Shareholders’ agreements and By-laws: connection clause

The Milan Notarial Council has recently published the following principle: “it is legitimate to include a clause in the By-laws limiting the circulation of shares in a joint-stock company or of shares in a limited liability company; in such a case, the transfer of shares will be effective only if the future shareholder adheres to the shareholders’ agreement entered into between the current shareholders. To this end, the administrative body of the company must make the shareholders’ agreement available to the future shareholder. In any event, such a shareholders’ agreement is subject to the limits and terms arising from the applicable rules[1].

It should be noted, in light of the above principle, that in recent years there has been a need to review the content of the company’s By-laws, including provisions which were typically reserved for shareholders’ agreements. This overlap derives from the fact that shareholders’ agreements do not have ‘real’ effects. Indeed, they are binding only on the signatory partners and not on third parties or new partners. In addition, shareholders’ agreements are subject, as provided for in Article 2441-bis of the Italian Civil Code, to a five-year duration limit[2]. On the other hand, the Articles of Association are effective for everyone, since they are a public deed that can be consulted at the Register of Companies of the place where the company has its registered office, and, moreover, they have no duration limit[3].

However, in certain circumstances, even if only for reasons of confidentiality, it is not possible to incorporate part of the agreement’s provisions into the company’s By-laws.

Therefore, the inclusion in the Articles of Association of the clause described by the principle expressed by the Council of Notaries of Milan guarantees a fair and balanced protection of the different interests of the shareholders: on the one hand, the confidentiality of the shareholders’ agreement and, on the other hand, its effectiveness towards potential and future shareholders.

In conclusion, it should be noted that such a clause, if included in the by-laws, creates a link between the by-laws and the shareholders’ agreements, making the shareholders’ agreements binding on future shareholders, without violation of their confidentiality.

However, it should be noted that the inclusion in the By-Laws of the clause set forth in Milan Notarial Decision No. 194 does not provide the shareholders’ agreements with a real effect equivalent to that which would be provided if the clauses set forth in the shareholders’ agreement were included in the By-Laws. In fact, it should be noted that with such provision the shareholders’ agreement becomes enforceable and binding only for future shareholders. Therefore, in the absence of such a provision in the by-laws, the only remedy available to a future shareholder who does not comply with the content of the shareholders’ agreement is compensation for damages.

[1]   Maxima no. 194 of the Milan Notary Council.

[2] According to a part of the doctrine, the provision on the duration of shareholders’ agreements is applicable only to public limited companies. Shareholders’ agreements of limited liability companies would therefore not be subject to duration limits.

[3] The duration of the Articles of Association, unless amended, coincides with the duration of the company. The provisions of the Italian Civil Code do not provide for duration limits for limited liability companies, but Article 2473 paragraph 2 of the Civil Code, concerning limited liability companies, and Article 2437 paragraph 3 of the Civil Code, concerning joint stock companies, regulate the possibility for the shareholder to withdraw from the company at any time in the event of an indefinite duration. It is therefore considered that the rule is also applicable in the event that an excessively long duration of the company is established.