A large share of disputes between shareholders stems not from bad faith, but from rules that were never written down. Corporate governance is precisely that: the set of rules, bodies and practices that determines how a company is directed and controlled — who decides, by what majorities, within which limits and with what duties of disclosure towards the other shareholders. In a Portuguese SME, where ownership and management frequently overlap, this architecture carries as much weight as the business plan itself.
While the company is growing and its shareholders see eye to eye, few feel the absence of these rules. The problem surfaces when a shareholder wants to leave, when an investor comes on board, when the second generation steps into the business or when two shareholders with equal stakes stop agreeing. At moments like these, the difference between a well-structured company and one left to the default provisions of the Portuguese Companies Code (Código das Sociedades Comerciais) is measured in years of litigation and in value destroyed.
In this article, we explain the two central instruments of corporate governance — the articles of association and the shareholders' agreement — the clauses that add the most value, and why experienced investors examine the rules between shareholders before they examine the accounts.
Articles of Association and Shareholders' Agreements: Different Instruments, Complementary Roles
The articles of association — in Portugal, the contrato de sociedade — are the company's founding document. They are public, subject to registration and binding on the company, its current shareholders and any future ones. It is here that the corporate purpose, the share capital, the governing bodies, the manner in which the company is bound and the rules for transferring quotas (the shareholdings in a Portuguese private limited company) or shares are set out.
A shareholders' agreement (acordo parassocial) is a private contract entered into between shareholders — all of them or only some. It is confidential, flexible and binds only its signatories. It exists to govern matters that have no place in the articles, or that are better kept out of them: voting commitments, dividend policy, exit plans, founder lock-ins, the terms on which managers acquire equity.
Best practice is to use the two together: the essential and the stable in the articles; the dynamic and the confidential in the shareholders' agreement. Bear in mind that, as a general rule, breach of a shareholders' agreement gives rise to liability between the parties but does not of itself invalidate the company's resolutions. All the more reason to design both instruments coherently, with specialist legal support.
The Clauses That Make the Difference
Pre-emption and consent
A right of pre-emption ensures that, if a shareholder wishes to sell their stake, the others may acquire it on the same terms before any third party. Consent clauses go further, making any transfer conditional on the approval of the company itself. Together, they preserve control over who enters the capital — a central concern in family businesses.
Drag along and tag along
In a sale of the company, these two clauses balance opposing interests. A drag along allows the majority to require minority shareholders to sell on the same terms, making it possible to deliver one hundred per cent of the capital — a condition buyers frequently insist on. A tag along protects the reverse position: if the majority sells, minority shareholders are entitled to join the transaction at the same price and on the same terms, rather than finding themselves locked into a company with a new controlling shareholder they never chose.
Deadlock resolution mechanisms
Companies held fifty-fifty by two shareholders are among the most exposed: a single disagreement is enough to block any resolution. Sound corporate design provides the way out of a deadlock before it ever arises, for instance through:
- Mandatory mediation before any contentious route is pursued;
- Cross put and call options, with pre-agreed valuation formulas;
- Recourse to an independent valuer to set the exit price;
- Arbitration, for its speed and confidentiality compared with the ordinary courts.
Good corporate governance goes unnoticed on the good days. It shows on the day the shareholders stop agreeing — and the company keeps running.
Governing Bodies and Corporate Governance Best Practice
The classic structure rests on three functions: the general meeting, where shareholders decide on the fundamental matters; the management or board of directors, which runs the day-to-day business; and supervision, where applicable. The critical point is not the existence of these bodies, but the boundary between them.
Good practice includes defining reserved matters that require shareholder approval or qualified majorities: borrowing above a given threshold, the sale of core assets, the admission of new shareholders, management remuneration, related-party transactions. In family businesses, an advisory board or a family council helps to separate three roles that tend to blur into one another: shareholder, manager and family member.
Why It Protects Minorities and Eases the Path to Investment
Without specific rules, a minority shareholder is left largely at the mercy of the majority: dividends may be systematically withheld, relevant information kept out of reach, and decisions taken that dilute their position. Enhanced information rights, qualified majorities for structural decisions, tag-along protection and a written dividend policy turn that dependence into predictability.
This is also why corporate governance weighs so heavily in raising capital. Before investing, any institutional investor examines the rules between shareholders: they want to know whether the exit is provided for, whether latent disputes exist and whether resolutions comply with the required formalities. A company with clear rules negotiates from a stronger position and completes transactions faster. The choice of ownership structure — including the possible creation of an SGPS (a Portuguese holding company) to organise family shareholdings — carries tax implications that vary from case to case and should be assessed individually with specialist support.
The Right Moment to Review the Structure
Reviewing articles of association and shareholders' agreements is particularly timely ahead of a capital injection, a reorganisation or a generational transition. If you are preparing to hand the company over to the next generation, this groundwork is inseparable from the process we describe on our Business Succession page.
At Ravina Promissora, we support business owners and business families in reviewing their corporate structure: we analyse the existing documents, identify the gaps and help prepare articles and agreements tailored to the reality of each company. Get in touch through our contact page and book a meeting with our team.