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Shareholders’ Agreement: a drop of clarity in a world of shifting circumstances

March 2023

In a world of shifting circumstances, Corina Roman, Managing Associate in SIMION & BACIU’s Corporate M&A practice, authored a piece detailing key elements that need to be evaluated by investors when onboarding new business partners, including the shareholders’ agreement.

Recent years have been full of both challenges and opportunities for investors and entrepreneurs. Flexibility has and will remain the buzz word in a business context dominated by sudden shifts and by volatility. This is why attracting new investors and investments has been taking different and more creative shapes. Onboarding new business partners is possible either directly, by co-opting the investor as a shareholder, or indirectly, by the creation of a SPV for that specific investment.

Irrespective of the form chosen for the onboarding of investors, it is crucial to set from the onset a clear and transparent corporate governance system. Such approach will ensure a good/facilitate a fluid collaboration between shareholders. One of the key elements of such onboarding is the conclusion of a shareholders’ agreement.

Shareholders’ agreements are meant to be the binder ingredient for the relationship between the pre-existing shareholders, the company benefitting from the investment and the new investors. They normally regulate aspects such as the future transfer or issuance of shares, non-compete obligations, matters reserved for the approval of investors, corporate governance rules, preferential rights given to certain categories of shareholders, protection of shareholders in events that may affect the company’s lifecycle. However, parties are at liberty to include other aspects, tailoring the document being always an option.

Lately, such agreements have gained even more traction in the Romanian M&A market, most of the projects relying more on private investors, for which these documents are essential. Practice shows that the need for this type of agreements is even greater when structuring a transaction with a strong intellectual property drive/component. Also, in those cases in which a proper due diligence process cannot be performed due to time constraints, the conclusion of an agreement may present investors with the opportunity to obtain additional representations and warranties.

In a nutshell, recent transactions showed that shareholders will use these agreements to streamline/set in stone elements including:

  • representations and warranties (R&W) of founders/existing shareholders

By inserting R&W clauses, the investor benefits from an additional safety net for the investment to be performed. Such investor may negotiate to be provided with representations and warranties with respect to the business conducted by the target company, its ownership over significant assets, accuracy of financial, tax and legal documents, title over shares, IP held by the company and other similar rights.

  • specific destinations for the investment

In order to protect the investment from unwanted leakage or misappropriation, they can agree via the shareholders’ agreement that the amount invested may be used only for the development of a certain business, product or line of field of the company, while prohibiting the management and the shareholders to use such monies for the payment of dividends, granting of loans or acquisitions in other domains than the one envisaged by the investment.

  • rules on the issuance and transfer of shares

Strategically, the most important aspects to be regulated before the investment is made, remain how new shares are issued or existing shares will be transferred. Controlling how new investors may be co-opted in the company, while protecting the investor from a potential dilution of its shareholding on such occasion are key aspects that are and will be hot topics in transactions. Tailored tag along/drag along rights, as well as preemption rights or rights of first refusal may be included in a shareholders’ agreement, especially when the investor has good leverage in negotiations.

  • clear corporate governance rules to make sure that the investor’s voice is heard

The way a company is managed may greatly impact its evolution and, implicitly, the return on the investment. To avoid a slowdown of the expected business development or a failure of the investment, the shareholders’ agreement may regulate specific powers for the management or the general meeting of shareholders for deciding on matters over a certain threshold in terms of value, in specific fields of activity or with respect to key matters (such as disposal of significant assets or rights). A key domain in which such corporate governance rules proved to be essential is in transactions where IP rights are at stake, since the granting of licenses or disposal of such rights may render the investment useless. However, as in many other matters of a commercial nature, an iron fist of the investor may hinder the creativity of management or delay development. This is the reason why such rules are hard, but not impossible to tailor to ensure both safety and freedom of decision making.

  • mechanisms for solving deadlocks

Although the recent amendments brought by Law no. 265/2022 impose any company to regulate in its articles of association how deadlocks are to be handled, the shareholders’ agreements are still the preferred instrument to provide for and detail the mechanisms for solving deadlocks. Most likely, this will remain the preferred instrument, since it ensures the confidentiality that the articles of association or any other documents submitted to the commercial register cannot promise.

Considering the current context of national and international new pieces of regulation being enacted to institute a stricter control of foreign investments, the co-opting and/or exit of shareholders and investors from a company must be carefully regulated, implemented, and monitored, since the absence of rules or their improper implementation may trigger significant exposure for the investor, target company and its shareholders.


Details about SIMION & BACIU’s Corporate, Mergers & Acquisitions practice are available HERE.

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