The importance of the duration clause in shareholders' agreements

CA Paris 15-12-2020 n°20/00220

The shareholders' or partners' pact is an extra-statutory contract concluded upon the incorporation of a company or during its social life between some or all of its partners.

Both are optional, unlike the articles of association of a company, but are recommended in order to organize the management of a company and to govern the relations of the partners who have signed the pact.

The provisions of a pact come under freedom of contract and are governed by contract law.

The clause relating to the duration of the pact's validity is one of the clauses that should not be overlooked, as shown by a recent decision handed down by the Paris Court of Appeal.

The duration of the pact, which is set freely by the parties, may, as in any contract, be fixed or indefinite.

When the agreement is concluded for an indefinite period, it allows the signatory partners to terminate it unilaterally at any time by respecting the notice periods calculated according to the provisions relating to common contract law.

When the pact is concluded for a fixed term, it is common for the clause provided for this purpose to set a term in number of years.

The Paris Court of Appeal, under the terms of the aforementioned judgment delivered on December 15, 2020, recalls that it is important to explicitly draft the validity period clause so that it is easily interpretable by each of the contracting parties and that the latter can apprehend the regime applicable to it.

In this case the court considered that when a pact is concluded for the duration of the company , even if it is 99 years, it is for a fixed term.

The court considered in particular that the partners concerned being both legal persons, the duration of 99 years was not excessive and did not contravene the prohibition of perpetual commitments of the parties.