YUST  /  Press-center  /  Analitics

Shareholder agreement: draft CCRF (Article 67.2) as compared to the German law and court practice

Erika Kindsvater, Advocate of the Law Firm "YUST"

The need to regulate relations by a shareholder agreement and not by the company charter is understandable: it provides for more confidentiality, obligatoriness for all and simplified amendment procedure.

What is the legal nature of such agreements?

Shareholder agreements may be executed in Russia as well as in Germany pursuant to the general principle of freedom of agreement, and the possibility of such agreement is directly stipulated by the draft changes to the CCRF (Article 67.2). According to the letter dated 14.09.2009 by the Ministry of Economic development, shareholder agreements or agreements on exercising shareholders’ rights are “a type of a civil law agreement, to which civil legislation of the Russian Federation is applicable, including the general provisions of the first part of the Civil Code on transactions, law of obligation and agreements”.

The obligation nature of shareholder agreements that are not binding upon the persons, who are not parties to them, is also recognized in Germany. However, execution of such agreements may in certain cases be qualified as “civil law society” (Gesellschaft bürgerlichen Rechts or GbR), which comparable to the Russian simple partnership (Articles 1041-1054 of the CCRF), if the agreement is based on a prolonged pursuit of common goals (common exercise of corporate rights). Acting on those premises, one should pay attention to the applicable provisions of the Civil Code of Germany in Articles 705 – 740, when elaborating the content of the shareholder agreement. For example, the procedure of termination of the “civil law society” agreement.

If the society was formed for an indefinite period, each shareholder may terminate the society agreement at any moment according to the common procedure. For this reason, exclusion of this right for a fixed period or until the arising of a certain event needs to be stipulated. If the society was formed for a fixed period, the shareholders may terminate the society agreement early with good cause. First of all, if a shareholder violates the society agreement willingly or with gross neglect or if a shareholder reaches 18 years of age. The right of early termination cannot be excluded. The right to terminate the society agreement according to the common procedure for an exceedingly long period also cannot be excluded.

Regulation of the so-called “society continuation reservation” (Fortsetzungklausel) in the shareholder agreement is the next example, because the “civil law society” terminates its activity in the event of death of a shareholder.

What form should be stipulated for the shareholder agreement?

Article 67.2 of the draft Civil Code fixes the written form for the shareholder agreement. Taking into account that, in the event of a contradiction, the provisions of the Civil Code prevail over the federal Law “On LLC”, there is a question regarding the correlation of that provision with clause 11 of Article 21 of the Federal Law “On LLC” regarding alienation of equity (sale and purchase, exchange, gift).

This provision requires the notarized form, if the agreement is executed between the parties not within the framework of exercise of the preferential right of purchase of equity but as a preliminary agreement, the form of which must correspond to the form fixed for the main agreement. In Germany, notarization is required if there is an agreement to alienate the own share and in the case of the agreement of transfer of property title to a land plot (for example, as payment for a share of the charter capital). However, as the form of the shareholder agreement is not regulated by law, there is no collision, which is common for the Russian legislation: in said cases, the agreements must be notarized.

The limits of regulation of relations in the shareholder agreement

In Russia as well as in Germany, the shareholder agreement may not contradict imperative norms and independently regulate the issues, which should be stipulated by the Charter.

For example, the agreement may not regulate the company’s status, its relationship with the shareholders, and legal status of its management bodies. In Germany, the company Charter must directly stipulate the provisions of payment for the shares by non-monetary means, of taking of shares, of charter capital increase etc. Evasion of the provisions that regulate protection of interests of minority shareholders and fix the shareholders’ right to information and study of the company documents is also prohibited.

However, the provisions of the Russian law are mostly imperative. In Germany, obligations connected with the right to vote, limitations of alienation of shares or equity, actions of increase of the charter capital, (preferential) rights to purchase of shares, prohibition of competition etc. are the most common content of shareholder agreements. Shareholders enter into shareholder agreements more often than stockholders of LLCs. The “strictness of the Charter” (Satzungsstrenge) is the reason for that: while the provisions of the German Law on LLCs are more permissive, Article 23 of the German Law on Joint Stock Ventures stipulates that the charter may deviate from the norms of the JSV Law insofar as it is permitted by law. For example, direct regulation of the (preferential) right to purchase of shares by the Charter would contradict the principle of free alienation of shares and would be recognized as a breach of the provisions of Article 23 of the JSV Law. In a similar way, limitation of a voting right fixed in a Charter would be recognized invalid for contradicting the free vote principle.

Article 67.2 of Part 1 of the draft Civil Code directly stipulates the imperative prohibitions: shareholder agreements may not define the structure of the company management bodies and their competencies (unless otherwise stipulated by law) and oblige its shareholders to vote as instructed by the management. Similar (regarding voting rights) provision only exists in the Federal Law “On JSVs” and is absent from the Federal Law “On LLCs”.

When the changes are made to the Civil Code, the above prohibition will expand to all economic companies. Legal regulation in Germany is similar to the current legislation of the Russian Federation: according to Article 136 of the JSV Law, the agreement is void if pursuant to it a shareholder undertakes to vote as instructed by the company, its board or supervisory council, or as instructed by a dependent venture. Whether said provision is valid for LLC (GmbH) stockholders is debatable.

Those who support the expansion of the prohibition to include the LLC shareholders argue that the German Law on LLCs includes an imperative sphere of competence for the shareholders’ meeting and demand that Article 136 of the JSV Law be expanded to include at least the shareholder agreements. However, the application of Article 136 of the JSV Law in German court practice by analogy to LLC shareholders is dismissed, because the courts are of the opinion that the competencies within LLCs are distributed in a completely different way than it is the case with JSV internal regulations.

For more details see here.

See also:

Оn the reasonable scope of freedom and honesty of business

Amendments to the Civil Code: will the corporate agreement “Russian style” survive?

The reform of the Civil code of Russia imbued the good-faith principle with a new life

Agreement on exercise of rights of LLC shareholders. Problems of execution and consequences of violation

Back to list