Shareholders' agreement in Luxembourg: the essential clauses to provide for

It is a confidential contract, outside the articles, concluded between the shareholders of a Luxembourg company. It organises their relations, governance, entries and exits, and complements the articles published with the RCS without contradicting them. It remains governed by freedom of contract within the framework of the 1915 law.

No, but it is strongly recommended as soon as there is more than one shareholder. It anticipates the deadlocks and exits that the articles do not govern in detail. Its absence is one of the main causes of paralysis and disputes between shareholders.

The articles set the public and general framework of the company, filed with the RCS and subject to the 1915 law. The agreement is a confidential contract between shareholders that organises their relations, their exits and the resolution of disagreements. The two must remain consistent.

Yes. Unlike the articles, which are public and enforceable against third parties, the agreement remains secret between the signatories alone. This is what makes it possible to provide in it for financial or governance commitments that the shareholders do not wish to make public.

It is a clause that makes the entry of a new shareholder subject to the prior consent of the existing shareholders. It makes it possible to control who may acquire shares and to keep out an unwelcome third party. In the event of refusal, the agreement generally provides for the shares to be bought by the remaining shareholders.

It is a right of first refusal granted to the shareholders to buy the shares that a shareholder wishes to sell, before they are offered to a third party. It protects the balance of the capital and is often combined with the approval clause.

The tag-along clause, or joint exit, protects minority shareholders: when a majority shareholder sells to a third party, they may join in the sale and sell their shares at the same price and on the same terms. It guarantees them the same liquidity as the majority shareholder.

The drag-along clause, or forced exit, allows the majority shareholder to require minority shareholders to sell their shares when an offer covers the whole of the capital. It prevents a minority shareholder from blocking an overall sale and must be framed by a minimum price and identical terms for everyone.

A good leaver is a legitimate departure (retirement, disability, dismissal without fault): the departing person sells their shares at a favourable value. A bad leaver is a departure at fault (serious misconduct, abusive resignation): the departing person sells at a reduced value. This mechanism aligns the manager's interests over the long term.

It is a mechanism, sometimes called a divorce clause, that breaks an impasse when the shareholders no longer agree. The buy or sell formula, for example, allows one shareholder to propose a price, the other choosing to buy or sell at that price. It is vital in companies with equal holdings.

Yes, provided it is proportionate: limited in time, in geography and as to the activities covered. A clause that is too broad risks being held excessive. Where it extends beyond the shareholder's departure, consideration may be necessary.

It is the clause that organises the shareholders' exit routes: dates, procedures, price and valuation method. It is essential when an investor enters the capital with a set exit horizon and avoids the situation of a shareholder trapped in their shares.

No, on pain of disputes and ineffectiveness. The agreement and the articles must remain consistent. The agreement makes it possible to add confidential commitments between shareholders, but within the framework set by the articles and by the 1915 law on commercial companies.

That is risky. An agreement not tailored to your capital and your project may be ineffective or contradict the articles. Each clause must be calibrated according to the number of shareholders and the balance of the capital. Bespoke drafting is preferable.

The agreement sets its own duration: a fixed term tied to the life of the company or to a number of years, or a term linked to the signatories remaining shareholders. It also includes a confidentiality clause guaranteeing the secrecy of the commitments.

It is not a legal requirement, but the support of a corporate lawyer secures the fit between the agreement and the articles, the drafting of the exit and deadlock clauses, and the effectiveness of the sanctions. These choices are lasting and hard to correct afterwards.