Shareholders' Agreement and Family Protocol

Shareholder agreements are documents that can be formalised before a Notary to guarantee their executive effectiveness among the signatories and in which agreements are established between some or all of the shareholders of a company. They determine conditions established in their relationship as shareholders, the way in which the company will be managed or how decisions will be made in its corporate bodies. Furthermore, this type of shareholder agreement may include other aspects such as statements of principles or ethics.

Thus, shareholder agreements are agreements that are not part of either the company deed or the articles of association. Corporate legislation establishes that agreements kept confidential between shareholders will not be enforceable against the company.

Among the contents most commonly agreed upon in the shareholder agreement are: the duration of shareholders’ stay, limitations on the powers granted to the Director, the minimum price of shares, tag-along clauses for share purchases, drag-along clauses for company purchase offers, the establishment of exclusivity of shareholders or executives with the company, voting syndicates or commitments to maintain certain management systems.

It is important to establish guarantees that ensure compliance with these agreements. For example, penalty clauses can be established as guarantees or, even in cases of voting syndicates, the fiduciary transfer of all shares or holdings to a person so that they vote as a single unit.

One of the best-known types of shareholder agreements is the family protocol, which are shareholder agreements related to family companies, especially when the share capital belongs to several branches of the same family or when the founder of a company wants to regulate the proper transition of the company to a second generation.

And this is a resource typical of family businesses when their members, with kinship ties and controlling the capital, must make decisions for its management, helping to avoid disputes and differing management criteria, in order to achieve a better performance of the company’s business activity.

When a family protocol is formalised, in addition to setting out the professional and economic relationships between the family and the company (including management), it can also seek the preservation of the company and its development by adopting strategic plans for its long-term continuation. For this reason, its drafting can also assist in the planning of the company’s succession.

Specifically, the family protocol can define:

• The parties, the company’s declaration of principles and family values.
• The corporate bodies (such as the General Meeting, the management body typical of public limited companies or limited liability companies) or family-specific bodies (Family Board, Assembly or Plenary or Family Council).
• Those economic agreements that will allow the family to access the company in terms of training or experience. Likewise, the employment and remuneration relationships of the positions or the regime for the transfer of shares and stocks, the right of exit or separation of partners, the distribution of dividends…
• The mechanisms for conflict resolution or for the review and interpretation of the protocol.

We distinguish three types of family protocols:

• Secret family protocol: only known by the signing partners and not publicised. They do not bind the company but do bind the signatories among themselves
• Family Shareholders' Agreements: regulate private details of the company and may or may not be published
• Registrable Protocols: signed by all partners and affect the business structure and third parties, which is why they must be registered in the Commercial Registry

The Royal Decree of 9 February 2007, which regulates the publicity of the family protocol in unlisted companies, is currently in force.

For the purposes of the Royal Decree, the family protocol is understood as the set of agreements signed by the partners among themselves or with third parties with whom they have family ties, aimed at achieving a model of communication and consensus in decision-making to regulate the relationships between family, ownership, and business that affect the entity.

The family protocol contains various documents interrelated with what has been agreed upon among its members. It is advisable that all are reviewed comprehensively to achieve the desired objectives in the best possible way. Thus, it may be convenient to analyse and prepare several documents jointly:

• The shareholders' agreement or partners' agreement (sometimes known as shareholders agreement).
• The company's articles of association.
• The matrimonial property regime of the company members to avoid the dispersion of capital (community property regime, separation of assets, etc.).
• Wills or other succession agreements.
• Employment contracts of the family members involved where conditions and remuneration are regulated.
• Donations to regulate succession.
• Modifications of the company’s governing bodies.

One of the most debated issues in shareholder agreements is to what extent agreements between family members can or cannot be enforceable against the company according to the Capital Companies Act. Thus, it is important to emphasise that the agreements bind the shareholders who signed them, but not the company. Therefore, this implies that the agreements reached by the company that are contrary to the shareholder agreement may be valid, but the shareholder who has breached it will probably have to be held accountable to the signatories of the shareholder agreement.

The family protocol is a document granted by public deed before a Notary. Therefore, you must request an appointment. Our Notaries in Barcelona are specialists and professionals in Law and Economics, they will study your case, advise you and define a unique family protocol or shareholders' agreement according to the particular needs of your company after a prior agreement has been reached by the different members that compose it. In the development of this agreement, the discussed provisions must be agreed upon and implemented with the drafting of the deed. It is common that before the formalisation of a family protocol or shareholders' agreement before a Notary, legal advice has been received from lawyers.

The Notary is a legal professional with extensive training and considerable experience. Applying complete impartiality, they provide information equally to all parties involved, offering greater assistance to the party that needs it most. Whatever the notarial procedure or act being considered, it is advisable for the interested party, if any doubts arise, not to hesitate to make the necessary enquiries, both on the day of signing and in the days beforehand.

The following documents will be required:

• Valid identification document of the signatories of the agreement
• Draft of the agreement detailing the commitments and regulations
• Identification data of the company, deed of incorporation, etc.

It is advisable that the shareholders' agreement is signed by all members of the company, whether they are partners or not. However, in practice it is common for the shareholders' agreement to be signed only by some of the company's partners.

The legislation establishes the possibility of registering the shareholders' agreement and family protocol in the Commercial Registry. There are two ways to make shareholders' agreements public in the Commercial Registry:

1. Record of the existence of the agreement on the page opened for the company in the Commercial Registry: in this case, as only the existence of the agreement is published but not its content, the Registrar will not assess the agreement.
2. Inclusion of the family protocol alongside the accounts filed in the Commercial Registry, in which case the Registrar will assess it according to the general rules of registry assessment.

As can be seen, this type of agreement has both the intention to resolve problems and to avoid them. For this reason, in many cases they are publicised. However, it is not mandatory to publish them.

In addition to the two types of publicity in the Commercial Registry, publicity can be given to shareholders' agreements and family protocols through their publication on the company's website.