Structuring the governance of a family or growing company

Shareholders, management, board: who does what

In an SARL, which has between one and fifty shareholders (Arts. 44 and 47 of Law No. 5-96), the shareholders decide in general meeting and management is entrusted to one or more managers (gérants), who are natural persons and may or may not be shareholders; unless the articles set a term, the manager’s term of office is three years (Art. 62). Ordinary decisions are taken by shareholders representing more than half of the shares (Art. 74). Amending the articles requires at least three quarters of the capital (Art. 75), and removing the manager a decision of shareholders representing at least three quarters of the shares (Art. 69).

The articles may limit the manager’s powers, but these limits cannot be relied on against third parties: towards a bank or a supplier, the manager binds the company (Art. 63). They apply as internal rules, and a manager who disregards them incurs liability (Art. 67).

In an SA, which has at least five shareholders (Art. 1 of Law No. 17-95), a board of directors of three to twelve members (Art. 39) sets the direction of the company’s business and oversees its implementation (Art. 69). Executive management lies either with the chair of the board or with a separate chief executive (directeur général); the board chooses between the two, on the terms set by the articles, and non-executive directors must outnumber executive directors (Art. 67). Since 2019, the law has provided for independent directors, mandatory in companies that make public offerings of securities and optional in others (Arts. 41 bis and 41 ter). Since 2021, it has called on companies to seek a balanced representation of women and men on the board (Art. 39). The articles may also opt for a management board and a supervisory board (Art. 77).

The SAS, added to Law No. 5-96 by Law No. 19-20 (dahir of 14 July 2021), leaves it to the articles to set its organisation and operation freely (Art. 43-4). It is represented towards third parties by a president (Art. 43-8) and may not make public offerings of securities (Art. 43-3). This flexibility shifts onto the articles everything the law does not settle.

Alongside the statutory bodies, nothing prevents a company from setting up an advisory committee — a few people, some of them from outside the family, with no decision-making power — which gives its opinion on strategy, the accounts or major investments. In an SARL, where the law provides for no board, it is often the first step towards more collective governance. Its role is best set down in writing; it takes the place of neither the general meeting nor the management.

The shareholders’ agreement

The agreement is a contract. It has the force of law for those who entered into it (Art. 230 of the Dahir forming the Code of Obligations and Contracts), binds only the parties (Art. 228) and in principle takes effect with respect to their heirs, unless otherwise stipulated (Art. 229) — a situation worth providing for expressly. A shareholder who comes in by purchase or by subscription is bound only if they accede to it. For the SA, the law specifies that agreements between shareholders must be recorded in writing (Art. 11 of Law No. 17-95).

The agreement supplements the articles without being able to set aside a mandatory rule of law, and generally remains confidential. Drafting it is the lawyer’s work; thinking about what the family wants to organise can begin well before. What it usually covers:

• Governance: the composition of the board or the committee, appointment rights, important decisions subject to a qualified majority or to the agreement of each branch of the family.
• Information: interim accounts, budget, dashboards, beyond the legal minimum.
• Transfers of shares: pre-emption, temporary lock-up, tag-along.
• Exit: the conditions of a buy-back, and the method for setting its price, in the event of departure, lasting disagreement, death or incapacity.
• Disagreements: stages of discussion, mediation, then arbitration or the courts.
• The family: the conditions on which spouses and descendants may enter the capital and take up management positions.

Providing for the unexpected, and the transfer of shares

If the sole manager of an SARL dies or leaves office, the general meeting that must appoint a successor can be convened only by the statutory auditor, if there is one; failing that, the route is through the president of the court, to whom the law allows an application in summary proceedings (référé) for the appointment of an agent to convene it (Art. 71). Co-management — the law allows several managers (Art. 62) — or replacement rules written in advance avoid this vacuum. In an SA, the board may fill a vacant director’s seat provisionally (Art. 49) and delegate a director to act as chair if the chair is prevented from acting or dies (Art. 66).

As regards the capital, SARL shares pass freely on succession, but the articles may make the entry of heirs subject to approval (Art. 56 of Law No. 5-96). In an SA, an approval clause cannot apply to a transfer on succession (Art. 253), and heirs holding shares jointly (in indivision) must appoint a common representative (Art. 252 of Law No. 17-95). The devolution of the estate itself follows the rules of succession, on which the adoul, the notary and the lawyer are the people to consult; governance, for its part, organises what happens within the company.

Take an SARL whose three shareholders are the founder and their two children, and whose founder has been the sole manager for twenty years. A first piece of work consists in rereading the articles in the light of the current texts, writing down who decides what in practice, considering what would happen if the manager were prevented from acting, and then choosing together what to organise: an advisory committee, a shareholders’ agreement, a transitional co-management or a change of legal form — conversion to an SAS requires the unanimous agreement of the shareholders (Art. 43-2).