In an increasingly globalised business environment, cross-border investments between France and the United Kingdom have become common.
French companies frequently welcome British investors, and UK structures often include French shareholders.
In this context, the Franco-British shareholder agreement (also known as a shareholder agreement) plays a central role. It is a contractual tool designed to organise relations between shareholders, secure investments and anticipate potential disputes.
This article provides a clear and practical overview of the key clauses to consider when drafting a shareholder agreement involving both French and UK legal systems.
What is a Franco-British shareholder agreement?
A shareholder agreement is a private contract entered into by all or some of a company’s shareholders. It complements the company’s constitutional documents and governs issues that go beyond statutory rules.
In a Franco-British context, this agreement is particularly important because it must reconcile two distinct legal traditions:
- French law, based on codified statutory rules and public policy constraints
- English law, which offers greater contractual freedom and flexibility
The purpose of a shareholder agreement is to:
- define governance arrangements,
- regulate share transfers and exits,
- protect minority and majority investors,
- reduce the risk of deadlock or litigation.
Key differences between France and the UK: clauses to negotiate carefully
Governance and quorum requirements
Under French law, specific quorum and majority rules apply to shareholders’ meetings. These rules are largely mandatory and limit contractual flexibility.
In contrast, English company law allows broader freedom. Governance rules are often defined contractually through shareholder agreements and articles of association.
Key point
In cross-border agreements, governance clauses must be aligned with the law governing the company, while remaining acceptable to investors from both jurisdictions.
Drag along and tag along rights
Exit mechanisms are a core concern for investors.
- Drag along clauses allow majority shareholders to force minority shareholders to sell their shares if a third-party buyer acquires control of the company.
- Tag along clauses protect minority shareholders by allowing them to sell their shares on the same terms as the majority in the event of a sale.
These clauses require careful drafting, especially regarding:
- price calculation mechanisms,
- definition of a controlling transaction,
- trigger thresholds and conditions.
Certain provisions commonly accepted under English law may be restricted or unenforceable under French law if insufficiently framed.
Pre-emption rights
Pre-emption rights give existing shareholders priority to acquire shares before they are transferred to a third party.
- In France, some pre-emption rights are provided by statute or company by-laws.
- In the UK, pre-emption rights are primarily contractual and must be expressly included in the agreement.
The clause should clearly define:
- notification procedures,
- response deadlines,
- pricing and allocation rules.
Confidentiality and non-compete clauses
Confidentiality and non-compete clauses aim to protect the company’s economic interests and know-how.
Under French law, these clauses are subject to strict public policy limits, particularly regarding duration, geographic scope and proportionality.
Under English law, they may be drafted more broadly but remain subject to judicial review for reasonableness.
An imbalance may result in partial or total unenforceability of the clause.
Bilingual drafting: avoiding legal uncertainty
International investors often require shareholder agreements to be drafted in both French and English.
Avoid literal translations
Legal terms may appear similar but have different legal effects depending on the jurisdiction. Literal translation can create ambiguity or unintended consequences.
Determine the prevailing language
The agreement should expressly specify which language version prevails in the event of interpretation differences.
Ensure legal equivalence
The objective is not identical wording, but equivalent legal effects in both legal systems. This typically requires legal advice from practitioners familiar with both jurisdictions.
Governing law and dispute resolution
A Franco-British shareholder agreement must clearly identify:
- the applicable law (French or English),
- the competent court or dispute resolution mechanism.
Practical implications
- Clauses enforceable under English law may be invalid under French law due to public policy restrictions.
- English courts generally enforce contracts strictly, while French courts may intervene to protect statutory principles.
Arbitration as an alternative
Arbitration is often considered in cross-border agreements for its:
- neutrality,
- confidentiality,
- procedural flexibility.
Practical considerations for cross-border agreements
- Anticipate potential disputes at the drafting stage.
- Use clear, precise and balanced language.
- Review shareholder agreements regularly to reflect changes in law and corporate structure.
- Seek legal advice from professionals experienced in French and English business law.
Conclusion
A well-drafted Franco-British shareholder agreement is a key instrument for securing investor interests in cross-border transactions.
Its effectiveness depends on careful drafting, a solid understanding of both legal systems, and particular attention to language, governing law and enforceability.
When properly structured, such an agreement helps provide legal certainty, protect investments and reduce the risk of disputes.
FAQ
Is a shareholder agreement mandatory in France or the UK?
No. However, it is strongly recommended in cross-border or multi-investor situations.
Can one agreement apply to both French and UK shareholders?
Yes, provided it is carefully drafted to address both legal frameworks.
Which law should govern a Franco-British shareholder agreement?
This depends on the company structure, investor profile and transaction objectives.
Are drag along clauses always enforceable?
Their enforceability depends on how they are drafted and on the applicable law.
Should arbitration be preferred over court litigation?
Arbitration is often chosen for international agreements but must be assessed on a case-by-case basis.
