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SUSCRIBETE BOLETIN

SUSCRÍBETE

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NEWS AND BULLETINS

What can be included in the agreements between shareholders?

The Companies Law does not allow limitations to the shareholders’ right to freely negotiate their shares (Article 191)[1]. However, the reform of December 29, 2017, included in the same article an exception to this general rule[2], through agreements or covenants between shareholders (hereinafter “Covenants”).

The reform recognizes the validity of Covenants and expressly allows establishing conditions for the negotiation of shares. There is no other provision in the Ecuadorian legislation on this subject in addition to this norm.

Main points that we must know about the Covenants between shareholders:

* Can neither contravene the Companies’ Law, nor the company’s bylaws, and must have a lawful purpose;

* Can be subscribed by two or more shareholders;

* Are not opposable against third parties, but only for those who signed it;

* Cannot harm minority shareholders;

* Usually contain agreements on:

o Preferential acquisition rights for all or some of the shareholders;

o Obligations to assign or acquire shares when certain conditions are met (tag along, drag along or similar clauses)

o Joint selling right;

o Obligations not to increase participation in capital above a certain percentage,

o No competition with the company;

o Intermediation in the products of the shareholders;

o Composition and participation of the shareholders in the administrative bodies;

o Arbitration for conflicts between shareholders;

o Powers of the administrative bodies, quorums and majorities that are not regulated by the bylaws;

o Ways to exercise the rights of minority shareholders;

The Covenants are increasingly common and necessary for the development of companies in family businesses, new ventures or in companies that receive new shareholders and are ideal instruments that allow clear rules for all shareholders.

[1] “The right to freely negotiate shares does not allow limitations.”

[2] “Agreements between shareholders establishing conditions for the negotiation of shares will be valid, however, such agreements will not be opposable to third parties, without prejudice to the civil liabilities that may arise, and in no case they may undermine the rights of the minority shareholders.”


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