SAS shareholders have the opportunity to set up a inalienability clause in the company's articles of association or in a partnership agreement concluded in parallel. This article explains the operating rules of the inalienability clause, how to write it and the consequences in case of non-compliance.
Benefits and operation of inalienability
The inalienability clauses apply to the partners concerned in order to compel them to keep their shares for a limited period. SAS shareholders are therefore not authorized to transfer their shares during the defined period.
The inalienability clause cannot exceed 10 years without becoming null and void. It ensures the presence of the partners concerned in the company and consequently prevents a third party from entering the capital by buying back shares.
The inalienability clause can be inserted in the SAS statutes either at the time of its constitution, or subsequently by unanimous decision of the shareholders.
This type of clause is commonly used when investors enter the capital of the SAS. The inalienability offers an assurance to the founders that they will remain in the company after the injection of capital.
Drafting of the irremovability clause
The articles of association must provide for a time limit on security of tenure, which cannot exceed 10 years, and specify whether it applies to all transfers of shares or only to those carried out with third parties.
It must then be clearly specified which operations are prohibited during this period: only assignments? Donations? Estates? Stock exchanges?…
Finally, it should be indicated in the clause whether the security of tenure applies to all the partners or only to some.
Here is an example of a typical tenure clause:
The shares of the company… are irremovable (or the shares of such and such partners (to be listed) or the shares of the founding partners…) for a period of… years.
Security of tenure extends to the following operations: (list all the operations concerned).
The president (or any other body) can lift the security of tenure in the following cases (list the cases).
Infringement of the inalienability clause by a partner
When a SAS partner does not respect an inalienability clause recorded in the statutes, the action performed is likely to be declared void.
It is not mandatory that damage be caused and/or that the third party likely be aware of the clause for the action which violates the inalienability clause set out in the articles of association to be invalidated.
Include an inalienability clause in a shareholders' agreement
It is common to place the inalienability clause in a shareholders' agreement which is concluded at the same time as the creation of the SAS.
The rules to follow are the same as those described in the context of the integration of the clause directly into the articles of association, with the exception of two points:
- the clause concerns only the signatories of the pact, not necessarily all the partners of the SAS,
- and the penalties for breaching the clause are less severe.
When the inalienability clause is put in place after the creation of the SAS, it requires the unanimous agreement of the partners. This must be subject to a collective decision of shareholders.
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