A shareholders’ agreement concluded […] a fixed-term commitment

Cass. 1^st Civil, January 25, 2023, n°19-25.478

In its decision of January 25, 2023, the Court of Cassation recognizes the possibility of entering into a shareholders’ agreement for the life of the company, without the parties being able to terminate it unilaterally.

1. The legal framework

In accordance with article 1134 of the Civil Code, agreements are the law of those who have made them, and they can only be revoked by their mutual consent, or for the reasons that the law authorizes.

However, articles 1210 and 1211 of the same code prohibit perpetual commitments, so that each contracting party may terminate them, if necessary, provided that the contractually stipulated notice period is respected, or failing that, a reasonable period.

2. The facts

In this case, the shareholders of a SAS entered into a shareholders’ agreement on January 30, 2010 for the duration of the company’s life, i.e. for the time remaining until the expiry of the 99 years from its registration with the RCS.

It also provides that the term will be tacitly renewed for the new duration of the company, which may be extended, and that at the time of each renewal, the parties may terminate the agreement insofar as they are concerned, by giving their co-contractors six months’ notice.

By deed dated February 23, 2017, two shareholders notify the unilateral termination of the contract. The third shareholder sues them, considering the termination to be irregular and ineffective.

The Paris Court of Appeal rejected his request in a decision dated December 15, 2020, considering that the agreement, the duration of which was based on the life of a company, had an excessive duration comparable to an indefinite duration. Indeed, the company was registered on January 24, 1969, and will only end on January 24, 2068, when the parties will be 79 and 96 years old.

The Paris Court of Appeal therefore recognizes the possibility for the parties to terminate it unilaterally, subject to abuse in this case not being established.

The appellant then appealed to the Court of Cassation on the grounds that the agreement was concluded for a specific term, that of the company, and that its co-contractors could not unilaterally terminate the contract.

3. The opinion of the Court of Cassation

The Court of Cassation overturned the appeal decision and held that the prohibition of perpetual commitments does not prohibit the conclusion of a shareholders’ agreement for the duration of the company’s life, without the parties being able to terminate it unilaterally.

A shareholders’ agreement concluded for the maximum life of a company, i.e. 99 years, is therefore a fixed-term commitment.

***

Be careful when drafting a shareholder agreement!

The agreement must be concluded for a fixed term, which may be subordinated to the life of the company.

Otherwise, the agreement may be terminated unilaterally by the parties, in accordance with the prohibition of perpetual commitments.