Shareholders' agreements: how to protect your investment in a Dominican company

1. What the law already guarantees

• Information: a partner holding at least 5% of the capital may review the company's financial position and accounts at any time (art. 36).
• In an SRL (limited liability company), transferring quotas to third parties requires the consent of partners holding at least three quarters of the quotas (art. 97).
• Pre-emptive right to subscribe new quotas or shares in proportion to your holding when capital is increased.
• In an SRL, partners holding one tenth of the capital may ask the court to appoint a statutory auditor (art. 130), and in an SA shareholders with one tenth of the subscribed and paid-in capital may call a meeting.

These protections are valuable, but they are designed for any company. A foreign minority partner needs rules tailored to the investment.

2. The clauses we recommend

• Reserved matters: decisions that require your approval, such as borrowing above a set amount, selling key assets, related-party contracts or changing the corporate purpose.
• Enhanced information: quarterly financial statements, access to bank statements and the right to an annual independent audit.
• Transfer restrictions: right of first refusal and, where appropriate, prior approval before a partner sells to a third party.
• Tag-along: if the majority partner sells, you can sell on the same terms.
• Drag-along: if there is a good offer for 100% of the company, the agreement sets how and by what majority all partners are required to sell.
• Deadlock: a way out of a tie on key decisions, such as mediation, an independent tie-breaker or a buy-sell option between partners.
• Exit: call and put options, and a valuation formula agreed in advance.
• Non-compete and confidentiality obligations for the partners who run the business.

3. The agreement and the bylaws must say the same thing

The agreement binds those who sign it, while the bylaws govern the company and can be relied on against third parties. That is why the key protections, such as transfer restrictions, qualified majorities and reserved matters, should also be written into the bylaws. If the two documents contradict each other, a dispute is almost guaranteed.

The simplified joint-stock company (SAS) allows more freedom to build these mechanisms into its bylaws, which makes it attractive when foreign capital comes in.

4. How disputes are resolved

A well-drafted agreement provides for arbitration. Commercial Arbitration Law 489-08 allows arbitration of matters that the parties may freely dispose of, and where there is an arbitration agreement the ordinary courts must decline jurisdiction. For a foreign investor, arbitration offers speed, confidentiality and the option to proceed in English.

5. How we handle it

1. We understand your position: what you contribute, what you control and how you plan to exit.
2. We review the current bylaws and the company's history.
3. We draft the agreement and the required amendments to the bylaws, in Spanish with an English or French version if you wish.
4. We handle the signing, the shareholders' meeting and the filing with the Commercial Registry.