Shareholders agreements, corporate governance and rules between partners

Bylaws and shareholders agreement are not the same thing

The bylaws are public and govern the company towards everyone. The shareholders agreement governs the relationship between the people who are shareholders today, and it allows commitments that would sit awkwardly, or too visibly, in the bylaws. Both are needed and both have to be consistent: when they contradict each other, the argument starts on the very day something had to be decided. Our job is to write them as a single system rather than as two documents nobody ever compares.

The clauses that have to be decided

• Reinforced majorities. The list of matters the controlling shareholder cannot approve alone: borrowing, sale of material assets, new share issues, changing the business.
• Pre-emption and transfer restrictions. Who has to be offered the shares first, within what period and on what conditions a sale to a third party is possible.
• Drag-along and tag-along. Whether the majority can require the others to sell alongside it, and whether the minority can require to be bought out on the same terms.
• Valuation. The formula or mechanism for pricing a stake when someone leaves, agreed before anyone has an interest in arguing about it.
• Deadlock. What happens when the shareholders meeting or the board cannot decide: escalation, an independent tie-breaker or a reciprocal buy-out.
• Dividends, future funding and information. Distribution policy, what happens if a shareholder does not follow a capital increase, and what information each of them is entitled to.
• Exclusivity and non-compete for shareholders. With a reasonable scope in subject matter, time and territory.

How power is allocated among the governing bodies

A good share of corporate disputes come not from a missing clause but from the fact that nobody ever defined who decides what. We write that allocation down and turn it into operational documents.

• Shareholders meeting and board regulations, covering notice, quorum, minutes and how decisions taken outside a meeting are handled.
• An authority matrix for the legal representative by amount and by type of act, with the limits filed where they must be.
• A regime for related party transactions and conflicts of interest, including the approval route the law requires.
• Declaration of a business group and of a control situation, and its filing with the commercial register.

The duties of those who manage the company

Law 222 of 1995 imposes duties of care and loyalty on directors and officers and provides for their liability for loss caused to the company, the shareholders or third parties. In practice, the difference between a defensible decision and one that is not usually lies in the paper trail: what information the board had, which alternatives were discussed, who declared a conflict and what went into the minutes. We support the board on those decisions and help build that trail before anyone asks for it.

Family companies

In a family business two conversations overlap: ownership and management. The family protocol organises the first, but it only produces effects if what it says is reflected in the bylaws and in the shareholders agreement. We work through the rules for new generations coming in, access to management positions, dividend policy and the conditions for sales between family branches, and translate them into enforceable corporate language.

What the client receives

• The shareholders agreement negotiated and signed, with an explanation of each mechanism and of when it is triggered.
• The amendments to the bylaws needed for both documents to be consistent, with the corresponding minutes and filing.
• The regulations of the governing bodies and the authority matrix, in a version management can actually use day to day.
• The conflict of interest and related party transaction regime, with the approval route set out in writing.