THE FRENCH STOCK EXCHANGE
& RELATED FINANCIALMARKETS
How they operate
and how they are regulated

Shareholders' pacts can be succinctly defined as agreements between all or part of a corporation's shareholders. They are extra-statutory and aim at governing various situations that can take place during corporation's life. They remain ordinary contracts non-invocable by third parties - the corporation and non-signatory shareholders, among others - according to French civil law (Civil code, article 1165).

These agreements cover a vast number of purposes (profit allotment, shareholders' equity stability...). Yet, it is possible to distinguish two main categories.

Firstly, shareholders' agreements can pertain to authorized capital. In that case, their main function is to enable those signing to control, even freeze, capital composition. Such pacts thus have a particular importance in listed companies since they constitute for shareholders an efficient way to protect themselves against some stock exchange offensives such as hostile offers. Above all, these agreements incontestably challenge the usual distinction between, on the one hand, partnerships (which are private, by nature) and, on the other hand, corporations (which are public). Therefore, to speak of a "private corporation" is no longer an heresy.

Secondly, shareholders' agreements can govern the exercise of signatory shareholders' voting right. Better known as vote conventions, such agreements can, for instance, impose on their members a consultation prior to each general meeting to decide on votes orientation.

Because shareholders' agreement offer many advantages, such as the possibility their members have to escape some restricting regulations on corporations and, especially, on publicly-held corporations, practitioners have been encouraged to resort to them without restraint.

Nevertheless, these very agreements will sometimes impose on the signatories obligations that had not necessarily been wish for, even considered, when signing the pact. For example, the Conseil des marchŽs financiers (hereinafter, CMF) can describe it as a concerted action.
The notion of concerted action is defined by article L 233-10 of the Code de commerce as an "agreement concluded to acquire or sell voting rights or to exercise these voting rights so as to implement a common policy towards the company". This text adds "concert parties are jointly liable for their legal and regulatory obligations". Thus, some shareholders' agreement will constitute a concerted action and subject each of their members to obligations proper to concert parties.
One of the most restricting obligations concerns corporations whose shares are traded on a regulated market. Indeed, article 33-1 of law no. 96-597 of 07.02.1996 requires from every person acquiring, alone or in concert, more than a third of a listed company's capital or voting rights, that it immediately informs the CMF and presents an offer for the acquisition of all existing securities, and of securities entitling to capital or voting rights as well. If no offer is presented, the securities held above the authorized fraction of capital or voting rights are deprived of voting right. We thus forsee that financial consequences for those signing a shareholders' agreement will sometimes be very heavy, particularly when the target company has a high authorized capital.

In accordance with the distinction previously made, the present study will first examine legal problems that go with shareholders' agreement pertaining to authorized capital (I). It will then be appropriate to analyze difficulties created by shareholders' agreement governing the exercise of signatories' voting right (II).

I - Shareholders' agreement pertaining to authorized capital

A - Typology

1 - Arrival of new shareholders

2 - Control of preestablished balance

3 - Departure of shareholders

B - Validity in principle

1 - Validity in the eyes of company law

2 - Validity in the eyes of civil law

C - Efficiency

II - Shareholders' agreement governing the exercice of signatories' voting right

A - Typology

B - Validity in principle

1 - Terms of the debate : importance of the voting right

2 - Courts' recognition of vote conventions validity

C - Efficiency

1 - Efficiency of an illicit vote convention

2 - Efficiency of a licit vote convention

a) Sanction of a vote convention violation

b) Guarantees prior to the vote convention execution

Written by Bernard PERRET - DEA de droit des affaires, Université PARIS I (Panthéon-Sorbonne)
with the participation of Delphine LIEBEAUX - DEA de droit public interne, Université PARIS II (Panhéon-Assas)

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