IBA Guide on Shareholders’ Agreements
Venezuela
Elisabeth Eljuri and Daniela Jaimes
Despacho de Abogados miembros de Norton Rose Fulbright, S.C.
1. Are shareholders’ agreements frequent in Venezuela?
The execution of shareholders’ agreements is becoming more and more frequent between the
shareholders of large companies in Venezuela. This trend arises, among other reasons, from the
difficulties with registering shareholders’ meeting resolutions with commercial registries in
Venezuela. Additionally, they are frequently used when the shares in a company are held in equal
proportions by the shareholders.
2. What formalities must shareholders’ agreements comply with in Venezuela?
Shareholders’ agreement are not specifically regulated under Venezuelan corporate law, therefore,
other than those rules provided in general for contracts by general civil law, there are no formal
specific requirements that must be complied with for such agreement to be valid between the
parties.
Generally speaking, and in the opinion of the majority of the Venezuelan commentators, these
agreements are valid to the extent that they do not contravene public policy norms or mandatory
provisions. Furthermore, as regulated by general civil law they must meet the requirements for
existence of a valid contract provided in the Venezuelan Civil Code (Art 1.141): (i) consent by the
parties; (ii) object; and (iii) lawful cause.
3. Can shareholders’ agreements be brought to bear against third parties such as
purchasers of shares or successors?
Under Venezuelan law, the general principle established in the Venezuelan Civil Code (Art 1.166),
is that agreements are only binding between the signatories of such agreement and therefore
cannot be brought against third parties (principio de relatividad de los contratos). It is also clear that
as a matter of Venezuelan law, in the event of a contradiction between the shareholders’ agreement
and the articles of incorporation/by-laws of the company, the latter prevail.
Therefore, it is standard practice to include the key rules applicable to operation and management
in both the shareholders’ agreement and the articles of incorporation/by-laws.
However, the Civil Code (Art 1.163) excludes successors from the definition of ‘third parties’ since it
expressly provides that those who execute contracts do so in their own name and in the name of
their successors. Therefore, it can be concluded that shareholders’ agreements can be brought only
against the parties themselves, or their successors.
4. Can a shareholders’ agreement regulate non-company contents?
Yes. Under Venezuelan law, shareholders’ agreements can regulate non-company contents as long
as such content is not contrary to public policy rules and the purpose and interests of the company
to which such agreement pertains.
5. Are there limits on the term of shareholders’ agreements under the law of Venezuela?
Venezuelan laws do not provide a limit on the term of shareholders’ agreements. In fact, in practice,
the term of shareholders’ agreements can even exceed the duration of the company to govern any
surviving clauses of the by-laws or any pending matters (e.g., collection rights or future litigations)
that the company may have after it has been terminated or liquidated.
6. Are shareholders’ agreements related to actions by directors valid in Venezuela?
In principle, the legality of voting trusts, for instance, has been highly contested among
commentators. Therefore, there are special ways to achieve a similar result that are best included in
any agreement among shareholders. In any case, shareholders’ agreements related to actions by
the directors of the company (as opposed to actions of the shareholders) are valid in Venezuela as
long as the directors act in the best interest of the company and not of the shareholders who
nominated them for such office. In this sense, it must be taken into consideration that under
Venezuelan corporate laws, the administration of the company is usually carried out by the board of
directors, which is an independent body of the company, and whose members are subject to certain
responsibilities towards the company. The directors shall act in accordance with the by-laws of the
company and if they fail to do so, they are personally responsible towards third parties and the
company. Therefore, clauses related to actions by directors in shareholders’ agreements must be
carefully reviewed.
7. Does the law of Venezuela permit restrictions on transfer of shares?
The Venezuelan Commercial Code (Art 296) establishes that ownership of shares in a company is
proven by the stock registry book of the company and that their transfer is made through a
declaration evidenced in such books which must be signed by the assignee and the assignor.
Corporate laws do not prohibit restrictions on the transfer of such shares and in practice these
restrictions are usually included either in the by-laws of the company or in both the by-laws as well
as the shareholders’ agreements (for enforceability you need to include it in the by-laws).
In fact, restrictions on transfer of shares are one of the main issues that tend to be covered by
shareholders’ agreements in Venezuela.
8. What mechanisms does the law of Venezuela permit for regulating share transfers?
One of the mechanisms provided for in the Venezuelan Commercial Code (Art 317) regarding
regulations on share transfers is the right of first refusal whereby the shareholder wishing to sell to a
third party must first offer the shares to the holder of the first refusal right. If the holders of the right
do not buy the shares, the shareholder normally can freely sell to a third party. Also, Venezuelan
laws governing other highly regulated industries such as banking, insurance and hydrocarbons,
contain specific mechanisms regulating the transfer of shares of companies that are engaged in
developing those activities.
In practice, other restrictions can be established in the by-laws of the company or through the
execution of shareholders’ agreements. These restrictions may include for example the approval or
consent of another specific shareholder or the board of directors, or the obligation to re-sell to the
other shareholders if certain circumstances are met. In this sense, it is important to point out that
whatever mechanisms are established in shareholders’ agreements regarding limitations on share
transfers, must never be as strict as to the point where such shares can be considered nontransferable.
9. In Venezuela do by-laws tend to be tailor-drafted, or do they tend to use standard formats?
This determination depends on the purpose of the company to be incorporated. In practice, usually
small and medium corporations tend to use standard formats whereby the administration of the
company is generally vested in one or more officers such as a General Manager or a board of
directors (and additional officers), and shareholders’ rights depend on the participation of each
shareholder in the company. On the other hand, the by-laws of larger companies incorporated for
specific projects tend to be more sophisticated when regulating these matters.
10. What are the motives in Venezuela for executing shareholders’ agreements?
In practice, in Venezuela shareholders’ agreements are executed for the following main reasons: (i)
they are more flexible documents than by-laws since they are easy to execute and amend given
that no formalities must be complied with for these agreements to be valid; (ii) these agreements do
not require being registered with any authorities which provides shareholders certain comfort in
regulating confidential issues; (iii) the parties can choose applicable laws and jurisdiction different
from Venezuela; (iv) used to regulate issues which are not customary to be included in the articles
of incorporation/by-laws or to complement in more detail general issues regulated in the articles of
incorporation/by-laws; and (v) other parties (such as parent companies of the shareholders) can be
made party to the agreement.
11. What contents tend to be included in shareholders’ agreements in Venezuela?
In Venezuela, shareholders’ agreements tend to be executed for: (i) financing matters since these
agreements can contain the promise of the parties to decide upon future capital increases of the
company or to provide financing to the company up to a certain amount, for a certain time and
under certain conditions; (ii) management matters specifically related to exercise of voting rights,
regulation of the functions of the shareholders’ meeting, matters related to members of the board of
directors or statutory auditors; (iii) conditions regarding the obligation for some shareholders to
remain as such for a determined period of time; (iv) conditions regarding the transfer of shares or
preferential rights for selling such shares; and (v) the way in which the company will be liquidated or
in which the assets will be distributed to the shareholders in the event of liquidation of the company.
12. What determines the content included in shareholders’ agreements in Venezuela?
Under Venezuelan Law, the content of the shareholders’ agreements will be determined by the
parties, which usually take the following issues into consideration when drafting shareholders’
agreements: (i) identity of shareholders and relationship between them (e.g., agreements between
related companies); (ii) determination of the applicable laws and jurisdiction based on the
experience and level of development that foreign laws may have with regards to the regulatory
framework for the specific matters included in the shareholders’ agreement; (iii) impact and risks of
the projects to be developed by the company under the shareholders’ agreement; and (iv)
percentage of shareholders participation in the company.
13. What are the most common types of clauses in shareholders’ agreements in Venezuela?
Venezuelan shareholders’ agreements usually contain clauses regulating: (i) jurisdiction and
applicable law; (ii) election of directors; (iii) voting rights (qualified majority) and deadlocks; (iv)
activities to be undertaken by the company and future projects; (v) company’s form of financing and
the shareholders’ obligations; (vi) exercise of share preference or purchase-sale rights; (vii)
establishing particular rights of certain shareholders such as nominating certain executives, selling
the company certain inputs with a preference, or receiving certain periodic information; and (vii)
appointment of managing positions other than those provided for in the by/laws of the company.
14. What mechanisms does the law of Venezuela permit to ensure participation of minorities
on the board of directors and its control?
Under Venezuelan corporate law, minority shareholders are not granted any special rights or
protections in respect of their participation in the board of directors or control of the company.
Currently, Venezuelan law only provides for certain protection of minority shareholders of publicly
listed companies, and jurisprudence has developed minority shareholders rights with regards to the
information of the company that must be available to such shareholders.
Therefore, in most cases majority shareholders exercise an absolute control that impedes minority
shareholders to exercise certain rights or exercise any power. In order to avoid this situation,
precisely certain rights may be provided for the minority shareholders in the by/laws and
shareholders’ agreements (e.g., division of shares into series or classes, cumulative voting, special
majorities and voting agreements).
15. Is it possible in Venezuela to ensure minority shareholder control by means of a
shareholders’ agreement?
Yes. Indeed this can be achieved through shareholders’ agreements or through amendments of the
by-laws of the company. Control of minority shareholders is usually accomplished by dividing the
shares of the company into classes and by granting these classes different types of powers in order
to be able to have some control in the company such as, for example, the right for minority
shareholders to choose some members of the board of directors.
In Venezuela, it is a common practice to grant foreign investors which are minority shareholders in
companies qualified as national or mixed under foreign investments laws, some control in the
administration of the company.
16. What are the usual valuation mechanisms in connection with rights of first refusal or
share transfer regulations?
Although this is a matter for negotiation, in Venezuela there are various mechanisms used for
valuation as well as different valuation criteria. In terms of mechanism for valuation, sometimes it
involves the use of experts and sometimes it simply involves the application of one of the following
criteria or a combination of the latter. The three valuation criteria which are most commonly used by
companies to determine the value of its shares depending on the transaction are explained below.
The Venezuelan Commercial Code makes several references as to the ‘value’ of the shares of
companies, as it establishes for example that all of the shares in which the capital stock of the
company is divided shall have the same value and shall give its owners the same rights, unless
otherwise agreed by the shareholders (Art 292); or when providing that the responsibility of the
shareholders of a company is limited to the value of the shares owned by each shareholder (Art
201). However, the aforementioned provisions refer to the ‘par value’ of shares which results from
dividing the capital stock of the company between the number of shares of the company, and it is
considered permanent since it only changes when the capital stock of the company is increased or
decreased. Aside from this ‘par value’, shares also have a ‘book value’ which results from dividing
the assets of the company (according to its financial statements) between the number of shares.
Finally, the shares of a corporation have a ‘market value’ which is determined by taking into account
several factors such as the profitability of the shares, the financial stability of the company, the
economy of the country in which the company is located, clients, future expectations of the
company, comparable market value, or expert assessment.
In practice, when regulating rights of first refusal or share transfer regulations in Venezuela, the
most common mechanism provided in shareholders’ agreements for valuation of the shares are
those regarding the market value of the shares at the moment in which the transfer takes place.
17. Is it admissible for a shareholders’ agreement clause to refer dispute resolution to the
courts other than those of Venezuela and/or under a law other than that of Venezuela?
Yes, the incorporation of these jurisdiction and applicable law clauses is allowed under Venezuelan
law as long as it does not breach public policy rules. In fact, in practice this is one of the main
reasons why shareholders’ agreements are executed in Venezuela. In these cases, shareholders
must first check that the law that will govern the agreement in fact permits such choice of law
through the execution of the agreement.
18. Is it admissible for a shareholders’ agreement to include an arbitration clause with seat
outside Venezuela and/or under a law other than that of Venezuela?
Yes, arbitration clauses with seat outside Venezuela or under a law other than that of Venezuela
can be included in shareholders’ agreements in accordance with Venezuela’s Commercial
Arbitration Law, as long as the controversies are not: (i) contrary to public policy rules, or concern
crimes or offences; (ii) concern state functions or public entities; (iii) concern civil capacity or status
of people; (iv) are related to the goods or rights of incapable persons without previous judicial
authorization; or (v) those that have been decided by a final judicial decision, except for economic
consequences derived from the execution of such judicial decision for the parties involved which
have not been determined by the final decision of a tribunal. Moreover, Venezuela’s Private
International Law Statute expressly prohibits seat outside Venezuela in those cases where the
controversy involves rights over real estate located in Venezuela.
Finally, when incorporating an arbitration clause with seat outside of Venezuela and under a law
other than Venezuela into a shareholders’ agreement, it must be taken into consideration that in
Venezuela enforceability of foreign arbitral awards may be subject to certain difficulties.