Shareholder agreements in France: an overview

Shareholders’ agreements are very commonly used in France, especially in private equity transactions.

The subject matter of a shareholders’ agreement in France will typically be limited to matters relating to the governance and management of the company and to governance of the rights and obligations of shareholders vis-à-vis the company and other shareholders:

– Organization of the company (governance): powers of the board (some important matters requiring board approval by special resolution), composition of the board (members appointed by the investors, some by the founders, potentially independent directors)

– Directors, shareholders and company obligations

– Derogatory powers in favor of the investors: multiple vote rights, veto rights, reporting rights in addition to all rights mentioned here below. It is today possible in France to ensure minority shareholders control of the company by means of a shareholder agreement (either through voting provisions or protective ones).

– Founders’ obligations (mainly to devote their full time and attention to the company). Founders would typically subscribe convertible warrants (“BSA” convertible into shares).

– Matters requiring unanimous shareholders resolution

– Share transfer regulations and restrictions: right of first refusal, tag along and drag along provisions, pre-emptive rights, ‘Buy-sell’, right of first offer and right of first refusal provisions.

– Protective provisions such as anti dilution clauses to the benefit of some shareholders.

A shareholders’ agreement is simply a contract under French law. There are no particular formalities that are applicable to such an agreement. However, it only binds by force of contract law only on the parties to the agreement.

A shareholders’ agreement will typically provide that it is binding on transferees of the shareholders who are signatories to the agreement or on holders of new shares issued by the company. To bolster the enforceability and practical realization of these provisions, they will often be accompanied by provisions binding the corporation to require, as a condition to any issuance of new shares or registration in the corporation’s share records of a transfer of shares, that the new shareholder or transferee execute a joinder to the shareholders’ agreement.

A more efficient option is the issuance of golden shares subscribed by the investors

. All preferential rights of the investors (priority dividends, multiple votes, veto powers, etc.) would then be mentioned in the company’s by-laws making it public and enforceable towards third parties. The shareholder agreement would limit its scope to more confidential information such as business plan or projected internal rate of return.

Not all corporate forms allow such derogatory rights in favor of one particular shareholder. The “SAS” legal form is today one of the most used vehicle in private equity deals as it offers a large amount of freedom in the organization of management and the conditions for the admission or withdrawal of a partner. The by-laws of an SAS can validly provide for (i) clauses of first refusal, (ii) tag-along and dragalong rights, (iii) qualified voting majorities required to make certain decisions, (iv) ad hoc decision-making bodies, and (v) a right of withdrawal or a procedure for the expulsion of partners.