A private shareholders’ agreement can anticipate deadlocks, succession, exits, transfers and decisions that may change a company’s future.
Private shareholders’ agreements: the rules no one thinks about until trouble starts
⏱ Estimated reading time: 4 minutes
Two people start a company. They trust each other, contribute capital and divide the shares 50/50. They register the bylaws, open a bank account and start selling. For years, everything works—until one dies, or they simply stop agreeing.
Were the bylaws designed for that change? This is where a tool many Colombian companies still underestimate becomes important: the private shareholders’ agreement.
Article 24 of Law 1258 of 2008 allows shareholders of an SAS to agree on share purchases and sales, transfer restrictions, voting, representation and other lawful matters. Its value lies in anticipating issues nobody wants to discuss at the beginning. For the company to be bound under Article 24, the agreement must be deposited at the offices where its management operates. The law also sets a maximum ten-year term, extendable unanimously by the signatories for periods of no more than ten years each.
Scenario 1: a shareholder dies
Imagine two shareholders, each with 50%. One dies unexpectedly. The shares do not disappear; in general they enter the estate and may eventually pass to heirs. A long-standing business partner can be replaced by a spouse, children or other heirs with very different interests. Can the shares be sold? Do the remaining shareholders have a first opportunity to buy? How is the price set? Who represents the shares during probate?
Bylaws, shareholders’ agreements, valuation rules, purchase options, insurance and properly designed succession arrangements can address these questions in advance. The goal is not to ignore heirs’ rights, but to avoid turning a family tragedy into a business crisis.
Scenario 2: a 50/50 deadlock
One shareholder wants to borrow to expand; the other thinks the risk is too high. One wants dividends; the other wants reinvestment. Neither has a majority. A business with customers, employees and assets may still be paralyzed.
A pre-agreed deadlock mechanism may offer an exit. Under a so-called Russian Roulette clause, one shareholder offers to buy the other’s shares at a stated price, but the recipient may choose to buy the offeror’s shares at that same per-share price. Setting an artificially low price therefore carries a risk for the person who proposed it. Under a Texas Shoot-Out arrangement, both parties may submit bids under agreed rules. These are not statutory one-size-fits-all solutions: their usefulness and enforceability depend on drafting consistent with the law, the bylaws and the shareholders’ circumstances.
More than two scenarios
What if a shareholder wants to sell to a competitor, stops working shortly after formation but keeps a large stake, divorces, has shares attached, becomes incapacitated or uses company information to compete? What if an investor wants the whole business but a small shareholder refuses, or a majority shareholder sells and leaves a minority shareholder with a stranger?
Possible tools include tag-along and drag-along rights, vesting, good-leaver and bad-leaver rules, put and call options, reserved matters, transfer restrictions, pre-emptive rights, valuation mechanisms and family protocols. Each begins with a simple question: what do we want to happen if this situation occurs?
Why a downloaded template is not enough
Companies differ in ownership, families, capital, work inside the business, know-how, dividend needs and growth plans. Copying another company’s bylaws or agreement can create the very problem the document was meant to prevent. The bylaws and shareholders’ agreement must work together and reflect this particular company.
Death, divorce, incapacity, deadlock or a forced sale are uncomfortable topics when everyone is focused on growth. That is precisely why it may be the best time to discuss them.
If something unexpected happened to any of us tomorrow, would we know exactly what would happen to our shares?
This is general information and does not replace legal advice for a particular agreement or corporate situation.