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The Term of a Shareholders' Agreement May Be Equal to the Duration of the Company

Published: Monday, May 15, 2023

The term of a shareholders' agreement may be equal to the duration of the company. A shareholders' agreement entered into for the duration of the company is lawful and constitutes a fixed-term contract.

In  2007,  the  French Supreme  Court  considered that  a  shareholders' agreement  entered  into  for  the  duration of  the  status of  shareholder  of  his  signatories was  a  contract of  indefinite  duration, which  could  therefore  be  terminated  unilaterally by  the  signatories, subject  to  reasonable notice  period.

This  approach of  the  French Supreme  Court  had  led  practitioners to  set  a  fixed  duration in  the  shareholders' agreements,  generally  between 10  and  20  years,  in  order  to  preserve  the  stability  of  the  company  and  to  avoid  that  the  signatories  unilaterally terminate  the  shareholders' agreement.

On  25  January  2023,  the  French Supreme  Court  established the  principle  that  the  conclusion of  a  shareholders' agreement  whose  duration is  aligned  with  the  duration of  the  company, i.e.  99  years  in  most  cases, is  lawful  and  does  not  breach  the  principle  of  perpetual  commitments. Moreover,  the  French  Supreme  Court  has  ruled  that  a  shareholders'  agreement entered  into  for  the  duration of  the  company, which  contributes  to  the  stability of  the  company, is  a  fixed-term contract,  which  can  therefore only  be  terminated at  the  end  of  its  term.

Practitioners  will  now  be  able  to  fix  the  duration  of  the  shareholders' agreement  with  the  duration  of  the  existence  of  the  company, without  risking  that  one  of  the  signatories unilaterally  terminate  it  before  its  term,  the  French Supreme  Court  considering that  the  said  agreement  is  fixed  for  a  definite  period. However,  this  case  law  does  not  deal  with  the  hypothesis  that  the  initial duration  of  a  company  can  be  extended indefinitely.

Severin Kullmann
BCTG Avocats
Country:
France
Practice Area:
Corporate
Phone Number:
+33 1 44 15 61 00
Fax:
+33 1 44 15 91 81
Séverin qualified as a lawyer in 1999 and became a partner at BCTG Avocats in 2002. He heads the M&A team of BCTG Avocats, which is composed of more than 10 partners and associates. His core clients include foreign and French groups as well as investments funds, which he accompanies in their corporate transactions in France and abroad, in particular in the FMCG, infrastructure, chemical/pharma and food sectors.

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