complex situations or strategic decisions that cannot be fully provided for in the articles of association. This is where a shareholders' agreement becomes essential. This document makes it possible to establish clear rules, anticipate potential conflicts and ensure harmonious co-operation in the long term.

Frequently occurring situations

When starting a business, shareholders/partners are often blinded by excitement about the new adventure they are embarking on and do not think about the problems that may arise later. The same can sometimes happen over the course of a company's life, with issues relating to the shareholder/partnership relationship being overshadowed by operational challenges. Good management and forecasting are crucial here. In practice, we often encounter problematic situations that could easily have been resolved if a shareholders' agreement had been adopted in time. Here are a few examples:

• Two friends decide to set up a company together and divide the shares equally between them. Everything goes well until one of the shareholders systematically votes against his partner's proposals at the annual general meeting, which leads to a blockade situation and jeopardises the company itself.
• Three members of a family have decided to set up a company to manage the family assets in the best possible way. One of the members decides to sell his shares to a third party. The other two shareholders would have liked to have the option of buying back the shares to prevent a third party from interfering in the family affairs. However, nothing has been contractually/statutorily agreed and nothing can be done to block this sale.
• Four partners decide to found a start-up and want to quickly open up the share capital to investors. They let them in without having previously concluded a shareholders' agreement and become minority shareholders after the transaction. In particular, they lose their right to elect a member to the Board of Directors to represent them and no longer have any decision-making power over the operational management of the company. A shareholders' agreement would have guaranteed them certain rights and could have been part of the conditions for the new investors' entry into the company.

What are our recommendations?

All too often, partners or shareholders wait until a conflict breaks out only to realise that no rules have been agreed in advance. Our advice: draw up a shareholders' agreement right at the start of the collaboration or while a climate of trust still allows you to approach potentially sensitive situations calmly.

A well-formulated shareholders' agreement enables, among other things to:

• protect the founders when opening up capital to investors.
• protect the interests of minority shareholders/partners.
• ensuring a controlled transfer of shares in the event of the sale of shares by a partner/shareholder or in the event of their death or legal incapacity. This can be done, for example, by introducing a purchase right (right to purchase upon the occurrence of certain events), a pre-emptive right (right to priority purchase when selling the shares to a third party), a squeeze-out clause (obligation of minority shareholders to sell their shares) or a joint-out clause (obligation of a potential buyer to also buy all the shares of the minority shareholders).
• clarify the roles, rights and obligations of all parties involved.
• to avoid a deadlocked situation.
• ensure customised corporate governance, particularly with regards to representation on the Board of Directors or the non-competition clause for shareholders.
• prevent future conflicts and secure relations between the shareholders while optimising the internal management of the company.
• adopt confidential rules without public exhibitions (which is not the case with the articles of association, which are usually published on the websites of the cantonal commercial registers).

How can we help you?

We understand that every company has unique needs when it comes to shareholder relationship management. That's why we guide you every step of the way and focus on your specific goals.

• When setting up a company or during its existence, we work with you to analyse your project, address issues that could cause problems in the future and discuss possible solutions that meet your needs while complying with legal requirements.
• We can help you draft and/or negotiate the content of the shareholders' agreement or adapt it to operational changes in your company.
• In the event of a conflict between shareholders/partners, we help you to analyse the existing agreement, check whether the agreed terms have been complied with and assess the associated risks.

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Article written by Nathalie Schmid-Bessard