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Shareholders’ Agreement Vs. Articles Of Association – Differences, Compatibility, And Appropriateness


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When establishing a corporation, one of the main constitutional documents required by Spanish law is the company’s Articles of Association (Corporate Bylaws), specifying the regulations for a company’s operations and defining the company’s purpose. In addition to the Articles of Association, the company’s shareholders may also choose to enter into a Shareholders’ Agreement stipulating shareholders’ rights and obligations. Against this background, the present post aims to analyze the main differences between the Article of Association and Shareholders’ Agreement, as well as their suitability to address specific business requirements and the legal consequences of potential conflicts between them.

Thinking to set up a business in Spain? We have prepared material you would be interested in:

Definition and main differences between Articles of Association and Shareholders’ Agreements

What is the Articles of Association?

The Articles of Association act as a binding contract between all present and future shareholders of the company as well as between the shareholders and the company itself and are filed at the competent Commercial Registry when the company is first established.

Source: Business in a box

They govern the internal organization of a company and must include, among other matters, the corporate purpose, the share capital, and the organization of the company’s governing body. Likewise, the Spanish Law on Corporations allows for the regulation of other aspects in the Articles of Association, such as the existence of shares with voting or dividend distribution privileges or the specific restrictions or conditions on share transferability. 

What is the Shareholders’ Agreements ?

While all Spanish companies are legally required to have Articles of Association, Shareholders’ Agreements are optional legal instruments that supplement the Articles of Assocation. They consist of a private agreement regulated by the general principle of contractual freedom (art. 1255 of the Spanish Civil Code) that all or part of the company’s shareholders may agree upon if they consider it appropriate. 

Source: Legal templates

Despite the fact that Spanish law does generally not require any specific formalities for the validity and enforceability of Shareholders’ Agreements, there are some particular cases where notarization is required, e.g. if the Shareholders’ Agreement deals with real estate contributions or intellectual property rights transfers that require the formality of being executed in a Public Deed. 

As a consequence of its legal nature as a private agreement, the effectiveness of a Shareholders’ Agreement is, unlike that of the Articles of Association, limited to the parties that have executed the agreement and is thus generally not enforceable against the company or against third parties (art. 29 of the Spanish Law on Corporations). By way of an example, if an agreement obliges a shareholder to vote in a certain way at a General Meeting and if the shareholder in question fails to comply with the said obligation, the validity of the decision reached at the General Meeting cannot be challenged on the basis of a breach of the shareholder’s obligation under the Shareholders’ Agreement. However, a breach of the Shareholders’ Agreement will generally entitle the injured contractual party to claim damages from the defaulting shareholder. Read more about this agreement in another post.

Conflicts between the Articles of Association and Shareholders’ Agreements: which prevails?

In the event of a discrepancy between the Articles of Association and a Shareholders’ Agreement, according to Spanish jurisprudence, the former normally prevails. However, Spanish courts have, in certain cases, recognized the priority of Shareholders’ Agreements where they are signed unanimously by all of the company’s shareholders and where their compliance is necessary to safeguard the principle of good faith.

Why it matters and what the reasons to draft a shareholders’ agreement?

Given the above described general priority of Articles of Association over Shareholders’ Agreements, it is usually advisable to include as much of the desired content as possible in the Articles of Association, which can be drafted according to the specific needs and requirements of each case, provided that the imperative provisions of Spanish corporate law are complied with. However, a business project may in some cases require the regulation of specific matters that cannot be included in the Articles of Associations, such as agreements between shareholders regarding certain share transfer mechanisms, voting mechanisms, exit routes, deadlock mechanisms, etc. Moreover, the shareholders may wish to keep some of their agreements, such as agreements to vote in a certain way, private and confidential. In these cases, it may be recommended to draw up a Shareholders’ Agreement. 

In case a Shareholders’ Agreement is drawn up, it is of crucial importance to ensure its consistency and compatibility with the Articles of Association. Our Corporate team can assist with drafting, reviewing, amending, and advising on the provisions of both a company’s Articles of Association and Shareholders’ Agreements.

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