Vesting in corporate law

By means of Official Letter 220-024296 of February 20, 2017, the Superintendence of Companies answered a consultation from a citizen regarding the existence of "vesting" (or "vesting agreement") in Colombian corporate law.

In such consultation, he asked whether "is it possible to defer in time the delivery or transfer of the participation (shares, quotas, parts of interest) to a partner, an agreement better known as "vesting"?".

In response to such consultation, the Superintendency indicated that "The so-called "vesting" or "vesting agreement" is not expressly established in the Colombian legislation. In contemporary doctrine, "vesting" is a term of Anglo-Saxon origin that essentially describes an agreement between partners, a pact, which seeks to set a time of permanence in a company by the partners in order to receive all the quotas or shares that have been previously agreed or may also be conditioned to the fulfillment of certain objectives. In this understanding, (...) it must be inferred that, being an agreement among shareholders, it would be valid among those who subscribe it, but it could not set parameters that lead to modify the way of integrating the capital in the different types of companies established by the Colombian legislation.

For example, in limited liability companies where the capital must be paid in full upon incorporation of the company or upon any increase thereof; consequently, the holder of the corporate quotas has them from the moment they are paid, so it would not be feasible to make the receipt of their quotas subject to the permanence in the company for a certain period of time".

Before analyzing the position of the Superintendency, it is convenient to explain the use of the figure in the context of the agreements of partners or shareholders.

Vesting is a figure widely used in corporate ventures. Through it, two shareholders that constitute a company may agree that, if certain events occur, one of them will have an option to subscribe a shareholding in the company, or to acquire all or part of the shares of the other.

For example, two shareholders form a Simplified Joint Stock Company (S.A.S.) to carry on a professional services business. Each shareholder subscribes 50 shares out of 100. It is agreed that if in the year following the year of incorporation, one of them has not complied with certain indicators (attainment of clients, hours billed, processes completed, etc.) the compliant shareholder will have the right to acquire all or part of the shares of the non-compliant shareholder at a certain price, or to subscribe preferentially shares in the company, thus diluting, naturally, the non-compliant shareholder.

Although the Superintendency recognizes that in use of the private autonomy of the will, the parties may agree on this type of agreements, it is emphatic in emphasizing that such agreements may not affect the right of ownership when it is consolidated, as it happens in the transcribed example of the limited liability company.

Thus, in matters of shares (not quotas), and especially in the case of an S.A.S., where the mandatory rules are the exception, thus allowing the parties to prevail over what they have established in the bylaws, this mechanism becomes a very interesting tool to implement shareholder agreements.