Minority shareholders have more influence than many think
Despite all this emphasis on majority control, we should not forget that the law provides minority shareholders with certain rights of control over the company in which they have invested. In my last article, I reviewed the rights of the holder of at least one share of stock in a Polish joint stock company. In this second part of the series, I will focus on the statutory rights of the owner(s) of at least 10% and 20% of the stock in a joint stock company.
A shareholder or a group of shareholders representing at least 10% of a joint stock company's share capital ("10% shareholders") are granted a number of protections with respect to internal governance matters. When a company is being founded, a subscriber or subscribers (future shareholders) of non-preferred shares amounting to one tenth of the share capital may question the company's founders' valuation of non-cash contributions made by other subscribers. If a subscriber believes that the value of an in-kind contribution is overestimated by more than 20%, she may request the establishment of a special commission to review this issue. One member of this commission may be appointed by the subscriber requesting the audit. Using the written report of the company's founders on the value of the in-kind contribution as a base, the commission is charged with preparing its own valuation of the contribution. If the commission determines that the founders' valuation significantly (by at least 20%) differs from its own, the shareholders meeting called to establish the company will need to vote on whether the company should be established despite this irregularity.
Once a company is established, 10% shareholders have a right to force the convening of a shareholders meeting. The Commercial Code sets forth a simple procedure. The requesting shareholders must submit a written motion to the management board, which, pursuant to this motion, is required to organize a shareholders meeting. If a meeting is convened pursuant to a minority shareholder initiative, those requesting the meeting are responsible for preparing the agenda. A company's charter may grant this right to shareholders holding a lesser percentage of shares.
As a continuation of this theme, the Commercial Code grants 10% shareholders a right to add items to the agenda of the next shareholders meeting. At the meeting, 10% shareholders may propose a motion to verify whether the list of shareholders attending is correct and whether all in attendance are entitled to participate. If this is proposed, the list is checked by a special commission, consisting of at least three persons.
Finally, in the event that the company falls upon hard times and goes into liquidation, there is a risk that the rights of shareholders could be infringed. To address this concern, the Commercial Code grants 10% shareholders the right to petition for the appointment of one or two additional liquidators. The petition must be submitted to a court, which decides whether the appointment of additional liquidators is necessary. If the court dismisses the petition, the petitioners may file a complaint. It should also be mentioned that the Commercial Code allows any concerned person to file a motion with a relevant court for the dismissal of the existing liquidators of a company and the appointment of new ones.
A minority of shareholders representing at least 20% of a company's share capital is required to exercise an additional three statutory rights of shareholders, all of which relate to control over supervisory bodies.
One of them is unusual because it allows the minority not only to make a motion, but in essence, decide against the will of the rest of the shareholders. Pursuant to the Commercial Code, 20% shareholders may make a motion to vote at the next shareholders meeting, on a resolution regarding the appointment of a second supervisory body. The management board may not refuse to hold a vote on this motion. The appointment of a second supervisory body, which could be either a supervisory board or an audit committee, depending on which body already exists in the company, requires an amendment to the company's charter. Normally, an amendment to a charter requires approval by a three-quarters majority of votes cast at the shareholders meeting. A vote on a minority shareholder motion to appoint a second supervisory body is the only exemption from this rule. Even if the majority of shareholders vote against the resolution to appoint a second supervisory body, the resolution will, nevertheless, be deemed adopted as long as shareholders representing at least 20% of share capital vote for the adoption of the resolution.
The other two rights are similar and provide for the possibility to demand voting in shareholder groups in connection with the appointment of members to a supervisory board or audit committee. The petition to vote in shareholder groups may be submitted by 20% shareholders with respect to the supervisory board and, with respect to the audit committee, by at least 20% of votes present at the respective meeting. If the petition complies with the Commercial Code, it is binding. Minority shareholders may create their own groups to appoint members to supervisory bodies. In the case of the supervisory board, the number and size of the groups depends on the number of members of the supervisory board that are to be appointed. The number of groups during voting on members of an audit commission is always the same because this body must consist of five members.
In conclusion, minority shareholders need not resign themselves to merely passive roles in a company. By becoming familiar with the provisions of the Commercial Code, in particular with the rights of minority shareholders of a joint-stock company, a minority shareholder may enjoy a real degree of influence over the affairs of the company.
This article was prepared by Lejb Fogelman, managing partner of Hunton & Williams Poland, with the assistance of Izabela Klaus, an associate attorney.
A shareholder or a group of shareholders representing at least 10% of a joint stock company's share capital ("10% shareholders") are granted a number of protections with respect to internal governance matters. When a company is being founded, a subscriber or subscribers (future shareholders) of non-preferred shares amounting to one tenth of the share capital may question the company's founders' valuation of non-cash contributions made by other subscribers. If a subscriber believes that the value of an in-kind contribution is overestimated by more than 20%, she may request the establishment of a special commission to review this issue. One member of this commission may be appointed by the subscriber requesting the audit. Using the written report of the company's founders on the value of the in-kind contribution as a base, the commission is charged with preparing its own valuation of the contribution. If the commission determines that the founders' valuation significantly (by at least 20%) differs from its own, the shareholders meeting called to establish the company will need to vote on whether the company should be established despite this irregularity.
Once a company is established, 10% shareholders have a right to force the convening of a shareholders meeting. The Commercial Code sets forth a simple procedure. The requesting shareholders must submit a written motion to the management board, which, pursuant to this motion, is required to organize a shareholders meeting. If a meeting is convened pursuant to a minority shareholder initiative, those requesting the meeting are responsible for preparing the agenda. A company's charter may grant this right to shareholders holding a lesser percentage of shares.
As a continuation of this theme, the Commercial Code grants 10% shareholders a right to add items to the agenda of the next shareholders meeting. At the meeting, 10% shareholders may propose a motion to verify whether the list of shareholders attending is correct and whether all in attendance are entitled to participate. If this is proposed, the list is checked by a special commission, consisting of at least three persons.
Finally, in the event that the company falls upon hard times and goes into liquidation, there is a risk that the rights of shareholders could be infringed. To address this concern, the Commercial Code grants 10% shareholders the right to petition for the appointment of one or two additional liquidators. The petition must be submitted to a court, which decides whether the appointment of additional liquidators is necessary. If the court dismisses the petition, the petitioners may file a complaint. It should also be mentioned that the Commercial Code allows any concerned person to file a motion with a relevant court for the dismissal of the existing liquidators of a company and the appointment of new ones.
A minority of shareholders representing at least 20% of a company's share capital is required to exercise an additional three statutory rights of shareholders, all of which relate to control over supervisory bodies.
One of them is unusual because it allows the minority not only to make a motion, but in essence, decide against the will of the rest of the shareholders. Pursuant to the Commercial Code, 20% shareholders may make a motion to vote at the next shareholders meeting, on a resolution regarding the appointment of a second supervisory body. The management board may not refuse to hold a vote on this motion. The appointment of a second supervisory body, which could be either a supervisory board or an audit committee, depending on which body already exists in the company, requires an amendment to the company's charter. Normally, an amendment to a charter requires approval by a three-quarters majority of votes cast at the shareholders meeting. A vote on a minority shareholder motion to appoint a second supervisory body is the only exemption from this rule. Even if the majority of shareholders vote against the resolution to appoint a second supervisory body, the resolution will, nevertheless, be deemed adopted as long as shareholders representing at least 20% of share capital vote for the adoption of the resolution.
The other two rights are similar and provide for the possibility to demand voting in shareholder groups in connection with the appointment of members to a supervisory board or audit committee. The petition to vote in shareholder groups may be submitted by 20% shareholders with respect to the supervisory board and, with respect to the audit committee, by at least 20% of votes present at the respective meeting. If the petition complies with the Commercial Code, it is binding. Minority shareholders may create their own groups to appoint members to supervisory bodies. In the case of the supervisory board, the number and size of the groups depends on the number of members of the supervisory board that are to be appointed. The number of groups during voting on members of an audit commission is always the same because this body must consist of five members.
In conclusion, minority shareholders need not resign themselves to merely passive roles in a company. By becoming familiar with the provisions of the Commercial Code, in particular with the rights of minority shareholders of a joint-stock company, a minority shareholder may enjoy a real degree of influence over the affairs of the company.
This article was prepared by Lejb Fogelman, managing partner of Hunton & Williams Poland, with the assistance of Izabela Klaus, an associate attorney.
