What are the types of shareholder agreements and how (and why!) to draft them?

In every partnership, even the best one, there comes a point when the arrangements between the partners need to be translated into a contract. The natural choice in this case is the Articles of Incorporation, which – as the partnership matures – often transforms from a simple formula from S24 into a more complex construct. However, not all provisions are suitable or can be included in a company agreement. This is for a number of reasons.

Why isn’t the partnership agreement enough?

Openness of the Articles of Incorporation: The Articles of Incorporation is a public document, which means that anyone can see it in the Public Registry of Securities (PRS). This makes all the information it contains available to anyone who is interested, including competitors or potential investors.

The Companies Act regulates the operation of companies in Poland and introduces certain restrictions. An example is the “golden share,” which gives special rights to one shareholder, such as the right to veto important decisions. Such special rights may conflict with the CCC and cannot be written into the company’s articles of association.

Risk of rejection by the National Court Register: the National Court Register (KRS) may reject the registration of a partnership agreement if it contains provisions relating to other agreements that are not filed with it.

At this point, it is worth supplementing the (general) partnership agreement with a shareholders’ agreement, which is secret and gives a much wider field for what we can regulate with it.

Types of shareholder agreements

Company Agreement: Defines the rules of incorporation, capital contributions, rights and obligations of shareholders. It should specify, rules for decision-making, distribution of profits or losses, as well as procedures for exit and sale of shares. It may also regulate to some extent the rules of incentive programs for key managers and employees operating in the company.

Shareholders’ Agreement: Contains other important provisions governing the company, such as shareholder involvement and related sanctions, ESOPs, rules for compensating shareholders , or restrictions on competitive activities and operational exclusivity. It safeguards against conflicts, protects minority shareholders, regulates the flexibility of selling shares and may include mechanisms to ensure the retention of key talent. It should also ensure the involvement of shareholders in the company’s affairs by creating appropriate incentive mechanisms.

Here’s an example: The shareholders are involved in other activities outside the company. Among them is Jarek, who outside the Company serves as a director in a nail manufacturing company. The partners have an agreement among themselves that Jarek, until he is unable to receive a salary from the Company of at least PLN 10,000 net, will only be engaged for 1/4 of his professional time, but ultimately intends to devote 100% to the Company’s business. Such provisions are not suitable for the Company’s contract, but the ideal place for them is the shareholders’ agreement.

Why write down shareholder agreements?

A lack of written agreements between partners is an open door to chaos, misunderstandings and restrictions on company growth. Probably every founder has heard the saying that “contracts are written for bad times,” which, especially in good times, may seem like a somewhat hackneyed platitude, but invariably holds true.  

Summary

Written shareholder agreements are not just a formality. It is a tool that protects the interests of all shareholders, providing stability and predictability in the operation of the company. With them, you can avoid many problems and focus on the development of the company. By writing agreements for bad times, we prepare the company for any scenario, which is key to long-term success.

Jakub Kozioł Managing Partner

jakub.koziol@theheart.legal

(+48) 600 818 015