An indefinite shareholders’ agreement

The Provincial Court rules on the validity of a clause in a shareholders’ agreement that establishes its duration until the members of the agreement acquire all of the share capital of the shares of three commercial entities.

In judgment 361/2023 dated July 28, 2023, section 6 of the Provincial Court of Valencia analyzes the clause of a shareholders’ agreement that establishes a fixed term but, according to the plaintiff shareholders, de facto, indefinite term. The clause itself establishes the validity of the shareholders’ agreement until the purchase of shares by the shareholders of the entire share capital of three other specific business entities.

The PA considers that the shareholders’ agreement does establish a duration determined by a condition, which will be materialized with the acquisition of the shares by sale or otherwise, so that it does not allow for an indefinite duration to be foreseen because only four years have elapsed since its execution. Only when this acquisition proves to be impossible to perform, it can be understood that the duration of the shareholders’ agreement is indefinite and, therefore, on the basis of article 1,705 of the Civil Code, the shareholders can exercise a right of separation.

Although in the present case the PC does not detect the indefinite nature denounced, it also recognises, in general terms, the right that the shareholders would have to dissociate themselves from a shareholders’ agreement that obliges the signatory shareholders to remain in the same and against their will, without a term of duration, under the protection of the principles of good faith, protection of trust or abuse of rights.

See Sentencia 361/2023 de fecha 28 de julio de 2023.