When a Shareholders' Agreement Becomes a Trap: The Risk of No Price in the Drag-Along Clause

Introduction

Three shareholders of a French société par actions simplifiée (SAS) signed a shareholders' agreement governed by French law. This agreement provided for an obligation to sell their shares in the event of an acquisition offer covering 100% of the share capital. Article 6 of the agreement expressly stated that this clause was a promise to sell.

The Dispute

In 2013, one of the shareholders (the "Purchasing Shareholder") offered to buy the shares of the two other shareholders (the "Other Shareholders") for €2,000 each—a price considered to be very low. One of the Other Shareholders refused this offer. The Purchasing Shareholder then invoked Article 6 to compel the sale.

The Court's Decisions

Paris Court of Appeal

Challenging this forced transfer, one of the Other Shareholders initiated legal proceedings, arguing that the agreement did not specify a sale price. The Paris Court of Appeal rejected his claim, considering that Article 6 imposed an obligation to sell but was not a promise to sell. Therefore, the absence of a determined price did not invalidate the transfer.

Court of Cassation

Unwilling to accept this decision, the Other Shareholder appealed to the Court of Cassation. The Court overturned the Court of Appeal's decision, holding that Article 6 was indeed a promise to sell. As such, it was required to include a determined or determinable price. In the absence of such a price, the transfer was invalid. The case was remanded to the Paris Court of Appeal for reconsideration.

Takeaways

The signatories believed they had a well-structured exit clause. However, the absence of a specified price led to an unforeseen dispute. Article 6 of the agreement was intended to ensure a smooth transfer, but its lack of clarity regarding pricing rendered it vulnerable. This ambiguity allowed one shareholder to attempt to impose a sale at a significantly low price. The parties may have underestimated the impact of omitting a determined or determinable price—a critical element under French law. What was intended as a protective mechanism transformed into a coercive tool to force a sale.