INTRODUCTION
Extra-statutory agreements, generally known as “shareholders’ agreements” or “partners’ agreements”,[1] are applicable in the Organisation for the Harmonisation of Business Law in Africa (OHADA),[2] thanks to the Uniform Act relating to the law of commercial companies and economic interest groups (AUDSCGIE).
In a public limited company (SA) or a simplified joint stock company (SAS), the term “shareholders’ agreement” is used, whereas in any other company, the term “partners’ agreement” is used.
The purpose of extra-statutory agreements is to organize, more than the articles of association, the relations between the shareholders or partners, and in particular to organize the rules of governance, access to the company’s capital or the composition of the corporate bodies. Unlike the articles of association, they are very flexible, remain confidential and sometimes only concern a few shareholders.
Indeed, before or after the incorporation of a company or when a company has just welcomed a new partner or shareholder, an extra-statutory agreement may be necessary to organize the relations between the shareholders or partners and to set new rules. It may allow to settle potential crisis situations in advance and to facilitate or restrict certain operations in order to protect the various interests at stake.
For a better use of this corporate governance tool, we will, in the following lines, first develop the content and limits of extra-statutory agreements (I), then analyze the law applicable to these agreements (II) before drawing our conclusions (III).
- CONTENTS AND LIMITS OF AN EXTRA-STATUTORY AGREEMENT
It is important to discover first the contents of an extra-statutory agreement (I.1) before identifying its limits (I.2)
I.1 Contents of an extra-statutory agreement
An extra-statutory agreement is an agreement drawn up between shareholders or partners in parallel with the company’s articles of association. Its legal basis is article 2-1 of the AUDSCGIE, according to which, the partners may conclude extra-statutory agreements in order to organize, according to the modalities they have freely decided, the relations between partners, the composition of the company’s organs, the conduct of the company’s business, the access to the company’s capital and the transfer of company shares.
The conclusion of an extra-statutory agreement is not mandatory. The parties can form a company with or without an extra-statutory agreement. The latter can be signed by all the partners or shareholders of the same company or by some of them only. In the latter case, the other partners or shareholders are not bound by it. Moreover, the extra-statutory agreement may be concluded before the creation of the company and the drafting of the articles of association; it is then called a “company creation contract”; or it may be concluded after the company has been incorporated.
The extra-statutory agreement may contain clauses that cannot be included in the articles of association for legal or confidentiality reasons. It can provide for the duration and the limits of the commitments made, the number of partners and the setting up of complex obligations. It is a secret document which only commits the shareholders and the signatory partners and is not known to third parties. Unlike the articles of association, the extra-statutory agreement is not filed with the clerk of the commercial court.
For large projects, an extra-statutory agreement can be of capital importance in order to facilitate and clarify the relations between shareholders or associates, to organize in a tailor-made way the relations between them and to control the life of the company, while freeing oneself from possible constraints and, by the same token, to avoid possible future conflicts
II.2 Limits of an extra-statutory agreement and its position in relation to the articles of association
Contractual freedom in the area of extra-statutory agreements comes up against the articles of association as well as the respect and protection of the company’s interests. Article 2-1 of the aforementioned AUSCGIE states that an extra-statutory agreement may not derogate from the mandatory provisions of either the AUSCGIE or the articles of association.
Thus, for example, it is not possible to derogate in an extra-statutory agreement from the legal duration of a company, which cannot exceed 99 years,[3] nor from the obligation to make contributions to each partner or shareholder[4] or to propose a cause of nullity of the company other than those provided for in the AUDSCGIE[5] or to authorize prohibited agreements[6].
Moreover, the articles of association of a company are in principle sufficient in themselves, which does not prevent them from interfering in the life of the company if an extra-statutory agreement has been entered into. However, in the absence of the company’s articles of association, an extra-statutory agreement is devoid of purpose and thus reveals an apparently subordinate position. There is therefore a certain hierarchy in the role played by each contract within the partnership agreement-extra-statutory agreement pair.
- LAW APPLICABLE TO EXTRA-STATUTORY AGREEMENTS AND CASES OF CONTRADICTION WITH THE ARTICLES OF ASSOCIATION
II.1 Law applicable to extra-statutory agreements
It should be said straight away that extra-statutory agreements are governed by ordinary contract law, i.e. by the national provisions relating to contracts and the general system of obligations.
Indeed, although no formalities are imposed for their drafting or modification, these agreements, being subject to ordinary law, are subject to the conditions for the validity of an agreement: the consent of the party who obliges himself, his capacity to contract, a certain object which forms the subject-matter of the commitment and a lawful cause in the obligation.
II.2 Cases of contradiction between an extra-statutory agreement and the articles of association
We recall that under the terms of article 2-1 AUDSCGIE, an extra-statutory agreement may not derogate from the mandatory provisions of the said uniform act or from the company’s articles of association.
Thus, extra-statutory agreements cannot, in principle, contradict the company’s articles of association. But what if the parties to an extra-statutory agreement indicate in the articles of association something different from that contained in the extra-statutory agreement? And what are the consequences for the company if an extra-statutory agreement contradicts the articles of association?
II.2.1. What if the parties to an extra-statutory agreement indicate in the articles of association something different from that contained in the extra-statutory agreement?
It is possible to conclude an extra-statutory agreement with a different wording from that of the articles of association, if this wording does not contradict a mandatory provision of the AUDSCGIE, in which case the agreement would not meet the condition of lawfulness of a contract. Under these conditions, the act must have the character of a counter-letter, as a simulation of the parties’ will.
Simulation or counter-letter is considered to be a concerted lie between contracting parties who conceal the contract which contains their real will behind an apparent contract. [7] Thus, there are two agreements: one that is ostensible but untrue, and one that is sincere but secret. From this point on, a problem arises: since the ostensible act and the secret act contradict each other in whole or in part, it is necessary to find out which one will prevail.
Although it is a lie, most of the laws of the Romano-Germanic family[8] recognise the counter-letter as a genuine agreement between the parties, but which cannot be set up against third parties because they have not known about it, and this rule is necessary to protect them.
We cite, by way of example, the provisions of article 203 of the Congolese Civil Code of Obligations[9], those of article 1321 of the Ivorian Code of Property and Obligations[10] and 111 of the new Senegalese Code of Civil and Commercial Obligations[11].
It should be noted that Community law is not unaware of the existence and scope of counter-letters, since article 158 of the Uniform Act on General Commercial Law states in substance: “Any counter-letter or agreement the object of which is […]”[12] is null and void.
Thus, the partners or shareholders may, for example, opt in the articles of association for a limited liability company, which will be an apparent contract,[13] i.e., an ostensible act, whereas in the extra-statutory agreement in the form of a counter-letter, it will be stipulated that the liability is unlimited. But such a counter-letter will not be enforceable against third parties; it will be binding on the partners or shareholders.
The same applies to arbitration clauses. During operations involving multinational groups, investors choose to associate through a foreign vehicle and conclude for this purpose a main extra-statutory agreement organizing the relations between the shareholders at the level of the foreign holding company. As the said agreement most often contains terms and conditions for the organization of local subsidiaries, the question arises as to the recognition of extra-statutory agreements under foreign law in the OHADA area.
Since the OHADA Act recognizes the validity of extra-statutory agreements without adding any specific conditions relating to their formation or the law to which they must be subject, it is necessary to systematically refer to the contract law of the State party in which the company is registered to verify whether it recognizes the validity of extra-statutory agreements subject to a foreign law chosen by the shareholders. Such agreements may generally be recognized as valid where there is a legitimate interest in choosing a foreign law and provided that they do not contravene the public policy provisions of the party state.
II.2.2. What are the consequences for the company if an extra-statutory agreement contradicts the articles of association?
The existence of an extra-statutory agreement in the form of a counter-letter has no consequences for the validity of the company. The autonomy of the will[14], which requires that the real will of the parties be respected, prevails in relations between the parties. However, in relations with third parties, this first consideration comes up against the requirements of legal certainty.
Thus, while the counter-letter is valid between the parties because it expresses their real will, it cannot be relied on as against third parties because the latter, having known only the apparent act, were able to determine themselves only by reference to it. This rule is necessary to protect third parties, and the counter-letter is not enforceable against them unless it is unfavourable. If the counter-letter is more favourable to them, they may avail themselves of it.
Simulation is not in itself unlawful. It only becomes so when it is used to undermine public policy[15]. 15] Public policy includes the legal provisions applicable in this area. The main provision is that of article 242 AUDSCGIE which provides: “The nullity of a company may only result from a provision of this Uniform Act expressly providing for it or, subject to the provisions of the following paragraph, from the texts governing the nullity of contracts. “
Thus, even if the drafting of an extra-statutory agreement is free, the assistance of a legal expert: a lawyer, legal adviser or notary with extensive experience of company law, nevertheless appears to be indispensable, especially when the interests at stake are enormous. They can identify the mandatory provisions providing for the nullity of a company under OHADA law as well as, more specifically, the provisions governing the nullity of contracts in each OHADA State Party.
III. CONCLUSIONS
The organization of a company is not limited to its statutory provisions. Extra-statutory agreements supplement and specify the provisions of the articles of association, with a view to operational efficiency.
An extra-statutory agreement is a tailor-made tool, the provisions of which can be exactly adjusted, within the limits of public policy and according to the skill of their drafter, to the specific needs of their signatories.
An extra-statutory agreement aims essentially at organizing the relations between partners, the composition of the corporate bodies, the conduct of the company’s business, the access to the company’s capital and the transfer of the company’s shares. It allows to solve conflicts and to protect common interests.
It can be signed by all the partners or shareholders of the same company, or by one party only. It is a “secret” act insofar as it is not known to third parties, with most often an obligation of confidentiality binding the parties. Thus, unlike the articles of association, it does not have to be filed with the clerk of the commercial court and does not have to be advertised.
As the extra-statutory agreement is a contract that binds only its signatories, it cannot be set up against third parties. It is subject to the conditions of validity of the contract. However, in the form of a counter-letter, it may contain clauses that go against the articles of association or non-mandatory provisions of company law. In this case, it can only be enforced against the signatories and not against third parties who were not aware of it. As a flexible contract, it can be modified by a simple amendment, signed by the parties to the agreement.
By Maitre Trésor Ilunga Cibamba
Lawyer at the Court of Appeal
1] In practice, the terms pact, protocol, agreement, charter, convention, etc. are used indiscriminately, as is the diversity of the terms used to designate the organization of relations between shareholders and partners. In this study, we will use the term “extra-statutory agreement” to designate these agreements between shareholders or partners. This term has no precise technical meaning. It is generally used to designate a solemn, complex agreement intended to establish lasting relations between shareholders or partners.
2] By OHADA law, we mean the law resulting from the Treaty signed in Port-Louis (Mauritius) on 17 October 1993 and amended at the Summit of Heads of State in Quebec City on 17 October 2008, the Treaty on the Harmonization of Business Law in Africa (OHADA). More specifically, in this study, this law will refer to the Uniform Act relating to the Law of Commercial Companies and Economic Interest Groups (EIG). This Uniform Act, which sets out the rules governing the operation of commercial companies and EIGs, constitutes the law of commercial companies in all the Contracting States.
3] article 28 of the AUDSCGIE
4] Article 37 of the AUSCGIE
5] Article 242 of the AUSCGIE
6] Article 450 of the AUSCGIE
7] H. Capitant, F. Terré and Y. Lequette, Les grands arrêts de la jurisprudence civile, Tome 2, 12th Ed. Dalloz, Paris, 2008, p. 215
8] Of the various families into which the laws of the contemporary world may be grouped, the family of Romano-Germanic law is of considerable importance. It includes all the laws of continental Europe and Latin America (with the exception of countries with Marxist-inspired regimes), those of French-speaking Africa and Madagascar, the Arab countries and Iran, and also those of Japan, Indonesia and Indochina (with certain reservations concerning areas where Muslim law or traditional indigenous customary law continues to apply). French law belongs to this family and is the best known and most imitated type in the world.
9] Art. 203 Congolese Civil Code of Obligations (DRC): “Counter-letters can only have effect between the contracting parties; they have no effect against third parties.
10] Article 1321 of the Ivorian Code of Property and Obligations: “Counter-letters can only have effect between the contracting parties: they have no effect against third parties.
[11] Article 111 new Senegalese Code of Civil and Commercial Obligations: “Unless otherwise provided by law, simulation is not a cause of nullitý, and the contracting parties must perform the obligations resulting from any counter-letter modifying the stipulations of the apparent act.”
[12] Article 158 AUDCG
13] Article 12 of the AUDSCGIE considers the articles of association to be a contract, in the case of a plurality of partners.
14] Autonomy of the will implies the freedom of any person to contract or refuse to contract, to determine by mutual agreement the content of the contract, within the limits of public policy and good morals, and to express his will in any form whatsoever when there is an exchange of consents.
15] H. Capitant, F. Terré and Y. Lequette, op. cit. Lequette, op. cit. p. 219.
