The importance of the duration clause in shareholders' agreements

CA Paris 15-12-2020 n°20/00220

A shareholders' agreement or partners' agreement is an extra-statutory contract concluded at the time of the formation of a company or during its corporate 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 relationships of the partners who signed the agreement.

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

The clause relating to the duration of validity of the pact is one of the clauses not to be neglected, as shown by a recent decision rendered by the Paris Court of Appeal.

The duration of the pact, which is freely determined by the parties, can, 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, respecting the notice periods calculated according to the provisions relating to the general law of contracts.

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

The Paris Court of Appeal, in the aforementioned judgment of December 15, 2020, recalls that it is important to explicitly draft the validity period clause so that it is easily interpreted by each of the contracting parties and so that they can understand the regime applicable to them.

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

The court notably considered that, since the partners concerned were both legal entities, the 99-year term was not excessive and did not contravene the prohibition of perpetual commitments by the parties.