- США
USA — Tax Law changes on foreign groups subsidiaries
19 июня 2018
- Корпоративный
The Russian law allows the parties to agree on recovery of contractual penalty for failure by the parties to fulfill contractual obligations.
Below are some typical examples of provisions that stipulate contractual penalty:
In the event of untimely delivery of the Goods under the Contract the Buyer shall be entitled to claim penalties in amount of 0,1 (zero point one) percent from the total value of untimely delivered Goods for each day of delay.
In the event of untimely payment for the Goods under the Contract the Seller shall be entitled to claim penalties in amount of 0,1 percent from the total value of untimely paid Goods for each day of delay.
The Civil Code of Russia (art. 333) allows the court to decrease the amount of penalty if such amount of penalty is disproportionate to the consequences of breach of contractual obligations, with that the court shall be entitled to decrease penalty only if the debtor files a motion with the request to decrease such excessive amount of penalty.
The decrease of penalty determined by the contract and subject to payment by the person who conducts business activities is allowed only in exceptional cases, if it is proved that the recovery of penalty in the amount stipulated by the contract can lead to receipt of the unjustified profit by the creditor.
In practice the parties file motions with the court of first instance with the request to decrease penalty with reference to art. 333 of the Civil Code and the court usually decreases the amount of penalty at its discretion.
In a recent case considered by the Supreme Court of Russia dated 29.05.2018 (case #A43-26319/2016) the Supreme Court ruled that the imposition of penalty even in the amount exceeding the total value of the contract was justified provided that the debtor failed to file a motion with the court of first instance with the request to decrease such penalty with reference to art. 333 of the Civil Code.
In this case the customer ordered the contractor to produce a pressure vessel. The price of such works of the contractor amounted to 2.700.000 rubles. The parties agreed that the pressure vessel will be produced by the contractor till 30.01.2015. The contractor produced the pressure vessel only on 01.03.2016.
The contract stipulated that in case of violation of terms of performance of works the contractor will pay to the customer a fixed fine in the amount of 5% from the price of works that the contractor failed to perform in time for each violation as well as penalty in the amount of 0,3% from the price of works that the contractor failed to perform in time for each day of delay starting with the 4th day of delay.
As a result, the customer demanded that the contractor pays penalty in the amount of 3.355.170 rubles.
The court of first instance ruled in favor of the contractor and ordered that the client shall pay the amount of penalty in full since the contractor failed to provide evidence that confirmed due fulfillment of the contract by the contractor, or that the contractor failed to perform its obligations in time due to circumstances that were out of his control. With that the contractor also failed to dispute the amount of penalty and failed to file a motion on application of art. 333 of the Civil Code.
The appeal court changed the ruling of the court of first instance and decreased the amount of penalty to 326.781 rubles based on its conclusions that the customer abused its rights by including in the contract the unfair penalty provisions.
The Cassation Court agreed with conclusions of the Court of Appeal, but the Supreme Court dismissed the rulings of both the Cassation Court and Court of Appeal and the decision of the court of first instance remained in force.
The Supreme Court based its decision on the fact that the contractor failed to file a motion with the request to decrease the amount of penalty and apply art. 333 of the Civil Code in the court of first instance. Therefore, the Court of Appeal had no right to decrease the amount of penalty at its own initiative.
The latest conclusions of the Supreme Court confirm that the contractual penalty can exceed the total value of the contract and the courts are not allowed to decrease such excessive amount of penalty at its own initiative.
Thus, if you have any dispute in Russia, please ensure that your company is duly represented in state commercial courts, since the failure of the parties to appear in court of first instance and file respective motions might lead to serious negative consequences that the failing party might not be able to cure in the courts of appeal.
There is no single piece of legislation setting out all the duties and obligations to which managing GmbH directors (“Geschaeftsfuehrer”) are subject. These duties are set out i.a. in the law on GmbHs (“GmbHG”), the Commercial Code (“HGB”), Insolvency Act (“InsO”), Civil Code (BGB), the Antitrust Law (GWB), environmental and tax laws. Furthermore, they are set out in the Articles of Association of the GmbH (“Gesellschaftsvertrag”), Shareholders’ resolutions, Internal rules for management and if applicable the Service agreements of the GmbH and the directors.
Directors will normally not be held accountable for acts and debts of the GmbH, for GmbHs are separate independent entities accountable in their own right. Directors will be held accountable for their own behaviour, however, and be required to pay money out of their own pockets by way of compensation for breach of duty or as a fine. They may be disqualified from holding office as director, or even imprisoned.
General Obligation of Diligent Management in Relation to the GmbH
Directors have a general obligation of diligent management, including in particular:
- to use his / her best efforts to promote the purpose of the GmbH;
- to control the company’s liquidity and financial position;
- ensure the GmbH’s compliance with all applicable legal obligations;
- not to compete with, or appropriate the business opportunities of the GmbH;
- not to disclose confidential information belonging to the GmbH.
Directors must employ the diligence of an orderly businessperson. Pursuant to the “business judgment rule” the management is immunized from liability if and to the extent the management, making an entrepreneurial decision based on appropriate information, could reasonably assume to act in the best interest of the company.
Annual accounts
GmbH directors must ensure that the company keeps proper books and accounts showing clearly the financial position of the company. Failure to fulfil this obligation can lead to a fine or even a term of imprisonment of the director.
Contribution and Preservation of Share Capital
The GmbH must have a share capital of at least 25,000 EUR. Upon the formation of a GmbH or increase of its share capital, the director(s) must affirm to the commercial register that the subscriber(s) of the (increased) share capital paid in the amount of cash determined in the Articles of Association, i.e. that the full amounts due were fully paid in, not paid back and are entirely to the free disposition of the director(s). If incorrect statements were made, directors are liable to the company.
Section 30 para 1 GmbHG prohibits disbursing assets to shareholders without an adequate consideration, so-called unlawful repayments. For their determination, a “balance-sheet test” is decisive. This means, a payment is not unlawful, when:
- the company’s counter-performance or restitution claim is fully-fledged and
- the contract meets the cover imperative (payment of the market price).
If an unlawful repayment of share capital contributions has occurred, the other shareholders are proportionately liable for the refund owed to the company. The directors whose negligent or intentional acts caused the illegal repayment are in their turn liable to those shareholders required to refund the sum.
Duties in Relation to Shareholders
Each director is entitled to call shareholders’ meetings. Those are to be called – inter alia — if this appears to be required by the interest of the company.
Under German GmbH law, GmbH shareholders are entitled to instruct the director(s) of the company in detail through shareholders resolutions to act or not to act in a certain way. Directors must comply with those instructions unless they are illegal. A negligent or intentional violation of this obligation renders the directors liable to the GmbH for damages and may justify their dismissal for cause.
Obligations Arising From Insolvency, Over-Indebtedness and Loss
Insolvency and Over-Indebtedness
In case of over-indebtedness or insolvency, each director must file a petition for the institution of an insolvency petition without undue delay but no later than three weeks from the date on which the over-indebtedness was ascertained or the insolvency arose (Section 15a Insolvency Code). Directors negligently or intentionally failing to meet this obligation (in time or properly) commit a criminal offence punishable by up to 3 years imprisonment and are liable for damages to the company.
If a balance sheet of the company shows a loss of one half or more of its share capital, the directors must call a shareholder meeting without undue delay. Directors failing to do so are liable to the company and subject to criminal penalties.
Duties in Relation to Taxes and Social Insurance Contributions
Apart from the obligation to file tax returns and pay corporate, trade and sales tax, the company must withhold some taxes (income tax, capital gains/settlement tax). The tax laws impose on directors a direct responsibility for tax payments. In case of violation by intention or gross negligence, they are liable personally (Section 69 German Fiscal Code) and subject to administrative sanctions or criminal penalties. Similar obligations apply to statutory social insurance contributions.
Duties in Relation to Employees and the Environment
Directors must observe special laws for the protection of employees (ArbSchG) and environment (USchG). If failing to do so, directors are personally responsible.
Duties in Relation to Third Parties
Directors’ Liability for an Appropriate Organisation of the Company
Directors have the duty and responsibility to organise the company such that the life, health, property, and similar rights of third parties are not violated.
Directors’ Liability for their Company’s Contracts, and its Acts or Omissions
Such a liability arises e.g., if a director agrees to personally guarantee a contract and the company fails to perform. A director may also be personally liable for torts (i.e. civil wrongs, incl. negligence) authorised by him/her, committed by the GmbH.
Antitrust Issues
A company and its directors commit an administrative offence, punishable by up to 1,000,000 EUR, if they violate Art. 101 s. EC Treaty or provisions of the GWB. This encompasses e.g. agreements, having as effect the restriction of competition.
Disqualification as a Director
A GmbH director will be disqualified from the position as director if he/she is convicted for the commission of particular criminal offences like fraudulent bankruptcy, violation of the duty to keep books or delaying insolvency proceedings.
Many foreign investors enter into joint-venture agreements with partners from other countries or with Polish entrepreneurs already active on the local market. Sometimes, instead, they establish their own 100% subsidiary and it is common that they choose a limited liability company, because it is a flexible and less expensive to manage in comparison to a joint-stock company.
One of the very important matters in a limited liability company (LLC) is the non-competition of the Management Board Members and of the shareholders.
Under Polish law, the Management Board Member of a company has a statutory obligation to refrain from any activity which might be competitive towards the activity of the company. As a consequence, such a Member cannot manage, be a member of a supervisory board of, own shares in, work for or provide any consulting services to a competitor company or partnership or any other legal entity.
All the more such a Member cannot run an individual enterprise or be a proxy in an enterprise which belongs to another person. Exceptionally, he/she can own no more than 10% shares in a capital company (LLC or joint-stock) but on the condition that he/she cannot appoint the management board members of such a company.
The non-competition prohibition is binding over the whole period when he/she holds the function in the Management Board and it expires immediately afterwards. The Company can release the Management Board Member from this obligation. The statutory rule is that the Management Board Members are nominated by a resolution of the General Assembly of Shareholders. Consequently, the General Assembly adopts a resolution on the release from the non-competition obligation. However, the Articles of Association may modify this rule and provide another procedure.
If a Management Board Member violates the non-competition obligation he does not lose automatically his/her position. However, he/she may normally be revoked by the General Assembly of Shareholders. A Management Board Member is responsible for damages caused to the Company through such a violation of the non-competition, but, in practice, the Company may encounter difficulties proving before the court that in fact it has indeed suffered damage (either actual damage of loss of profit). Only in relatively evident cases it will be simple. In many instances it will be time consuming and complicated.
Therefore, even if the Polish law provides for a general rule related to the non-competition by the Management Board Members, it is still crucial for the investors and the Company to conclude a good non-competition agreement with these persons or introduce a respective clause to the Articles of Association.
It should contain a precise description of the activity which will be deemed competitive and its geographical scope. The timeframe of such an obligation is also crucial. The clause may state that a Member will be bound by this prohibition not only over the period when he holds his function but also over e.g. 2 years afterwards. Preferably, it should also contain a penalty clause, so, in case of breach it is easy and costly-efficient to enforce against the Management Board Members. If such an agreement is accurately drafted and adjusted to the Company’s situation, it will protect the Company very efficiently from any competition operations (whether fair or unfair).
In my next article I will elaborate more on the subject of the non-competition obligation of the shareholders in an LLC.
On June 14, 2018, a reform to articles 73 and 129 of the General Law of Business Corporations («GLBC») was published in the Official Gazette of the Federation, which will become effective on December 15, 2018.
This amendment establishes an obligation to give notice of the entries made in the partners and shares’ registry books that record the transfer of partnership interests and shares in limited liability companies and stock corporations.
In both type of companies, the notice must be published in the electronic system established by the Ministry of Economy («SE»), being effective as of the day following its publication, in accordance with the provisions of Article 50-bis of the Commercial Code.
Additionally, in the case of stock corporations, the SE will ensure that the name, nationality and address of the shareholder contained in the notice are kept as confidential, except in cases where the information is requested by judicial or administrative authorities, when necessary to exercise its authority. The amendment does not grant the same confidentiality protection to the information of the limited liability companies, since it distinguishes the personal nature of the partners with respect to the shareholders in a stock corporation.
This amendment derives from Recommendation 24 of the Financial Action Task Force (“FATF”), relating to the unlawful use of entities for money-laundering, terrorist financing and proliferation of weapons of mass destruction. It will be desirable that this amendment contributes to transparent information, which today is not possible to obtain from the Public Registries of Commerce, which scenario contain certain information on the partners or shareholders, not updated, and which search is cumbersome while existing many at a local level throughout all the Mexican Republic.
Finally, it bears noting that the amendment establishes no penalty for failing to file such notices.
The 2017 Tax Cuts and Jobs Act (the “TCJA”), signed into law by President Trump on December 22, 2017, introduces sweeping changes in U.S. tax law, affecting businesses of all kinds. This Practice Note focuses on a few key provisions of the TCJA particularly relevant to non-U.S. manufacturing corporations with U.S. distribution subsidiaries. These changes in U.S. tax law may impact these companies operate now, as well as future plans for entering the U.S. market.
Federal Corporate Income Tax Rate
- Change: Most significantly, the US federal corporate tax rate has permanently been reduced from 35% to 21%. In addition, the corporate alternative minimum tax (which applied when higher than the regular corporate tax) has been repealed.
- Comment: The reduction of the headline U.S. federal corporate tax rate to 21%, which is a lower rate than in many of the home countries of non-U.S. corporations, will obviously benefit non-U.S. manufacturers with existing U.S. subsidiaries, and may influence those who sell directly into the U.S. (g., through independent distributors) to consider forming US subsidiaries and expanding their U.S. presence.
Interest Deductions
- Change: Under the TCJA, net business interest deductions are generally limited to 30% of “adjusted taxable income,” which is essentially EBITDA (taxable income plus depreciation and amortization deductions) for years 2018-2021 and EBIT (taxable income without adding back depreciation/amortization). Disallowed interest expense is carried forward indefinitely. Before the TCJA, interest was generally deductible when paid or accrued, subject to numerous limitations, including debt/equity ratios and taxable income. U.S. corporations – other than small businesses (average annual gross receipts under $25 million, on an affiliated group basis) – are subject to these limitations.
- Comment: The TCJA’s limitation on interest deductions are designed to protect the U.S. tax base. As a result, non-U.S. manufacturers with existing U.S. subsidiaries, and those planning to establish U.S. subsidiaries, may decide to reduce or limit the amount of debt in their U.S. subsidiaries.
Base Erosion and Anti-Abuse Tax (BEAT)
- Change: Under the TCJA, large U.S. corporations that are part of multinational groups are potentially subject to a new BEAT tax, which is essentially a minimum tax applicable to corporations that seek to reduce their US taxes by claiming large deductions for “base erosion payments” to non-US affiliates. The targeted deductions include royalties, interest and depreciation. However, and of particular significance to non-U.S. manufacturers, the version of the BEAT as finally enacted does not treat inventory costs (cost of goods sold) as base erosion payments. The BEAT generally applies to U.S. corporations that are part of multinational groups with average annual gross receipts of $500 million over the prior three-year period. The tax rate is five percent in 2018, 10% through 2025, and 12.5% thereafter.
- Comment: U.S. corporations with foreign headquarters that may be subject to BEAT may wish to revisit current practices as to purchase and sale of product, license arrangements and the provisions of back-office and other services between foreign parent and U.S. subsidiary.
Net Operating Losses
Net operating losses (NOL) from prior years generally can no longer be carried back to claim refunds. A U.S. company may use NOL carryforwards to offset only up to 80% of its taxable income (with unused NOLs carried forward into future years). Note that NOLs arising in tax years that began on or before December 31, 2017, will remain subject to the prior two-year carryback and twenty-year carryforward rule until their expiration and will also continue to be available to offset 100% of taxable income. As a result, a corporation with pre-TCJA NOLs may be viewed as more valuable than corporations with newer NOLs.
Foreign-derived Intangible Income (FDII)
- Change: The TCJA implements a new tax regime that provides a lower 13.125% U.S. federal income tax rate (rather than the new standard 21% rate) on “foreign-derived intangible income” for U.S. corporations. The special tax rate is effected by granting a 37.5% deduction for a C corporation’s foreign-derived intangible income. Foreign-derived intangible income is, generally, a portion of a C corporation’s income in excess of a threshold return derived from services performed for persons not located in the United States and from sales or licensure of property to non-U.S. persons for consumption outside the United States. The 37.5% deduction is temporary, and for tax years beginning after December 31, 2025, drops to 21.875%, resulting in a U.S. federal income tax rate of 16.406% (rather than the standard 21% rate) on foreign-derived intangible income for those years.
- Comment: FDII should encourage non-U.S. manufacturers to hold intellectual property (IP) in the U.S. and exporting from the U.S, rather than, for example, through a tax-haven entity that licenses the IP to a U.S. subsidiary. This may be particularly of interest to non-U.S. technology-based companies that seek to migrate to the U.S., as their principal market (whether for talent, sales or financing).
Of course, this Practice Note only provides a broad summary of certain highly technical provisions of the TCJA that we think are particularly relevant to non-U.S. manufacturing companies with U.S. distribution subsidiaries. Because they are new (and unclear in certain respects), many open questions remain on which we await further guidance. Please contact me in case you have any questions regarding these matters.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
In this brief post, a few highlights on the usual formats to start a business and enter into the Brazilian market and an overview of the current Brazilian economic outlook.
The usual forms are not much different from other countries. The most utilized are:
Incorporating a Brazilian subsidiary
A sole individual or entity – Brazilian resident or not – can incorporate a company with limited liability up to paid-in capital stock. The most usual type – a limited liability company – needs two shareholders.
The foreign shareholder shall nominate a Brazilian resident individual as legal representative by proxy. The Brazilian company needs a Brazilian resident individual as officer. Minimum capital requirement is only for the sole shareholder entity currently BRL 95,400 (with the current exchange rate, would be EUR 23,000 or USD 28,100). The company’s purposes should be specific for obtainment of the appropriate registries, to be verified during preparation of the incorporation of the Brazilian subsidiary.
Entering a distribution agreement
Brazilian Civil Code regulates this type of agreement. The parties are free to set forth the terms and conditions, as to exclusivity of product, territory, remuneration and termination conditions.
The law establishes that, if a party made relevant investment for the execution of the distribution activities, the agreement can only be terminated after a term compatible with the nature and value of the investment.
Special attention in case of health and medical products: the distributor will be the owner of the product registries and, as such, the person entitled to import, on a non-exclusive basis (unless otherwise agreed between principal and distributor). The distribution agreement shall include the specific provisions for the rights of the distributor after the termination of the distribution agreement, as obtaining registries for these products takes some time.
Entering a commercial representation agreement
A specific law regulates these activities. The commercial representative will be paid commissions over the products sold and effectively received by the principal.
Major points of attention are: (i) the indemnification of 1/12 over all commissions paid for the entire duration of the commercial representation; (ii) the commercial representative is entitled to terminate the contract in case principal reduces the scope or territory without compensation and still be entitled to receive the 1/12 indemnification; and (iii) jurisdiction of Brazilian courts .
Entering an agency agreement
Agency agreements are also regulated under Brazilian Civil Code. Similar to the distribution, the agent and principal have freedom to set forth the terms and conditions for the agency.
Similar to distribution, the termination term shall be compatible with nature and value of the investment, if a party made relevant investment to perform the agency.
Principals must be attentive that they cannot nominate two agents for the same territory with same incumbencies. The agent may claim remuneration for businesses even if closed without his/her assistance.
Franchising
Brazilian franchising law leaves the content and discipline of the operation to the parties. The franchising law requires franchisor to provide the franchise offering letter with, among others, clear provisions as to the obligations and presentation of franchise operation, financial status, background of franchisor activities information.
Brazilian people has seen many successful international operation stipulated in franchising systems. There are also good Brazilian franchising business as well. It is a more complex operation, from finding the right franchisee profile that is capable to meet specific franchisor standards – demands training for operation – and to replicate the model to all other franchisees.
Brazilian economic outlook
There are good news for investors: Brazil is coming back to action. A realistic prediction for GDP growth for 2018 is 2.8% and similar rate for the forthcoming years. Cause or consequence: traffic is getting worse than the last couple of years.
There is a large market, for the population of 200 million people. Brazilians are not afraid to spend: rather spending than saving. There is easy credit and the ability to buy (a TV, cell phone, fridge) in installments (3, 6, 12, 18 monthly payments) with direct financing from the retail.
A favorable exchange rate (currently €1 = BRL 4.10; US$1 = BRL 3.40) is also an additional attractive for investors in Brazil.
An investor may expect good margins, despite the complex tax systems and several obligations. Experienced consultants assistance for piloting Brazilian obligations is key.
Labor law reform passed last year and allows more flexibility to negotiate labor agreements terms. This is a topic to be further explored.
It is true there is corruption around. This view shall change in a near future, as a result of a series of investigations of political scandals and more rigorous compliance rules for government contracts. It may not get over, but hopefully reduced.
Promising sectors are consumer goods, food, agribusiness, clean power and IT. Infrastructure – ports, airports, roads, railroads, public transport developments are always on the spot and around for big players.
The author of this article is Paulo Yamaguchi
Limited Liability Company (LLC) is the most popular company form in Poland and is often chosen by foreign investors to access the Polish market for several reasons, such as: low initial share capital; limited liability; flexibility and simplicity in management; no social security contributions, etc.
When foreign investors buy minority shares in an existing LLC it is always a good idea to reflect the main points of the agreements between the parties in the corporate documents. In this brief post I will list seven common problems connected with the protection of minority shareholders, offering some possible solutions.
Problem 1: Polish law provides for a very basic protection for the minority shareholders.
Solution: if you want to have a strong position you should draft properly the Article of Association and preferably conclude also a side Shareholders’ Agreement.
Problem 2: Polish law provides no requirement related to the quorum of the Shareholders’ Meeting. In other words, if the Shareholders’ Meeting is properly convened, it may deliberate and adopt valid resolutions regardless of the numbers of shareholders present.
Solution: if you want the Shareholders’ Meeting to be valid only if a certain quorum is present, this should be included in the Articles of Association.
Problem 3: Polish law provides that the Shareholders’ Meeting resolutions are generally adopted with a simple majority (50% +1). Only some strategic matters it requires a qualified majority of 2/3 or 3/4. Thus the shareholder who owns at least 50% of shares dominates the company.
There may be two solutions to this situation.
Solution A: if the minority shareholder wishes to have a true influence on the company’s life, he should introduce a qualified majority for the validity of all Shareholders’ Meeting resolutions or of some of them (e.g. related to contracts of a significant value, to employment, to investments etc.).
Solution B: the minority shareholder may also negotiate that his/her shares will enjoy preference of votes. For example, each share may entitle to 2 votes. In such a way, his/her quota will have more influence.
Problem 4: According to Polish law, the Management Board Members are appointed by a resolution of the Shareholders’ Meeting, so usually the majority shareholder decides who will manage the company.
Solution: if the minority shareholder wishes to be sure that he will have real influence of the company’s activity, he may negotiate a clause of the Article of Association giving him a personal right to nominate and revoke one (or more) members of the Management Board.
Problem 5: Under Polish law the transfer of shares in an LLC is free, so the minority shareholder risks that the majority shareholder sells all his/her shares to a third party.
Solution: minority shareholder shall negotiate restrictions to the sale of shares. Restrictions may be of different kind, covering specific shareholders needs, such as: request the consent of the company for the sale (with possible recourse to ordinary jurisdiction); right of first refusal, etc.
One last tip: it is recommendable to conclude the shareholder’s agreement in a written form with signatures certified by a public notary. It is particularly important if this agreement contains clauses such as put option, call option, priority right, as written form is necessary to enforce the transfer of shares before the court. The lifetime of the shareholders’ agreement should be at least as long as the shareholders own the shares in the company. It may, however, extend beyond the moment when a shareholder leaves the company, e.g. with regard to the non-competition clause or confidentiality clause.
Scrivi a Eric
Spain — Change to the legal treatment of Executive Directors’ compensation
7 июня 2018
- Испания
- Корпоративный
The Russian law allows the parties to agree on recovery of contractual penalty for failure by the parties to fulfill contractual obligations.
Below are some typical examples of provisions that stipulate contractual penalty:
In the event of untimely delivery of the Goods under the Contract the Buyer shall be entitled to claim penalties in amount of 0,1 (zero point one) percent from the total value of untimely delivered Goods for each day of delay.
In the event of untimely payment for the Goods under the Contract the Seller shall be entitled to claim penalties in amount of 0,1 percent from the total value of untimely paid Goods for each day of delay.
The Civil Code of Russia (art. 333) allows the court to decrease the amount of penalty if such amount of penalty is disproportionate to the consequences of breach of contractual obligations, with that the court shall be entitled to decrease penalty only if the debtor files a motion with the request to decrease such excessive amount of penalty.
The decrease of penalty determined by the contract and subject to payment by the person who conducts business activities is allowed only in exceptional cases, if it is proved that the recovery of penalty in the amount stipulated by the contract can lead to receipt of the unjustified profit by the creditor.
In practice the parties file motions with the court of first instance with the request to decrease penalty with reference to art. 333 of the Civil Code and the court usually decreases the amount of penalty at its discretion.
In a recent case considered by the Supreme Court of Russia dated 29.05.2018 (case #A43-26319/2016) the Supreme Court ruled that the imposition of penalty even in the amount exceeding the total value of the contract was justified provided that the debtor failed to file a motion with the court of first instance with the request to decrease such penalty with reference to art. 333 of the Civil Code.
In this case the customer ordered the contractor to produce a pressure vessel. The price of such works of the contractor amounted to 2.700.000 rubles. The parties agreed that the pressure vessel will be produced by the contractor till 30.01.2015. The contractor produced the pressure vessel only on 01.03.2016.
The contract stipulated that in case of violation of terms of performance of works the contractor will pay to the customer a fixed fine in the amount of 5% from the price of works that the contractor failed to perform in time for each violation as well as penalty in the amount of 0,3% from the price of works that the contractor failed to perform in time for each day of delay starting with the 4th day of delay.
As a result, the customer demanded that the contractor pays penalty in the amount of 3.355.170 rubles.
The court of first instance ruled in favor of the contractor and ordered that the client shall pay the amount of penalty in full since the contractor failed to provide evidence that confirmed due fulfillment of the contract by the contractor, or that the contractor failed to perform its obligations in time due to circumstances that were out of his control. With that the contractor also failed to dispute the amount of penalty and failed to file a motion on application of art. 333 of the Civil Code.
The appeal court changed the ruling of the court of first instance and decreased the amount of penalty to 326.781 rubles based on its conclusions that the customer abused its rights by including in the contract the unfair penalty provisions.
The Cassation Court agreed with conclusions of the Court of Appeal, but the Supreme Court dismissed the rulings of both the Cassation Court and Court of Appeal and the decision of the court of first instance remained in force.
The Supreme Court based its decision on the fact that the contractor failed to file a motion with the request to decrease the amount of penalty and apply art. 333 of the Civil Code in the court of first instance. Therefore, the Court of Appeal had no right to decrease the amount of penalty at its own initiative.
The latest conclusions of the Supreme Court confirm that the contractual penalty can exceed the total value of the contract and the courts are not allowed to decrease such excessive amount of penalty at its own initiative.
Thus, if you have any dispute in Russia, please ensure that your company is duly represented in state commercial courts, since the failure of the parties to appear in court of first instance and file respective motions might lead to serious negative consequences that the failing party might not be able to cure in the courts of appeal.
There is no single piece of legislation setting out all the duties and obligations to which managing GmbH directors (“Geschaeftsfuehrer”) are subject. These duties are set out i.a. in the law on GmbHs (“GmbHG”), the Commercial Code (“HGB”), Insolvency Act (“InsO”), Civil Code (BGB), the Antitrust Law (GWB), environmental and tax laws. Furthermore, they are set out in the Articles of Association of the GmbH (“Gesellschaftsvertrag”), Shareholders’ resolutions, Internal rules for management and if applicable the Service agreements of the GmbH and the directors.
Directors will normally not be held accountable for acts and debts of the GmbH, for GmbHs are separate independent entities accountable in their own right. Directors will be held accountable for their own behaviour, however, and be required to pay money out of their own pockets by way of compensation for breach of duty or as a fine. They may be disqualified from holding office as director, or even imprisoned.
General Obligation of Diligent Management in Relation to the GmbH
Directors have a general obligation of diligent management, including in particular:
- to use his / her best efforts to promote the purpose of the GmbH;
- to control the company’s liquidity and financial position;
- ensure the GmbH’s compliance with all applicable legal obligations;
- not to compete with, or appropriate the business opportunities of the GmbH;
- not to disclose confidential information belonging to the GmbH.
Directors must employ the diligence of an orderly businessperson. Pursuant to the “business judgment rule” the management is immunized from liability if and to the extent the management, making an entrepreneurial decision based on appropriate information, could reasonably assume to act in the best interest of the company.
Annual accounts
GmbH directors must ensure that the company keeps proper books and accounts showing clearly the financial position of the company. Failure to fulfil this obligation can lead to a fine or even a term of imprisonment of the director.
Contribution and Preservation of Share Capital
The GmbH must have a share capital of at least 25,000 EUR. Upon the formation of a GmbH or increase of its share capital, the director(s) must affirm to the commercial register that the subscriber(s) of the (increased) share capital paid in the amount of cash determined in the Articles of Association, i.e. that the full amounts due were fully paid in, not paid back and are entirely to the free disposition of the director(s). If incorrect statements were made, directors are liable to the company.
Section 30 para 1 GmbHG prohibits disbursing assets to shareholders without an adequate consideration, so-called unlawful repayments. For their determination, a “balance-sheet test” is decisive. This means, a payment is not unlawful, when:
- the company’s counter-performance or restitution claim is fully-fledged and
- the contract meets the cover imperative (payment of the market price).
If an unlawful repayment of share capital contributions has occurred, the other shareholders are proportionately liable for the refund owed to the company. The directors whose negligent or intentional acts caused the illegal repayment are in their turn liable to those shareholders required to refund the sum.
Duties in Relation to Shareholders
Each director is entitled to call shareholders’ meetings. Those are to be called – inter alia — if this appears to be required by the interest of the company.
Under German GmbH law, GmbH shareholders are entitled to instruct the director(s) of the company in detail through shareholders resolutions to act or not to act in a certain way. Directors must comply with those instructions unless they are illegal. A negligent or intentional violation of this obligation renders the directors liable to the GmbH for damages and may justify their dismissal for cause.
Obligations Arising From Insolvency, Over-Indebtedness and Loss
Insolvency and Over-Indebtedness
In case of over-indebtedness or insolvency, each director must file a petition for the institution of an insolvency petition without undue delay but no later than three weeks from the date on which the over-indebtedness was ascertained or the insolvency arose (Section 15a Insolvency Code). Directors negligently or intentionally failing to meet this obligation (in time or properly) commit a criminal offence punishable by up to 3 years imprisonment and are liable for damages to the company.
If a balance sheet of the company shows a loss of one half or more of its share capital, the directors must call a shareholder meeting without undue delay. Directors failing to do so are liable to the company and subject to criminal penalties.
Duties in Relation to Taxes and Social Insurance Contributions
Apart from the obligation to file tax returns and pay corporate, trade and sales tax, the company must withhold some taxes (income tax, capital gains/settlement tax). The tax laws impose on directors a direct responsibility for tax payments. In case of violation by intention or gross negligence, they are liable personally (Section 69 German Fiscal Code) and subject to administrative sanctions or criminal penalties. Similar obligations apply to statutory social insurance contributions.
Duties in Relation to Employees and the Environment
Directors must observe special laws for the protection of employees (ArbSchG) and environment (USchG). If failing to do so, directors are personally responsible.
Duties in Relation to Third Parties
Directors’ Liability for an Appropriate Organisation of the Company
Directors have the duty and responsibility to organise the company such that the life, health, property, and similar rights of third parties are not violated.
Directors’ Liability for their Company’s Contracts, and its Acts or Omissions
Such a liability arises e.g., if a director agrees to personally guarantee a contract and the company fails to perform. A director may also be personally liable for torts (i.e. civil wrongs, incl. negligence) authorised by him/her, committed by the GmbH.
Antitrust Issues
A company and its directors commit an administrative offence, punishable by up to 1,000,000 EUR, if they violate Art. 101 s. EC Treaty or provisions of the GWB. This encompasses e.g. agreements, having as effect the restriction of competition.
Disqualification as a Director
A GmbH director will be disqualified from the position as director if he/she is convicted for the commission of particular criminal offences like fraudulent bankruptcy, violation of the duty to keep books or delaying insolvency proceedings.
Many foreign investors enter into joint-venture agreements with partners from other countries or with Polish entrepreneurs already active on the local market. Sometimes, instead, they establish their own 100% subsidiary and it is common that they choose a limited liability company, because it is a flexible and less expensive to manage in comparison to a joint-stock company.
One of the very important matters in a limited liability company (LLC) is the non-competition of the Management Board Members and of the shareholders.
Under Polish law, the Management Board Member of a company has a statutory obligation to refrain from any activity which might be competitive towards the activity of the company. As a consequence, such a Member cannot manage, be a member of a supervisory board of, own shares in, work for or provide any consulting services to a competitor company or partnership or any other legal entity.
All the more such a Member cannot run an individual enterprise or be a proxy in an enterprise which belongs to another person. Exceptionally, he/she can own no more than 10% shares in a capital company (LLC or joint-stock) but on the condition that he/she cannot appoint the management board members of such a company.
The non-competition prohibition is binding over the whole period when he/she holds the function in the Management Board and it expires immediately afterwards. The Company can release the Management Board Member from this obligation. The statutory rule is that the Management Board Members are nominated by a resolution of the General Assembly of Shareholders. Consequently, the General Assembly adopts a resolution on the release from the non-competition obligation. However, the Articles of Association may modify this rule and provide another procedure.
If a Management Board Member violates the non-competition obligation he does not lose automatically his/her position. However, he/she may normally be revoked by the General Assembly of Shareholders. A Management Board Member is responsible for damages caused to the Company through such a violation of the non-competition, but, in practice, the Company may encounter difficulties proving before the court that in fact it has indeed suffered damage (either actual damage of loss of profit). Only in relatively evident cases it will be simple. In many instances it will be time consuming and complicated.
Therefore, even if the Polish law provides for a general rule related to the non-competition by the Management Board Members, it is still crucial for the investors and the Company to conclude a good non-competition agreement with these persons or introduce a respective clause to the Articles of Association.
It should contain a precise description of the activity which will be deemed competitive and its geographical scope. The timeframe of such an obligation is also crucial. The clause may state that a Member will be bound by this prohibition not only over the period when he holds his function but also over e.g. 2 years afterwards. Preferably, it should also contain a penalty clause, so, in case of breach it is easy and costly-efficient to enforce against the Management Board Members. If such an agreement is accurately drafted and adjusted to the Company’s situation, it will protect the Company very efficiently from any competition operations (whether fair or unfair).
In my next article I will elaborate more on the subject of the non-competition obligation of the shareholders in an LLC.
On June 14, 2018, a reform to articles 73 and 129 of the General Law of Business Corporations («GLBC») was published in the Official Gazette of the Federation, which will become effective on December 15, 2018.
This amendment establishes an obligation to give notice of the entries made in the partners and shares’ registry books that record the transfer of partnership interests and shares in limited liability companies and stock corporations.
In both type of companies, the notice must be published in the electronic system established by the Ministry of Economy («SE»), being effective as of the day following its publication, in accordance with the provisions of Article 50-bis of the Commercial Code.
Additionally, in the case of stock corporations, the SE will ensure that the name, nationality and address of the shareholder contained in the notice are kept as confidential, except in cases where the information is requested by judicial or administrative authorities, when necessary to exercise its authority. The amendment does not grant the same confidentiality protection to the information of the limited liability companies, since it distinguishes the personal nature of the partners with respect to the shareholders in a stock corporation.
This amendment derives from Recommendation 24 of the Financial Action Task Force (“FATF”), relating to the unlawful use of entities for money-laundering, terrorist financing and proliferation of weapons of mass destruction. It will be desirable that this amendment contributes to transparent information, which today is not possible to obtain from the Public Registries of Commerce, which scenario contain certain information on the partners or shareholders, not updated, and which search is cumbersome while existing many at a local level throughout all the Mexican Republic.
Finally, it bears noting that the amendment establishes no penalty for failing to file such notices.
The 2017 Tax Cuts and Jobs Act (the “TCJA”), signed into law by President Trump on December 22, 2017, introduces sweeping changes in U.S. tax law, affecting businesses of all kinds. This Practice Note focuses on a few key provisions of the TCJA particularly relevant to non-U.S. manufacturing corporations with U.S. distribution subsidiaries. These changes in U.S. tax law may impact these companies operate now, as well as future plans for entering the U.S. market.
Federal Corporate Income Tax Rate
- Change: Most significantly, the US federal corporate tax rate has permanently been reduced from 35% to 21%. In addition, the corporate alternative minimum tax (which applied when higher than the regular corporate tax) has been repealed.
- Comment: The reduction of the headline U.S. federal corporate tax rate to 21%, which is a lower rate than in many of the home countries of non-U.S. corporations, will obviously benefit non-U.S. manufacturers with existing U.S. subsidiaries, and may influence those who sell directly into the U.S. (g., through independent distributors) to consider forming US subsidiaries and expanding their U.S. presence.
Interest Deductions
- Change: Under the TCJA, net business interest deductions are generally limited to 30% of “adjusted taxable income,” which is essentially EBITDA (taxable income plus depreciation and amortization deductions) for years 2018-2021 and EBIT (taxable income without adding back depreciation/amortization). Disallowed interest expense is carried forward indefinitely. Before the TCJA, interest was generally deductible when paid or accrued, subject to numerous limitations, including debt/equity ratios and taxable income. U.S. corporations – other than small businesses (average annual gross receipts under $25 million, on an affiliated group basis) – are subject to these limitations.
- Comment: The TCJA’s limitation on interest deductions are designed to protect the U.S. tax base. As a result, non-U.S. manufacturers with existing U.S. subsidiaries, and those planning to establish U.S. subsidiaries, may decide to reduce or limit the amount of debt in their U.S. subsidiaries.
Base Erosion and Anti-Abuse Tax (BEAT)
- Change: Under the TCJA, large U.S. corporations that are part of multinational groups are potentially subject to a new BEAT tax, which is essentially a minimum tax applicable to corporations that seek to reduce their US taxes by claiming large deductions for “base erosion payments” to non-US affiliates. The targeted deductions include royalties, interest and depreciation. However, and of particular significance to non-U.S. manufacturers, the version of the BEAT as finally enacted does not treat inventory costs (cost of goods sold) as base erosion payments. The BEAT generally applies to U.S. corporations that are part of multinational groups with average annual gross receipts of $500 million over the prior three-year period. The tax rate is five percent in 2018, 10% through 2025, and 12.5% thereafter.
- Comment: U.S. corporations with foreign headquarters that may be subject to BEAT may wish to revisit current practices as to purchase and sale of product, license arrangements and the provisions of back-office and other services between foreign parent and U.S. subsidiary.
Net Operating Losses
Net operating losses (NOL) from prior years generally can no longer be carried back to claim refunds. A U.S. company may use NOL carryforwards to offset only up to 80% of its taxable income (with unused NOLs carried forward into future years). Note that NOLs arising in tax years that began on or before December 31, 2017, will remain subject to the prior two-year carryback and twenty-year carryforward rule until their expiration and will also continue to be available to offset 100% of taxable income. As a result, a corporation with pre-TCJA NOLs may be viewed as more valuable than corporations with newer NOLs.
Foreign-derived Intangible Income (FDII)
- Change: The TCJA implements a new tax regime that provides a lower 13.125% U.S. federal income tax rate (rather than the new standard 21% rate) on “foreign-derived intangible income” for U.S. corporations. The special tax rate is effected by granting a 37.5% deduction for a C corporation’s foreign-derived intangible income. Foreign-derived intangible income is, generally, a portion of a C corporation’s income in excess of a threshold return derived from services performed for persons not located in the United States and from sales or licensure of property to non-U.S. persons for consumption outside the United States. The 37.5% deduction is temporary, and for tax years beginning after December 31, 2025, drops to 21.875%, resulting in a U.S. federal income tax rate of 16.406% (rather than the standard 21% rate) on foreign-derived intangible income for those years.
- Comment: FDII should encourage non-U.S. manufacturers to hold intellectual property (IP) in the U.S. and exporting from the U.S, rather than, for example, through a tax-haven entity that licenses the IP to a U.S. subsidiary. This may be particularly of interest to non-U.S. technology-based companies that seek to migrate to the U.S., as their principal market (whether for talent, sales or financing).
Of course, this Practice Note only provides a broad summary of certain highly technical provisions of the TCJA that we think are particularly relevant to non-U.S. manufacturing companies with U.S. distribution subsidiaries. Because they are new (and unclear in certain respects), many open questions remain on which we await further guidance. Please contact me in case you have any questions regarding these matters.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
In this brief post, a few highlights on the usual formats to start a business and enter into the Brazilian market and an overview of the current Brazilian economic outlook.
The usual forms are not much different from other countries. The most utilized are:
Incorporating a Brazilian subsidiary
A sole individual or entity – Brazilian resident or not – can incorporate a company with limited liability up to paid-in capital stock. The most usual type – a limited liability company – needs two shareholders.
The foreign shareholder shall nominate a Brazilian resident individual as legal representative by proxy. The Brazilian company needs a Brazilian resident individual as officer. Minimum capital requirement is only for the sole shareholder entity currently BRL 95,400 (with the current exchange rate, would be EUR 23,000 or USD 28,100). The company’s purposes should be specific for obtainment of the appropriate registries, to be verified during preparation of the incorporation of the Brazilian subsidiary.
Entering a distribution agreement
Brazilian Civil Code regulates this type of agreement. The parties are free to set forth the terms and conditions, as to exclusivity of product, territory, remuneration and termination conditions.
The law establishes that, if a party made relevant investment for the execution of the distribution activities, the agreement can only be terminated after a term compatible with the nature and value of the investment.
Special attention in case of health and medical products: the distributor will be the owner of the product registries and, as such, the person entitled to import, on a non-exclusive basis (unless otherwise agreed between principal and distributor). The distribution agreement shall include the specific provisions for the rights of the distributor after the termination of the distribution agreement, as obtaining registries for these products takes some time.
Entering a commercial representation agreement
A specific law regulates these activities. The commercial representative will be paid commissions over the products sold and effectively received by the principal.
Major points of attention are: (i) the indemnification of 1/12 over all commissions paid for the entire duration of the commercial representation; (ii) the commercial representative is entitled to terminate the contract in case principal reduces the scope or territory without compensation and still be entitled to receive the 1/12 indemnification; and (iii) jurisdiction of Brazilian courts .
Entering an agency agreement
Agency agreements are also regulated under Brazilian Civil Code. Similar to the distribution, the agent and principal have freedom to set forth the terms and conditions for the agency.
Similar to distribution, the termination term shall be compatible with nature and value of the investment, if a party made relevant investment to perform the agency.
Principals must be attentive that they cannot nominate two agents for the same territory with same incumbencies. The agent may claim remuneration for businesses even if closed without his/her assistance.
Franchising
Brazilian franchising law leaves the content and discipline of the operation to the parties. The franchising law requires franchisor to provide the franchise offering letter with, among others, clear provisions as to the obligations and presentation of franchise operation, financial status, background of franchisor activities information.
Brazilian people has seen many successful international operation stipulated in franchising systems. There are also good Brazilian franchising business as well. It is a more complex operation, from finding the right franchisee profile that is capable to meet specific franchisor standards – demands training for operation – and to replicate the model to all other franchisees.
Brazilian economic outlook
There are good news for investors: Brazil is coming back to action. A realistic prediction for GDP growth for 2018 is 2.8% and similar rate for the forthcoming years. Cause or consequence: traffic is getting worse than the last couple of years.
There is a large market, for the population of 200 million people. Brazilians are not afraid to spend: rather spending than saving. There is easy credit and the ability to buy (a TV, cell phone, fridge) in installments (3, 6, 12, 18 monthly payments) with direct financing from the retail.
A favorable exchange rate (currently €1 = BRL 4.10; US$1 = BRL 3.40) is also an additional attractive for investors in Brazil.
An investor may expect good margins, despite the complex tax systems and several obligations. Experienced consultants assistance for piloting Brazilian obligations is key.
Labor law reform passed last year and allows more flexibility to negotiate labor agreements terms. This is a topic to be further explored.
It is true there is corruption around. This view shall change in a near future, as a result of a series of investigations of political scandals and more rigorous compliance rules for government contracts. It may not get over, but hopefully reduced.
Promising sectors are consumer goods, food, agribusiness, clean power and IT. Infrastructure – ports, airports, roads, railroads, public transport developments are always on the spot and around for big players.
The author of this article is Paulo Yamaguchi
Limited Liability Company (LLC) is the most popular company form in Poland and is often chosen by foreign investors to access the Polish market for several reasons, such as: low initial share capital; limited liability; flexibility and simplicity in management; no social security contributions, etc.
When foreign investors buy minority shares in an existing LLC it is always a good idea to reflect the main points of the agreements between the parties in the corporate documents. In this brief post I will list seven common problems connected with the protection of minority shareholders, offering some possible solutions.
Problem 1: Polish law provides for a very basic protection for the minority shareholders.
Solution: if you want to have a strong position you should draft properly the Article of Association and preferably conclude also a side Shareholders’ Agreement.
Problem 2: Polish law provides no requirement related to the quorum of the Shareholders’ Meeting. In other words, if the Shareholders’ Meeting is properly convened, it may deliberate and adopt valid resolutions regardless of the numbers of shareholders present.
Solution: if you want the Shareholders’ Meeting to be valid only if a certain quorum is present, this should be included in the Articles of Association.
Problem 3: Polish law provides that the Shareholders’ Meeting resolutions are generally adopted with a simple majority (50% +1). Only some strategic matters it requires a qualified majority of 2/3 or 3/4. Thus the shareholder who owns at least 50% of shares dominates the company.
There may be two solutions to this situation.
Solution A: if the minority shareholder wishes to have a true influence on the company’s life, he should introduce a qualified majority for the validity of all Shareholders’ Meeting resolutions or of some of them (e.g. related to contracts of a significant value, to employment, to investments etc.).
Solution B: the minority shareholder may also negotiate that his/her shares will enjoy preference of votes. For example, each share may entitle to 2 votes. In such a way, his/her quota will have more influence.
Problem 4: According to Polish law, the Management Board Members are appointed by a resolution of the Shareholders’ Meeting, so usually the majority shareholder decides who will manage the company.
Solution: if the minority shareholder wishes to be sure that he will have real influence of the company’s activity, he may negotiate a clause of the Article of Association giving him a personal right to nominate and revoke one (or more) members of the Management Board.
Problem 5: Under Polish law the transfer of shares in an LLC is free, so the minority shareholder risks that the majority shareholder sells all his/her shares to a third party.
Solution: minority shareholder shall negotiate restrictions to the sale of shares. Restrictions may be of different kind, covering specific shareholders needs, such as: request the consent of the company for the sale (with possible recourse to ordinary jurisdiction); right of first refusal, etc.
One last tip: it is recommendable to conclude the shareholder’s agreement in a written form with signatures certified by a public notary. It is particularly important if this agreement contains clauses such as put option, call option, priority right, as written form is necessary to enforce the transfer of shares before the court. The lifetime of the shareholders’ agreement should be at least as long as the shareholders own the shares in the company. It may, however, extend beyond the moment when a shareholder leaves the company, e.g. with regard to the non-competition clause or confidentiality clause.