Enforceability And Validity Of Shareholder Agreements

Published date13 March 2021
Subject MatterCorporate/Commercial Law, Corporate and Company Law, Corporate Governance, Shareholders
Law FirmCorralRosales
AuthorMs Sofía Rosales

Shareholders' agreements are defined as those agreements entered into by some or all of the shareholders of a company in order to complete, define or modify their internal relations and the application of the rules stipulated in the bylaws. By means of these agreements the shareholders can regulate a great diversity of matters, without contravening the corporate bylaws, but determining their application to specific cases within the life of the company.

There are three types of shareholders' agreements:

  1. Relationship agreements: these regulate the reciprocal relationships of the shareholders directly and are therefore characterized by the fact that they have no repercussions whatsoever on the company. Some examples include pre-emption rights, drag or tag along clauses, joint sale rights, lock up obligations, among others.
  2. Attribution agreements: shareholders undertake certain obligations in order to grant advantages to the company. The most common attribution agreements include financing obligations from shareholders, but they may also include non-compete obligations, or similar.
  3. Organizational agreements: these regulate the organization, operation and decision-making within the company such as, agreements on the management structure, on the dividend policy, on the power of a shareholder to request the dissolution and winding-up of the company if certain conditions are fulfilled etc. These agreements are usually arranged through vote syndications.

Traditionally, the problem with respect to shareholders' agreements revolves around two main issues: (i) their enforceability vis-à-vis the company, i.e., whether or not the agreement binds the company; and (ii) the matters that may be regulated by means of these agreements.

  1. The enforceability of shareholders' agreements

Shareholders' agreements have a contractual nature, and therefore are law for the parties in accordance with article 1561 of the Civil Code, but, naturally, they do not bind those who do not enter into them. Since the company in general does not enter into the shareholders' agreement, it is considered as a third party thereof. This derives in its unenforceability against the company, the shareholders who have not entered into it, and its managers, which can significantly complicate its overall enforceability.

Prior to the entry into force of the Companies Modernization Law, in December 2020, the law expressly provided for this unenforceability by stating that:

"Agreements between...

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