PORTUGAL Law and Practice Contributed by: Diana Ribeiro Duarte, Pedro Capitão Barbosa and Catarina Almeida Andrade, Morais Leitão, Galvão Teles, Soares da Silva & Associados
Good leaver provisions are triggered if managers are forced to depart from the company due to extreme circumstances outside of their control (such as seri - ous disease or injury). In turn, bad leaver provisions are usually triggered if managers leave the company without being considered good leavers. In venture capital transactions, vesting provisions (where management is prevented through contrac - tual means from fully owning the equity participa - tions acquired/subscribed in the transaction) are also included in the relevant shareholders’ agreement. The vesting period will be three to four years, with a one- year cliff (whereby some shares vest) and two to three years of “linear” vesting (for the remaining shares). If the manager is deemed a bad leaver, private equity sponsors will be granted the right to purchase their shares at nominal value. If, however, the manager parts ways with the company as a good leaver (and the agreement is negotiated in a balanced manner), private equity sponsors will usually be required (or have the right) to purchase the manager’s shares at fair value. 8.4 Restrictions on Manager Shareholders Management shareholders frequently commit to non- compete and non-solicitation undertakings. From an employment law standpoint, these raise concerns by restricting fundamental rights to work and the pursuit of professional livelihood – and from a competition law standpoint, by stifling competition. Therefore, they may be subject to limitations. With the recent United States Federal Trade Commission ban on non-com - pete agreements in employment relationships, further developments might also arise at the level of the EU. A non-compete clause is subject to the following statutory restrictions: • it must be entered into in writing; • it has a time limitation of two years (extendable to three years in certain cases); and • it must allow consideration to be given to the employee/director in exchange for accepting the clause.
Non-disparagement clauses, where managers agree to not make negative public statements regarding the company, are unusual. Restrictive covenants have the flexibility to be includ - ed in multiple documents, encompassing both the equity package and the employment contract. They can be integrated into the shareholders’ agreement or other equity-related documentation, specifying the roles and responsibilities of management sharehold - ers. Furthermore, these covenants can also be seam - lessly integrated into the employment or administra - tion contracts of the management team, effectively governing their conduct throughout and after their tenure with the company. 8.5 Minority Protection for Manager Shareholders Manager shareholders, when holding minority partici - pations, are usually provided with contractual protec - tions (in the transaction documents – most notably shareholders’ agreements) to ensure the integrity of their investments. In the first instance, managers will usually be entitled to be appointed to the company’s board of directors (with executive functions). Veto Rights Sometimes, manager shareholders are afforded veto rights in shareholders’ decisions (share capital increases, issue of options, etc) to prevent the com - pany from engaging in dilutive transactions for the management. It is common practice to use veto rights and legal pre-emption rights to prevent dilution of manager shareholders in share capital increases. Managers also hold veto rights (in both shareholders’ meetings and board of directors’ meetings) to prevent a private equity sponsor from unilaterally taking fundamental decisions regarding the company’s governance (eg, amending the by-laws), legal characteristics (eg, transforming, merging or demerging the company) and strategy (eg, amending the business plan). These veto rights are typically structured either around a shareholders’ agreement (where the protection is
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