The contracting parties use a shareholders' agreement to agree the rights and obligations associated with their position as shareholders. The contracting parties can be just some or all the shareholders of a company. The purpose of the shareholders' agreement as a tool for succession planning is to prevent the transfer of the company's shares to non-shareholders on the one hand, and on the other to secure the management and decision-making ability of the company. The shareholders' agreement is used as a tool for succession planning both internally between the members of a family as well as externally (e.g. in the case of a management buyout). The following discussion of the possible contents of a shareholders' agreement used as a tool for corporate succession planning only has general validity. A shareholders' agreement must always be adapted to the specific circumstances, taking account of other succession planning options (under marital, inheritance and company law).
2. Contents if used for succession planning
2.1 Disposition rights
The most effective way to prevent the sale of company shares to non-shareholders is to include rights of first offer, rights of first refusal, call and put options, and tag-along and drag-along rights in the agreement.
The right of first offer means that the shareholder wishing to sell his shares must offer the shares to the other shareholders with a right of first offer before any contract may be concluded with a third party.
The right of first refusal means that the shareholders with a right of first refusal may assert their right of first refusal upon notice of the shareholder selling his shares as soon as the shareholder selling his shares has concluded a purchase contract for the shares with a third party. In this case the shares must be transferred at the same conditions agreed in the contract with the third party, in particular with regard to the purchase price, unless a specific price or method for calculating the price of the shares had been agreed in advance (limited right of first refusal). Rights of first refusal and rights of first offer are usually combined, so that the remaining shareholders who did not exercise the right of first offer will have a second opportunity to acquire the shares (when the shareholder wishing to sell his shares has found a buyer for the shares).
When a call option is agreed, the holder of the call option receives the right to buy the shares whenever an event triggering the right to purchase the shares as defined in the contract occurs. For example, a shareholder who has been designated the corporate successor can be given staggered call options so that he can adjust the dates on which the purchase price payments fall due to his expected financial means.
It is generally easier to sell shares to a third party if this third party can acquire all the shares in the company instead of just a majority interest. To this end, tag-along and drag-along rights can be agreed between the majority and minority shareholders. If a shareholders' agreement makes provision for drag-along rights, a majority shareholder who is willing to sell his shares (or several minority shareholders acting together) is given the opportunity to also sell the shares of the minority shareholders along with his own, thereby making it possible to sell all the shares in the company to a third party. By including tag-along rights in a shareholders' agreement, minority shareholders are given the right to sell their shares along with a majority shareholder who wants to sell his shares to a third party. This protects minority shareholders from being confronted by an unwanted new majority shareholder.
2.2 Voting trust
To give the shareholders involved in the operation of the company a bigger say in the company's decision-making process, a voting trust clause can be included in the shareholders' agreement in addition to the introduction of voting shares and the allocation of these shares to the operationally active shareholders. With such a clause the shareholders can be obliged to vote in the agreed manner at the annual general meeting (e.g. in support of the proposals of the board of directors or according to an agreement reached at a meeting held prior to the annual general meeting). As a vote given in violation of a contractual agreement is still valid under company law in spite of the breach of a contractual duty, a joint proxy for the annual general meeting can be appointed as an additional security measure.
As the parties to a shareholders' agreement usually want the contractual relationship to last for as long as possible, they mostly do not agree a fixed contract term. However, if a shareholders' agreement is concluded for an unlimited period, the agreement can be terminated in compliance with the ordinary notice period applicable to the contractual relationship. If the parties to the shareholders' agreement qualify as a simple partnership, an unlimited shareholders' agreement can be terminated by giving six (short) months' notice (Art. 545 par. 1 (6) Swiss Code of Obligations (SCO) in conjunction with Art. 546 par. 1 SCO). It is therefore advisable to agree the (longest possible) fixed term for the shareholders' agreement with a relatively long notice period.
2.4 Purchase price of shares
In order to avoid arguments about the purchase price of the shares when a right of first offer or a call option is exercised, it is a good idea to agree the method of calculation of the purchase price for the shares in the shareholders' agreement or to jointly appoint a third party who can determine the value of the shares at the time of the sale and purchase of the shares. The agreement of a specific price at the time when the shareholders' agreement is drawn up is only realistic in a few exceptional cases and only for a very limited period, as the value of the shares can change very rapidly.
It makes sense to plan the corporate succession process as early as possible. In this regard, consideration should be given to marriage and inheritance contracts, measures under company law and the Code of Obligations, and optimisation options under tax law. It is especially important to involve all affected family members in the succession planning process. If the succession planning process is to be satisfactory and sustainable, painstaking legal work precisely tailored to the case in question is required. In particular when drafting or reviewing a shareholders' agreement, it is a good idea to involve a lawyer who can ensure that the objectives are achieved without restricting the flexibility of the company and its governing and executive bodies or hampering the succession process with inadmissible or unenforceable measures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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