Terminating shareholders’ agreements

Duration 2015–2016

Institute Institute for Business Law

Department Department of Private law

In Austria, many family businesses, joint ventures, and other companies have shareholders’ agreements. They define the distribution of power and money in a company, including public and limited liability companies, but also private companies. Shareholders’ agreements are important, confidential contracts that divvy up influence and economic interests among a company’s shareholders. They ensure stability and cohesion among shareholders, but also allow firms to avoid content control from the registration office. So legislation on the duration and termination of shareholders’ agreements is extremely important.

An analysis of the legal provisions governing shareholders’ agreements led to a legislative proposal drawn up to improve framework conditions for shareholders.

The aim of the research was to examine legislation on terminating shareholders’ agreements, specifically the option for unilateral termination that took effect in 2015. In the past, shareholders’ agreements were signed for 20–30 years with no exit options. The new guidelines allowed for termination at the end of each financial year. The analysis focused on the adverse and largely overlooked impact of the new legal guidelines on both syndicates and the companies behind them. The research found the annual exit option greatly limited the central purpose of shareholders’ agreements, namely to safeguard the stability of the relationships among shareholders, while also curtailing their cohesive influence on a firm and shareholder stability. This has raised fears that shareholder groups might easily fracture, raised the risk of a family shareholder’s sudden exit, and increased the desire to sell shares to outside investors. These findings were incorporated into a legislative proposal designed to exempt shareholders’ and other similar agreements from these strict termination rules and increase planning security.

The legislative proposal led to an amendment of the civil code and the fair regulation of the termination of shareholders’ agreements for family businesses and other companies.

The legislative proposal that emerged from the research findings on terminating shareholders’ agreements had farreaching consequences. The Federal Ministry of Justice accepted the proposal, and adapted and incorporated it into an amendment to the law. The proposal convincingly argued that the easy and annual exit option was tailored for other types of companies and was not a necessary protective measure for shareholders’ agreements. The research sparked debate in the legal community. The government acknowledged the negative consequences on companies, and adopted the legislative proposal to exempt shareholders’ agreements from the termination provision. The research led to an amendment of the law just one and a half years after it had come into force. The law now exempts syndicate agreements from the general statutory termination option. In this way, the careful consideration, the legal policy analysis, and scholarly illustration of the adverse impact of the law contributed to an appropriate and practical amendment. This provided the Austrian economy with a more solid, legal foundation, promoting SDG 8 “Decent Work and Economic Growth,” SDG 9 “Industry, Innovation and Infrastructure,” and SDG 16 "Peace, Justice and Strong Institutions.”

Examination of the legal framework for shareholders’ agreements

Legislative proposal to stabilize shareholders’ agreements

Amendment to termination rules for shareholders’ agreements and a stronger legal basis for companies