ArticlesShareholder Agreements: safeguarding minority shareholders

August 23, 2020by Stavros Koumentakis

The articles of association of a company are the “law” that governs (in addition to the current institutional framework) its operation. The articles of association, however, are not always sufficient to regulate all related relations. Especially those that develop among the shareholders. The need for additional agreements then arises. Agreements that either move on the edge of the law or that would preferably not have the publicity that the law reserves for the statute and its regulations. We are talking, in this case, about extra-corporate agreements. But what is their value? How does law and case law treat such agreements?

This topic seems (and is) huge. Let us try, however, a brief and substantive approach. In the light, in particular, of the SA.


The capital and union nature of SA. Their manipulation.

The societe anonyme belongs to the category of capital companies. As such, the success of its corporate purpose presupposes only the property contribution of the shareholders. Their personal contribution is not legally necessary. It is not even tolerable, unless it is allowed by the articles of association. Let us also take into account the “union-like organization” of the societe anonyme. In the context of this (the union-like organization), the operation of the SA does not depend on the will of each of the shareholders.

The acquisition of the status of shareholder in a SA creates relations between them and it (: shareholder-SA). Not, basically, and among the shareholders.

The shareholders of SA clearly aim at the characteristics and advantages of its capital nature. Possibly in of its “union-like” organization as well.

However, there are many cases where shareholders (may also) have other aspirations. The manipulation, for example, of the purely capital and union nature of the SA. The introduction to the operation and organization of characteristics a partnership would have. The specific aspirations / needs are covered, in particular, through statutory clauses. Sometimes, when this is not possible (or when we do not want it to become, more broadly, known) such aspirations are satisfied through extra-corporate agreements.

We most commonly find these agreements in family SAs. But it is not unheard of to also find such agreements in other types (as well as in multi-shareholder) SAs. for the service (permanent or temporary) of common, among the shareholders, aspirations.


The concept of extra-corporate agreements

Extra-corporate agreements, according to jurisprudence, are “independent, written or oral commitments of an obligatory nature, which oblige the contracted parties (and only them) to a certain behavior beyond the behavior towards the company required by the statutory provisions and the law”. (int .: 25/2012 Multimember Court of First Instance of Samos).

The most common examples of such agreements are those that direct the shareholder’s rights to vote in the General Assembly and the Board of Directors. Under the pre-existing law we encountered, as a matter of fact, contractual restrictions on the transfer of shares. However, sufficient relevant powers are recognized in the context of the statutory regulations under the current law.


The targets. The interests served

Extra-corporate agreements are not entered into to promote the interests of the company. Their main goal is to serve the interests of the contracting shareholders. Mainly of the minority shareholders.

The minority shareholders are therefore the ones who, as a rule, will require the conclusion of such agreements. As a prerequisite for their entry into the company and securing their investment. As a guarantee of the company’s operation based on specific, pre-agreed upon, rules. As a means of engaging the majority in a particular direction. As a tool for creating strong minorities – with rights extended to those recognized by law and the statute to minority shareholders. As a “statute charter” of the partners in order to create strong minorities or majorities and enjoy the related rights.


The legal status of extra-corporate agreements

Extra-corporate agreements are not covered by special legislation.

They are not provided for and are not guaranteed by a special provision of law.

However, the conclusion and regulation of such agreements is, in principle, permissible. It is left to the freedom of contracts (361 Civil Code). So, basically, their content can be formulated freely. The individual regulations that impose sanctions in case of their violation are also freely chosen.


Individual distinctions and characteristics of extra-corporate agreements

The content and individual characteristics of the shareholder agreements are determined by the will and the needs of the respective shareholders.

Individual characteristics that give a different content to these agreements each time may be:

(a) The time of their conclusion: The extra-corporate agreements can be concluded during the establishment of the company. Possibly, however, also at a later time – during the company’s operation.

(b) Duration: shareholder agreements can be concluded for a definite or indefinite period.

(c) Their incorporation (or not) in the articles of association: Such an agreement may be incorporated in the articles of association of the company. Then, of course, it loses the nature of the extra-corporate agreement. We are talking, in this case, about a statutory agreement. Such an (internal) agreement may specify a provision of the law governing SAs (Law 4548/2018).

However, the content of the shareholder agreement may not be tolerated either by law or by statute. In this case, (by conversion-182 Civil Code) its validity as a binding agreement of the parties is possible.

(d) Regarding the creation of obligations for only one or all of the contracted parties: The extra-corporate shareholder agreements are divided into unilateral and multilateral.

Unilateral agreements are those that give rise to obligations to the detriment of one or more parties. In the case, for example, of an agreement for the exercise of voting rights in a specific direction. Unilateral extra-corporate agreements can take on different legal characterizations. Especially that of the order (713 Civil Code).

Multilateral agreements are those, through which all parties undertake obligations to each other. Their usual legal form is that of a civil company (741 Civil Code).

(e) In terms of their content: Extra-corporate agreements, depending on their content, are divided into contracts that generate rights and obligations for the parties and guarantee contracts. In the latter, their content is the guarantee of the demonstration of certain behavior.

Ensuring compliance with the extra-corporate agreements

Violation of an extra-corporate agreement creates a claim for damages against the offender.

It is not uncommon to conclude, in addition – in order to ensure its application-, a penalty clause, which activates in case a party violates its obligations. The court, however, is ultimately the one that will decide whether or not such a clause is activated. Also, its possible reduction to the “appropriate measure” (article 409 of the Civil Code).

Compliance with an extra-corporate agreement can be sought through other, additional, measures. By delivery to a third party, for example, of the shares whose voting rights are blocked or, through their contribution to another company.

The validity and binding nature of extra-corporate agreements

Extra-corporate agreements are obligatory in nature. They are therefore governed by civil law.

Regarding the relationship between them and the statutory provisions, two distinct views have been expressed in theory.

The theory of separation

The prevailing theory is the separation between the articles of association and the respective extra-corporate agreement. According to this theory, extra-corporate agreements, due to their different legal nature, go hand in hand with the statutory regulations.

The statutory regulations, according to the same theory, are those that prevail over the extra-corporate agreements. The former are governed solely by corporate law, the latter by civil law.

The theory of unity

However, the theory of unity of the articles of association and the extra-corporate agreement entered by all shareholders, has also been supported.

It is argued, on this basis, that the extra-corporate agreement takes on an interpretative role of the provisions of the articles of association – in terms of the organization, operation and management of the company. Therefore, its validity extends, in addition to the contracted parties, to the legal entity of the company. Extra-corporate agreements, in this case, take on the nature of a statutory contract.


The consequences (& claims) of the breach of an extra-corporate agreement

The obligatory nature of the non-corporate agreements, as mentioned above, is important. The respective extra-corporate agreement of the shareholders, “… is valid between the parties to the contract, has no consequences of company law nature and is not binding…” for those who have not entered into it (Supreme Court 1121/2006).

The claims, therefore, raised in cases of their violation concern the payment of compensation. Such compensation covers the positive loss and, in addition, any lost profits. And the forfeiture, of course, of a penalty clause – if such has been agreed. Which, not infrequently, is chosen as a solution, as it is always extremely difficult to determine the due and payable compensation.

In cases where the protection of the rights of the minority is sought through the extra-corporate agreements, the minority shareholder does not have the right, in case of violation, to seek their execution. This is because: “… there is no possibility for the minority shareholder to claim from their counterparty in an extra-company agreement a majority shareholder the fulfillment by the latter of what was agreed between them and in particular to claim their conviction in a declaration of will in accordance with the content of the agreement “(569/2007 Multimember Court of First Instance of Athens). This is exactly where the risk of a bona fide party to a non-corporate agreement runs. That is, the risk of the agreement to be deliberately violated in bad faith, without it being possible to enforce it through a court decision.

However, it is accepted that, despite the prevalence of the theory of separation, a decision of the GA of shareholders taken in violation of an extra-corporate agreement may be found invalid. Specifically, the invalidity of a decision of the General Assembly due to (an abusive) breach of an extra-corporate agreement (Supreme Court 1121/2006) has been ruled by jurisprudence.


The validity (and invalidity) of extra-corporate agreements

Extra-corporate agreements, as mentioned above, are (in principle) permissible. They are legally based on the freedom of contracts (361 of the Civil Code). Their content is left to the will of the parties.

Of course, extra-corporate agreements are checked for their validity, just like any contract. In other words, the grounds for cancellation due to fraud, error and threat also apply. Of course, so do the common reasons for invalidity. It does not acceptable, for example, for them to oppose accepted principles of morality.

At the same time, however, the extra-corporate agreements are valid, as long as they do not violate provisions of the articles of association, company law or other public policy.

It has been ruled by case law, for example, that “… the replacement of the board of directors by an extra-corporate agreement is not legal” (1631/2006 Supreme Court).


Especially: the issue of unanimity

One of the issues that, not infrequently, concerns minority shareholders is the (possibility or not) to claim unanimity. It has been ruled that “… the obligation arising from the above agreement unanimously in making decisions on issues of competence and operation of both the General Assembly as well as the Board, contradicts with the concept of the accepted principles of morality as formulated in articles 178 and 179 of the Civil Code, for the reason that an obligation to take all decisions unanimously by the shareholders, even included in a long-term contract, the validity of which extends to perpetual, covering the life of the company, without the possibility of termination and under the threat of an extremely high penalty clause in case of its violation, excessively restricts the free exercise of corporate rights by the shareholders ”. (25/2012 Multimember Court of First Instance of Samos).


The law and the statute of an SA are not always possible to cover the complex relationships that develop between its shareholders. To ensure the always desired balances between them. To successfully manage problems that may arise in the future. To ease (present or future) concerns.

Extra-corporate agreements are those that seek to provide solutions. But their bindingness seems (and is) legally limited. The effort to strengthen them may, in the end, be to the detriment of the one whose rights it seeks to secure.

Their provisions are always proving to be crucial.

Their wording as well.


Stavros Koumentakis
Managing Partner


P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 23, 2020).


Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

Stavros Koumentakis
Nikis Avenue & 1, Morgenthau st., 54622 Thessaloniki
(+30) 2310 27 80 84

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