Eugenio Vaccari March 18 2019 Shareholders' agreements – courts clarify rules for listed and non-listed companies Grieco e Associati | Corporate & Commercial - Italy Eugenio Vaccari Corporate & Commercial Listed companiesNon-listed companiesBrescia Court of Appeal decisionSupreme Court of Cassation decisionCommentItalian company law contains specific provisions for shareholders' agreements relating to listed or non-listed companies.Listed companiesWith regard to shareholders' agreements relating to listed companies, if an agreement intends to regulate the shareholders' corporate governance of a listed company or its controlling entity, it must – according to Articles 122 and 123 of the Uniform Finance Law (Dlgs 58/98) – be:communicated in advance to CONSOB (the national financial supervisory authority regulator);published (as an abstract) in a major newspaper;filed at the company's registry; andcommunicated to the listed company.Listed company shareholders' agreements must identify:any voting rights in the listed or controlling company;any shareholder's right to prior consultation before exercising their voting right;any possible limitation to the free transferability of shares or financial instruments;any possible exercise of a dominant influence over the company; andany action to favour or oppose a mandatory takeover.If a listed company fails to declare its shareholders' agreements at the beginning of a shareholders' meeting, its shareholders may not exercise their voting rights and the adopted resolution may be nullified (Art 2341ter of the Civil Code).Listed company shareholders' agreements cannot exceed three years in duration and may be extended once expired. Unlimited-term agreements may be terminated subject to parties giving six months' prior notice. In the event of a company's mandatory takeover, any shareholders who accept the takeover offer may withdraw from the shareholders' agreements without prior written notice.Non-listed companiesArt 2341bis of the Civil Code sets out rules for non-listed company shareholders' agreements. The first, third and fifth items identified above that apply to limited company shareholders' agreements also apply to those of non-listed companies.Non-listed company shareholders' agreements cannot exceed five years in duration and may be renewed once expired. Unlimited-term agreements may be terminated subject to parties giving 180 days' prior notice. The statutory five-year term may be exceeded if:the agreement relates to parties cooperating in the field of goods and services; orthe company is fully controlled by the parties which entered into the shareholders' agreement (ie, a shareholder-owned joint venture).The most common clauses in this type of shareholders' agreement are:the appointment of directors and powers granted to the chair and managing director, including the appointment of top executives (eg, chief financial officers and chief operating officers);the appointment of a board of auditors;pre-emption rights in the event of a share sale;drag-along, tag-along, put and call option clauses; anddeadlock provisions.Non-listed company shareholders' agreements also contain specific clauses to protect minority shareholders' rights, including qualified majority requirements for boards of directors and shareholders' meetings regarding:entering into specific agreements or agreements with more than a certain monetary threshold;yearly budget and business plans;third-party guarantees;major investments;anti-dilution, put and call option clauses; anddeadlock provisions.Brescia Court of Appeal decisionOn 8 October 2018 the Brescia Court of Appeal nullified a clause which provided the automatic renewal of a non-listed company shareholders' agreement after the statutory five-year term (Judgment 1568).The court declared that the clause:imposed an undue burden on shareholders;violated public order rules; andconflicted with the freedom of entrepreneur activity provided by Article 41 of the Constitution.The court held that parties to shareholders' agreement may negotiate a renewal after the five-year term if it is explicitly negotiated and neither implied nor automatically applied.Supreme Court of Cassation decisionOn 10 July 2018 the Supreme Court of Cassation established important principles for non-listed company shareholders' agreements (Judgment 18138).The court confirmed that shareholders' agreement provisions for appointing members of boards of directors do not conflict with the shareholders' meeting rules set out in Article 2364 of the Civil Code, which provides that the appointment of members of boards of directors and statutory audit committees must be decided in shareholders' meetings.The court also held that the duration of a shareholders' agreement may be extended after it has expired only with the parties' explicit consent.In addition, shareholders' right to withdraw from a company for just cause (Article 2437 of the Civil Code) and their consequent right to compensation do not apply in the event of an alleged violation of the shareholders' agreement. An incorporated company's shareholders may exercise their right to withdrawal and fair compensation if:the company's scope is amended;the company is transformed (eg, from a joint stock to a limited liability company);the company's head office moves abroad;the company's winding up is revoked;the company's withdrawal rights are cancelled;the articles of association relating to voting rights are amended;the company's term is postponed; orthe limitation on the free transferability of shares is introduced or cancelled.CommentThe two decisions confirm that Italian company law broadly recognises the admissibility of shareholders' agreements in order to govern the rights and obligations of company shareholders, particularly for joint ventures in the financial, trading and industry fields.In the event that a shareholders' agreement is breached, the aggrieved party has a right to monetary compensation from the defaulting shareholder. Further, in the event that a provision inserted into the articles of association is violated, the affected shareholder may enforce its rights against the defaulting party, as well as any third party, since the articles are published in the company's registry.According to the Uniform Finance Law (Dlgs 58/98), listed company shareholders' agreements are subject to mandatory disclosure, whereas non-listed company shareholders' agreements are usually not disclosed to the third parties.Therefore, shareholders may keep some clauses connected to the company's corporate governance confidential, while the company's articles of association must include the mandatory provisions set out in Italian company law.For further information on this topic please contact Eugenio Vaccari at Grieco e Associati by telephone (+39 06 420 3881) or email ([email protected]). The Grieco e Associati website can be accessed at www.griecoassociati.com.