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What happens in case of violation of a shareholders’ agreement

Shareholders’ agreements are pacts stipulated between company members in order to regulate their corporate relationships. Such agreements differ from what is established in all other corporate documents, in the company statute, in the deed of incorporation of the company.

Shareholders’ agreements in foreign trade companies

Cases of shareholders’ agreements between foreign members of business company in Italy have become more and more common. These agreements are signed on the basis of common interests between shareholders, and are governed by the law valid in the place of the residence of the shareholder who would be sued if the agreements happened to be violated. In any case, regardless of the type of violation, shareholders’ agreements are not enforceable against the company. Shareholders’ agreements can establish relationships other than those contained in the articles of association or in the company statute, but they can never replace them. This also applies to any shareholders’ agreements entered into between companies from different countries for specific intents and purposes.

Types of relationships and shareholder agreements

As a general rule, in all developed countries companies operate within trade markets with foreign countries, and shareholders’ agreements are used to:

  • stabilize ownership of the company to make sure that the shareholders stay the same as long as possible;
  • stabilize governance of the company within the company bodies such as the board of directors or the shareholders’ meeting;
  • enforce transparency of the documents and make any changes in the corporate structure public;
  • establish limits and duration of dominant positions within the company’s governing bodies.

When a shareholders’ agreement is legally binding

A shareholders’ agreement is only binding for the shareholders who signed it, and no one else. Neither the company and its existence are affected by the shareholders’ agreement, given that it concerns the relationships between two or more shareholders but not the company as a whole. For the same reason, two or more shareholders might decide to enter into a private agreement, but again, said agreement does not affect the company, that continues its business as usual.

Consequences of violation of a shareholders’ agreement

As said before, the shareholders’ agreement is an agreement between individual shareholders, and it may well happen that some of them might violate it. In this case, the break of the agreement causes one shareholder to suffer damage from another. This can also happen when the shareholders have residence in two different countries, or between members of a company with headquarters in a country other than the one of their residence. In such cases, it is necessary to determine which judge has jurisdiction on the case and in which country it is to be judged. It has now been established in several instances by international law that as a general rule the judge with jurisdiction is that from the same country as the shareholder served. This definitely happens when the content of the agreements between the shareholders does not concern the dissolution, nullity or validity of the deeds stipulated by the company. Even if the proceeding concerned the managing partner of the company, the trial would be held in their country of residence and not in the one where the company is based. Such a decision has already been taken by the High Court in Italy, that ruled on the violation of the management syndicate of a company based abroad, committed by one of two shareholders residing in Italy.

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