Shareholders agreement
A shareholders agreement is an extra-statutory contract among the shareholders of a company that organizes their relations, capital evolution and exit conditions, kept separate from the bylaws or articles of association because of its confidential nature.
Definition
In French law, a shareholders agreement (pacte d'associés) is an extra-statutory contract among some or all shareholders, which organizes governance, share transfer conditions, joint exit rights and non-compete undertakings. Its contractual force is grounded on articles 1103 and 1104 of the French Civil Code, and the main sanction remains damages, with specific performance available only in limited cases. The U.S. equivalent, the Shareholders Agreement (or Stockholders Agreement for a corporation), is governed by the bylaws and by applicable state law, primarily section 218 of the Delaware General Corporation Law for voting pools. In the United States, the agreement often works hand in hand with the bylaws and the Certificate of Incorporation, which reinforces its enforceability.
In plain English
The shareholders agreement settles what the articles of association do not: who decides what and by which majority, how someone joins, how someone leaves, what happens in case of deadlock. It is the document that saves the founders when a co-founder wants to leave, or saves an investor when a founder wants to sell to a third party. Common clauses include: drag-along (a majority shareholder can force minority shareholders into a sale), tag-along (a minority can join a majority sale), right of first refusal, good leaver / bad leaver (repurchase of a departing founder's shares at preferential or nominal value) and vesting (gradual acquisition of founder shares over 4 years with a one-year cliff). Without those clauses, the smallest dispute among shareholders paralyzes the company.
RWM transatlantic case study
For a Franco-American group with a French SAS owned by a Delaware C-Corp, two agreements coexist: a Delaware Stockholders Agreement at the U.S. holding company level, governing the relationships between founders and investors in the C-Corp, and an SAS shareholders agreement at the French subsidiary level, often reduced to simple governance provisions since the sole shareholder is the C-Corp. The French SAS offers broad statutory flexibility (articles L227-1 et seq. of the French Commercial Code), which allows clauses to be inserted directly into the articles of association that the Delaware General Corporation Law requires to sit in a separate Stockholders Agreement. On the Delaware side, section 102(b)(7) DGCL allows director liability limitations that do not exist under French law. We make sure that governance, share transfer and drag-along provisions remain consistent across both instruments, otherwise a Delaware drag-along may be paralyzed by an SAS-level block, or vice versa.
Points to watch
- Founder vesting: 4 years with a 12-month cliff is the standard on VC deals.
- Drag-along trigger at 51, 66 or 75 percent depending on the balance of power, to be set at seed.
- Good leaver / bad leaver: a precise definition is essential, otherwise exit litigation.
- In France, specific performance of the agreement is limited: prefer a shareholders agreement combined with statutory clauses.
- Strict consistency required between the Delaware Stockholders Agreement and the French SAS articles of association.