Shareholders’ agreement (Gesellschaftervereinbarung)

In practice

The shareholders’ agreement sits alongside the articles of association and deals with what does not belong in the public domain. How disputes between shareholders are handled, what happens when individual shareholders leave or drop out, the exit, as well as non-compete obligations, pre-emption rights, remuneration and the allocation of responsibilities. Unlike the articles of association, it binds only the parties. New shareholders are bound only if they accede to the agreement. This is often a condition for consent to the investment. That protects privacy and gives nothing away to competitors, customers and suppliers. Under German law, the agreement must be recorded by a notary to be valid if it creates an obligation, even an indirect or conditional one, to transfer shares in a GmbH (German limited liability company) or a UG (haftungsbeschränkt), for example through vesting or drag-along obligations.