The COVID-19 outbreak has revealed how companies that survived to economic crisis are those characterised by flexibility, real time response, and corporate resilience. These characteristics are typically to be found in innovative sturt up. In fact, innovative start up are able to mobilise technologic knowledge and resources in order to face current uncertainty period. In such context, improving corporate governance constitutes a relevant step ahead.

Empowering corporate governance means making company life-cycle longer while regulating shareholders relationship. Shareholder agreement is a precious corporate vehicle that serves the purpose of improving the quality of corporate governance and it had a long tradition within venture capital sector.

Shareholder can decide to draft the agreement either in the context of company incorporation or after that. Such agreement has thus the capacity to prevent and mediate conflict between shareholders. Even though conflicts and misunderstandings are quite usual between shareholders, it might be possible that situation is going to deteriorate even further. Within such circumstances, it is possible that shareholders’ conduct could significantly impede the functioning of the company. For instance, refusing to approve the financial statement, refusal to approve a certain investment and so on.

Shareholder agreements are private-law contracts with binding effects between the contractual parties. Furthermore, the agreement might be drafter between shareholders and non-shareholders and they cannot be enforceable against the Company.

 Shareholder agreements lasts for a maximum of 5 years and its content might be diverse but never against the Law, public policy and accepted principles of morality. Under these circumstances, shareholder agreements present the following features:

  • They regulate corporate governance in terms of decision procedures while improving corporate management participation. Additionally, shareholder agreements can impose obligations such as report obligation or obligation to consul shareholders;
  • They implement instruments to improve company functioning. For instance, clauses that may solve deadlock situations, clauses tailored over the management of Intellectual Property assets;
  • They can implement a share circulation regime while establishing a pre-emptive right on shares;
  • The agreement can establish the procedure in relation to shareholder’s withdrawal. In such case, the agreement can recognise shareholder’s right to dispose of their shares by transferring them to another shareholder.

If you had recently decided to start a business in Italy, the shareholder agreements should be adapted to the provisions of Italian Law n. 221/2012. In fact, it is relevant to plan an effective structure of corporate mechanism that might be alternative to donation or traditional heritance channels. By doing so, it will be possible to transfer company shares without damaging heirs’ interests and rights. In this sense, there are several legal instruments:

  • Business/Family agreements: Legal instrument through which it is possible to manage and transfer the business from a generation to another: especially in the context of family companies;
  • By Laws and Shareholder agreements: Shareholder agreements may include surrender or option clauses through which in the even of shareholder’s death, heirs are forced to transfer the shares or stocks to other shareholders at a price fixed;
  • Trust: Trust constitutes another legal instrument to undertake generational transition. This instrument features various advantages compared to previous business/family agreements. For instance, trust assets are fully protected by any financial issue occurring to the trustee or shareholder.

VGS Corporate lawyers have developed a robust expertise in drafting shareholder agreements for start up or bigger companies. Their professionals strongly believe that shareholder agreements constitute the general functioning structure of any business. Should you need any assistance or information about drafting of shareholder agreements, please do not hesitate to contact them.