If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?
Mergers & Acquisitions (2nd edition)
Please refer to the relevant Offshore Chapter for detail regarding each offshore jurisdiction.
Under Austrian corporate law both the Limited Liability Companies Act as well as the Stock Corporations Act provide for minority rights, the extent of which depends on ownership thresholds.
Regarding limited liability companies, shareholders holding for example a minority of at least 10% of the shares are entitled to call a meeting of the general assembly or to put a certain matter on the agenda of the general assembly. Also, shareholders – alone or jointly – representing at least one-third of the share capital are entitled to designate a minority representative in the supervisory board. In addition, the Limited Liability Companies Act determines certain matters that require at least a 75% majority decision, which is why shareholders holding shares of more than 25% have a so-called blocking minority (e.g., regarding the amendment of the articles of association).
As to joint stock corporations, a minority shareholder or a group of shareholders holding for example at least 5% of the share capital may request the calling of a shareholders’ meeting or request that a certain matter be put on the agenda of a shareholders’ meeting. As a further example, a minority of at least 10% of the share capital may request the dismissal of a member of the supervisory board by court decision for cause. As with limited liability companies, 25% plus one vote of the share capital constitutes a blocking minority for certain matters requiring a 75% majority decision.
The Companies Act 2006 and the common law provide a number of protections to minority shareholders. Under the Companies Act, shareholders may petition the courts for relief where it believes it has been unfairly prejudiced. These actions are not common however as the court will take the view that (absent the terms of the offer being manifestly unfair or improper conduct) that a fair offer has been made to all shareholders.
In addition, minority shareholders may have negative control at certain shareholding percentage thresholds (5%, 10% and 25% in particular) by reason of their ability to take certain actions or, where a minority shareholder holds in excess of 25%, the ability to block the passing of special resolutions of the company.
Minority shareholders’ rights vary, depending on the type of company:
- Limited liability company – minority shareholders, which hold more than 25% of the quota in the company have blocking rights with respect to decisions on the amendment of the company’s articles of association, accession and expulsion of quotaholders, permission to an existing quotaholder to transfer quota to a third party, additional monetary contributions. Regardless of the amount of quota held, any minority shareholder can block a decision on the increase or decrease of capital.
- Joint-stock company – minority shareholders, which hold more than a third of the shares in the company, have blocking rights with respect to decisions on the amendment of the company’s articles of association, increase/decrease of the capital, reorganization and liquidation of the company. Additionally, any shareholder with at least 5% share ownership has the right to convene a general shareholders’ meeting. Any shareholder with at least 10% share ownership may claim liability against a director of the company for inflicted damages to the company. Additional rights may be provided to minority shareholders on the basis of a shareholders’ agreement.
Under the applicable Colombian law, minority shareholders have the following general rights:
- The distribution of profits in corporations shall be approved with the affirmative vote of at least 78% of the issued and outstanding shares present in the shareholders’ general assembly meeting when the proposal seeks to distribute less than 50% of the distributable profits, or less than 70% of the distributable profits if the company’s reserves are equal or higher than the subscribed capital.
- The payment of dividends with shares in corporations must be approved with the affirmative vote of at least 80% of the issued and outstanding shares present in the shareholders’ general assembly meeting and if no such majority is reached, shares will only be issued in favor to those shareholders that accept them.
- In an event of a spin-off in which the shareholders of the original company will not have the same percentage in the equity of the new companies, such decision shall be approved with the unanimous vote of the shareholders represented at the shareholders’ general assembly meeting.
- The transformation of a simplified corporation into a different type of company or vice versa, requires the unanimous vote of the shareholders of the company.
- In corporations, the issuance of shares not subject to a right of first offer (derecho de preferencia en la suscripción de acciones), must be approved with the favorable vote of at least 70% of the shares represented in the shareholders’ general assembly meeting.
- As set forth in article 41 of Law 1258 of 2008, in simplified corporations the decision to modify certain statutory provisions shall be approved with the unanimous vote of all shareholders.
- In the event of a merger, conversion into another type of company, spin-off, or delisting of the shares from the national registry of securities (Registro Nacional de Valores y Emisores), absent or dissenting shareholders or partners, subject to certain requirements, have the right to withdraw from the company, by offering their shares to the other shareholders. If the offer is not accepted, by the other shareholders, the company will have to repurchase the shares.
- Pursuant to Article 43 of Law 1258 of 2008, any vote issued in the meetings of the shareholders general assembly with the purpose of harming other shareholders or the company itself, or on behalf of an unjustified personal advantage, may be declared void (nulo) by the Superintendence of Companies, and the shareholder shall be responsible for the damages caused with the harming vote.
- Minority shareholders can also be protected through the inclusion of provisions in the company´s by-laws stating the requirement to have a qualified majority in some key decisions.
- In addition to the above, minority shareholders representing 10% of the subscribed and outstanding shares of the company can request the Superintendence of Companies to adopt administrative measures, such as: (i) to order to amend provisions in the company’s bylaws which do not comply with the applicable law; (ii) to summon the mandatory meetings of the shareholders’ general assembly which have not been summoned by the legal representative of the company and (iii) to carry out administrative investigations against the directors, legal representatives or officers of the company with respect to violations of the applicable law or the company’s bylaws.
The rights of minority shareholders were significantly enhanced in 2012, after the creation of a new specialized court, akin to Delaware’s Court of Chancery, exclusively to deal with the adjudication of company law disputes. The court has become the main forum for the private enforcement of corporate law in Colombia, issuing relevant precedents on matters such as related party transactions, specific performance of shareholders’ agreements, oppression remedies, etc.
Minority shareholders as such enjoy some protection. This is reflected in concrete prerogatives designed to control operations carried out within the company, and even to prevent or sanction any irregularities committed by the general meeting or members of the management body.
In particular, the voting rights at the general meeting cannot be exercised in an abusive manner by the controlling shareholder. An abuse of majority voting rights will occur if the decision of the majority has been taken in its sole interest and against the social interest of the company. In case of abuse of majority, the decision can be declared null and minority shareholders shall be able to claim damages against the controlling shareholder.
More generally, the minority shareholders shall benefit from the information rights provided by law.
Finally, in some instances, a shareholder holding 95% or more of the voting rights of a listed company may be required by the AMF, upon request of minority shareholders, to launch a buy-out offer. One or several shareholders holding the control of a listed company may also, upon AMF's request, be required to launch a buy-out offer in certain circumstances (sale of the main asset of the company, change of activity of the company, merger with and into a non-listed company, etc.).
A minority shareholder has the usual shareholder rights that apply under the Companies Act, including the minority buyout rights available to dissenting shareholders, and (if the company is listed) the Listing Rules.
Rights of minority shareholders are protected under various provisions of the Companies Law and Capital Market Law. Recent amendments to the Companies Law have also included additional protections as set out below.
Companies Law provides that GAFI may, based on reasonable justifications, annul general assembly resolutions upon request of shareholders holding no less than 5% of the company’s share capital, during the 30 days following the resolution’s date, if it is evidenced that the issued resolutions are issued in favor of a group of shareholders or the board of directors of the company.
Shareholders holding at least 10% of the share capital of the company have the right to request and obtain information and copies of documents relating to the related party agreements or the transactions entered into between the company and its affiliates. In case the company refuses to provide such information and documents, GAFI may, upon the request of the shareholders, oblige the company to provide the shareholders with the requested information and documents.
Shareholders may, at or post incorporation, enter into a shareholders’ agreement to regulate their relationship. In order for such agreement to be enforceable vis-a-vis the remaining shareholders, it must be approved by a majority vote of no less than 75% of the company’s capital in an extra ordinary general assembly meeting.
Pursuant to Capital Market Law, if 90% or more of the issued share capital of the entity is acquired, minority shareholders holding at least 3% of the remaining issued share capital may request from the Financial Regulatory Authority to notify the majority shareholder to submit a mandatory tender offer to acquire the minority shares within 12 months from the initial acquisition.
Minority shareholders have very limited rights in the Cayman Islands. Minority rights primarily relate to (i) information rights, (ii) the right to bring legal action – personal, representative and derivative action, and (iii) just and equitable winding up. Each of these has been summarised below:
Unless specifically stated in the constitutional documents or agreed by contract, a minority shareholder of a company has no right, by virtue of his position as shareholder, to be provided with information regarding the company (including the company’s accounts). However: (i) on the application of the holders of not less than one-fifth of a company’s shares, the court may appoint inspectors to examine the company’s affairs and prepare a report thereon to the court; and (ii) the court also has discretion to order pre-action discovery of information by an intended defendant but only if this is required to facilitate the precise formulation of the claim. If a shareholder has a potential claim against the company’s directors, he may be able to use this rule to obtain information.
A shareholder in a company may be able to bring an action against the company if he can show that a duty owed to him personally (rather than to the company) has been breached. For example, if a shareholder is prevented from exercising a contractual right embedded in the company’s constitutional documents, they would generally bring a personal action against the company for a declaration/injunction.
It is possible for an individual shareholder to bring an action on behalf of himself and their fellow shareholders. This type of action would be appropriate if there is a common interest or right which the representative shareholder seeks to enforce on behalf of all the shareholders. Apart from in certain limited circumstances, a judgment will bind all of the parties named in the proceedings.
It is possible for shareholders to enforce a right belonging to the company rather than to any individual shareholder or shareholders (such as a breach by a director of their fiduciary duties). Since the right belongs to the company, the litigation has to be brought by the company itself. Normally, a company’s constitutional documents will state that the right to commence litigation will lie with the Board. As such, the shareholders will need to persuade the directors to bring an action on behalf of the company.
If the directors decline to take action, the shareholders will want to consider whether they can replace the directors with a newly constituted Board, who can then initiate the action against the former directors. Alternatively, it is also possible for the shareholders (by ordinary resolution) to bring litigation in the name of the company, at least where the directors are alleged to be a party to the wrongdoing.
Also, if the shareholder can bring himself within one of the exceptions to the rule in Foss v Harbottle, he may be able to bring a derivative action, whereby he may bring an action in his own name but on behalf of the company (for example, where the alleged act is beyond the capacity of the company or illegal (i.e. ultra vires), constitutes a ‘fraud on the minority’ or infringes the personal rights of an individual shareholder).
Just and Equitable Winding Up
A last resort for a shareholder who has been unfairly treated is to petition the court to wind up the company on the basis that it is ‘just and equitable’ to do so. If a winding up order is made, liquidators will be appointed who can then investigate the company’s affairs and pursue claims against the former directors (and any others who have caused loss to the company).
A shareholder bringing a petition on this ground will have to show that he has a ‘tangible interest’ in the winding up (i.e. that there is likely to be a surplus of assets available for distribution to shareholders). If the company is hopelessly insolvent and there is no prospect of a return to shareholders, a shareholder will not have standing to issue a petition on this ground (and if such a petition is issued it is liable to be struck out).
Minority shareholders can make use of their usual rights arising from their ownership of the shares, such as the right, in publicly held companies, to appoint the chairperson of the board of statutory auditors and one director
Minority shareholders with a 1/1000 interest in the share capital of a publicly held company (5% of the share capital in privately held companies) can challenge unlawful shareholders’ meeting resolutions in court. They may also bring liability actions against the directors if they hold at least 1/40 (for publicly held companies) or 1/5 (for privately held companies) of the share capital.
Minority shareholders in Italian joint-stock companies have limited control powers over the company’s ordinary business. However, they have the right to consult the shareholders’ meeting book of minutes and the shareholders’ register (in which ownerships and transfers of shares are recorded).
Minority quotaholders in Italian limited liability companies play a more active role in the management of the company than shareholders in joint-stock companies.
One of the most effective powers in the hands of the minority quotaholders is the right to withdraw from the company if they disagree with certain resolutions of quotaholders’ meetings (such as a substantial change in the corporate purpose or the transfer abroad of the registered office).
Furthermore, quotaholders’ rights can largely be shaped by inserting apposite provisions in the company’s by-laws, including those generally reserved to shareholders’ agreements (such as veto powers granted to quotaholders identified by name).
In certain circumstances, minority shareholders can require their shares to be compulsorily acquired. It is also possible for a minority shareholder to apply for an order that the acquirer is not entitled to acquire its shares. Where a minority shareholder alleges that the affairs of the company are being conducted, or that the powers of the directors of the company are being exercised in a manner oppressive to it, it may be possible to bring an action under the Companies Act.
Additional governance rights may include, right to appoint director(s), to veto certain important company matters such as (i) corporate reorganizations, (ii) corporate indebtedness; (iii) corporate business plan; (iv) sale of key corporate assets, etc. Additional economic rights may include tag along and drag along rights, piggy-back and qualified IPO rights.
All shareholders enjoy the rights afforded to them under the articles of association of the company with regard to the class of shares held by them. The Companies Law protects minority shareholders from oppressive behavior by the majority shareholder however any additional protection would be a matter to be governed by the company’s articles of association and/or any agreement between the shareholders.
A minority shareholder in the case of a public takeover may also have a sell out right (as described below).
Shareholders have certain statutory minority protections through a detailed set of rules set out in the LLCA and the PLLCA. Such rights comprises inter alia a right to attend and speak at general meetings, certain disclosure rights, rights to bring legal actions to void a corporate resolution on the basis of it being unlawfully adopted or otherwise in conflict with statute or the company’s articles, etc. Some of these rights are granted to each individual shareholder irrespective of voting rights, and the LLCA and PLLCA provides specific rights to minority shareholders representing a certain percentage of the share capital and/or votes.
Several corporate resolutions require consent from the general meeting by a qualified vote. Increase or decrease of the share capital of a company must be resolved by at least two thirds of the aggregate share capital represented at the general meeting as well as two thirds of the aggregate casted votes. The same qualified vote is required for decisions on mergers and de-mergers as well as dissolution of the company. Consequently, minority shareholder representing 33.34% of the share capital and votes in the target will have a "veto right" in numerous situations.
Moreover, decisions that entails that the shareholders' right to dividend or the company's assets are reduced, requires a vote from 90% of the aggregate share capital represented at a general meeting as well as two thirds of the aggregate votes cast. For companies that do not have applicable provisions on company approval for transfer of shares or pre-emption rights for existing shareholders, the resolution on such procedures is subject to the same qualified vote. Some decisions even require the support of all holders of issued shares.
In addition to the rules on qualified votes, the companies' legislation set out various provisions that, both directly and indirectly, protects the rights of the minority of the shareholders of a company. For example, any shareholder has the right to propose an investigation of a company's incorporation or management as well as specific matters related to the management or accounts. If such proposal is resolved by at least 10% of the shareholders, any shareholder may petition the court to have an investigation initiated. Further, shareholders who hold at least 10% of the share capital may petition the court to determine a higher amount of dividend than resolved by the general meeting.
Note that a majority shareholder cannot exercise its powers in a Norwegian company at board or management level, in a manner that is likely to cause unjust enrichment to a shareholder or a third party at the cost of the company or another shareholder – see question 9.
Finally, provided the conditions for a squeeze-out are met (see question 27), it will be a straightforward process to have a listed target delisted from Oslo Stock Exchange. However, if these conditions are not met, this could be substantially more challenging.
Minority shareholders have rights under sections 192 and 193 of the MCL against conduct that is oppressive.
Law 2190/1920 vests minority shareholders with many specific rights. As far as M&As are concerned, persons retaining a shareholding of 2% of the share capital may apply to Court and request that a faulty General Assembly decision be withdrawn. Minority shareholders of a company taken over by a majority shareholder that maintains 95% of the share capital can effect a forced acquisition of their shares by the majority shareholder. One or more minority shareholders are able to request that their shares are taken over by the company following a resolution on the transfer of the company’s seat.
Shareholders of publicly traded companies that after a takeover bid are controlled by a majority shareholder holding more than 90% of the share capital have the right have their shares bought by the majority shareholder at a price equal to that contained in the takeover bid.
Minority shareholders of a German stock corporation enjoy a number of protective rights, depending on the acutual shareholding. The most significant threshold for minority rights is 25% of the votes cast, giving the shareholder a blocking minority for resolutions for which a majority of 75% is required by law or the articles of association. This includes the amendment of articles of association, conclusion of domination or profit and loss transfer agreements, and capital measures. Minority shareholders representing at least 1% of the share capital may require the appointment of a special auditor to examine management actions. Finally, the minority shareholders remain entitled to general information rights, voting rights and dividend rights.
Minority shareholders of a publicly traded company have a sell-out right under certain circumstances (see below - question 27). If a public offer has taken place, the remaining minority shareholders may require the bidder to purchase their securities with voting rights or giving access to voting rights when:
- the bidder owns a 95% interest in the capital of the target;
- the bidder holds 95% of the voting securities;
- if it concerns a voluntary offer, the bidder, as a result of the public offer, has acquired voting securities representing 90% of the capital of the target.
For purposes of determining the stake of the bidder in the target, the stake of persons acting in concert with the bidder is also taken into account.
These remaining shares shall be acquired at the bid price.
Other minority rights
Further, minority shareholders have certain rights under the Belgian Companies’ Code. Examples are the possibility to initiate a minority claim against the board of directors and to add items on the agenda and submit proposals for decision-making. These possibilities are, however, only available to minority shareholders when a certain ownership threshold is met.
26.1 In Vietnam, there are no “squeeze out” or similar laws. Minority shareholders cannot be compelled to sell any shares which they hold in any Vietnam-domiciled company, regardless of the percentage of issued and paid-up voting share capital held by any majority shareholder.
26.2 Minority shareholders always retain their statutory rights to attend meetings of the General Meeting of Shareholders or Members’ Council and to vote their shares or contributed charter capital interests.
26.3 In the case of JSCs, minority shareholders (or groups of minority shareholders) having held ≥5% of issued and paid-up share capital for any consecutive period of ≥6 months enjoy additional rights to:
- require the Board of Management to convene EGMs of the General Meeting of Shareholders;
- nominate candidates for election to the Board of Management or the Inspection Committee; and
- require the relevant JSC to provide certain types of information and documents relating to the governance, management, and/or operations of the relevant JSC.
Swiss corporate law provides for various minority rights. Among others, any shareholder, irrespective of its holding, has the right to request information from the company on the affairs of the company and from the external auditors on the methods and results of their audit. Shareholders holding shares with a par value of CHF 1 million or 10% of the company's share capital have the right to call for a shareholders' meeting and to put items on the meeting's agenda. At shareholders' meeting, any shareholder can make proposals on agenda items. Certain shareholder resolutions are subject to a qualified majority of two-thirds of the voting rights and one-half of the share capital represented at a shareholders' meeting. A squeeze-out merger requires the consent of at least 90% of the voting rights of the company (see question 27). Also, the board of directors is required to treat shareholders equally.
In addition to the above opportunities to sell their shares to the buyer, minority shareholders have some general rights that are designed to protect their interests in the company.
Among these in joint stock companies are certain matters reserved to general meetings of shareholders that require at least 3/4 of votes to pass a decision, minority shareholders’ right to nominate candidates to board of directors (if they hold at least 2% of voting shares). In certain cases minority shareholders are entitled to file court claims against the company itself to overturn decisions made by the general meeting or the board of directors.
In limited liability companies, minority participants generally have broader veto rights, being able to block any resolution on reorganisation or liquidation of the company, acceptance of new members, capitalisation of shareholders’ loans (which resolutions require unanimous consent). Amendments to a charter require 2/3 majority voting.
Please note that additional voting requirements (and, accordingly, veto rights) in non-public companies may be set forth by a company’s charter.
The rights of the minority shareholders vary on a case by case basis depending on the way in which they are regulated under the articles of association. Material veto rights (e.g. on budget or commercial policies) are usually not available.
Under the QFMA Mergers & Acquisitions Rules, if a shareholder acquires 90 percent or more of the capital or voting rights in a company; minority shareholders who own 3 percent or less in a company have the right to send a request to the authority to compel the majority shareholder to buy their shares. (Article 38)
Minority shareholders continue to have full rights as shareholders in the company, including voting rights. If the company remains listed after the buyer’s acquisition of a majority stake, the controlled company will be subject to ongoing reporting obligations, although it may be able to opt out of some governance requirements imposed by the stock exchanges. Moreover, as outlined in Question 9, where a company has a controlling shareholder, that controlling shareholder owes the corporation’s minority shareholders a duty of loyalty.
The Swedish Companies Act entails several minority rights that depend on the minority shareholders’ ownership percentage in the company. Such rights include, inter alia, a right for the holders of ten per cent or more of all shares in the company, or one-third of the shares that are represented at the relevant shareholders’ meeting, to require a special audit. Further, holders of ten per cent or more of all shares in the company may e.g. require an extraordinary general meeting of shareholders to be convened, or a minimum dividend to be distributed (such dividend being equal to 50 per cent of the remaining profit for the year pursuant to the adopted balance sheet following certain deductions; however not in excess of five per cent of the company’s shareholders’ equity).
In addition to the aforementioned, there exists a general principle of equality and equal treatment entailing that all shareholders shall be treated equally and the general meeting may not adopt resolutions, nor may the Board of Directors or any other representative of the company perform legal acts or any other measures, which are likely to provide an undue advantage to a shareholder or another person to the disadvantage of the company or another shareholder.
Under the Corporation Code, the members of the board of directors are elected among the holders of shares of stocks every year. To ensure representation in the board, minority shareholders may vote by cumulative voting for one candidate, i.e. give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal. A director elected because of the vote of minority stockholders who united in cumulative voting cannot be removed without cause.
As noted in Question No. 8, the ratification or concurrence of shareholders representing at 2/3 of the outstanding capital stock is necessary in respect of extraordinary corporate acts, such as amendment of the articles of incorporation, disposition of all or substantially all of the corporate assets, mergers and consolidations, and liquidation. Thus, where the minority constitutes at least 2/3 of the corporation’s outstanding capital stock, they have a negative veto in respect of such corporate actions.
Minority shareholders also have an appraisal right in certain cases. The appraisal right is the right of a shareholder to demand payment of the fair value of their shares after dissenting from a proposed corporate action involving a fundamental change in the charter or articles of incorporation. The appraisal right exists in the following cases: (a) in case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; (b) in case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Corporation Code; (c) in case of merger or consolidation; and (d) in case corporation decides to invest its fund in another corporation or business for any purpose other than its primary purposes.
Furthermore, minority shareholders have a right to institute individual suit, representative suit, and derivative suit. Individual suit is available when a wrong is directly inflicted against a shareholder, the latter can maintain an individual or direct suit in his own name against the corporation. Representative suit may be resorted to when a wrong is committed against a group of shareholders, in which case a shareholder may bring a suit in behalf of himself and all other shareholders who are similarly situated. Lastly, an action is derivative, i.e. in the corporate right, if the gravamen of the complaint is injury to the corporation or to the whole body of its stock or property without any severance or distribution among individual holders, or if it seeks to recover assets for the corporation or to prevent the dissipation of its assets.
Where an acquirer has exercised the squeeze out rights provided under the Guernsey Companies Law (see question 8 above), a shareholder who has not assented to the acquisition may within one month after the date of the acquirer’s notice to acquire, apply to the Royal Court of Guernsey to cancel that notice. The Court may cancel the notice or make such order as it thinks fit.
A shareholder may apply to the Guernsey Court for relief on the ground that –
- the affairs of the company are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or
- an actual or proposed act or omission of the company is or would be so prejudicial.
The target’s constitutional documents may provide additional rights for its minority shareholders.
Minority shareholders continue to enjoy full rights as shareholders, such as voting rights and rights to receive distributions of dividends.
In addition to those rights held by every shareholder, minority shareholders also enjoy so-called “minority shareholder rights” which include, inter alia, the following:
- a right to bring an action to confirm the non-existence or nullifications of certain corporate actions (e.g., issuances of shares and certain statutory corporate reorganizations such as merger);
- a right to bring an action to confirm the non-existence or nullifications of a resolution of a shareholders meeting;
- a right to bring an action to rescind a resolution of a shareholders meeting;
- a right to bring an action to demand that the company cease certain corporate actions (e.g., issuances of shares and certain statutory corporate reorganizations such as merger);
- a right to request the disclosure of the shareholder registry, the minutes of a shareholders’ meeting or a board of directors’ meeting or the financial statements of the company;
- a right to bring a shareholder’s derivative suit against the officers of the company;
- a right to demand that a director cease an action that is in violation of law or regulation or the articles of incorporation of the company;
- a right to require that the directors include an agenda item proposed by the shareholder in the agenda of a shareholders’ meeting;
- a right to request that the directors convene a shareholders’ meeting; and
- a right to require that the court appoint an inspector to investigate the procedures for convening a shareholders’ meeting and adopting resolutions thereat.
Isle of Man
Directors must call a meeting of the Company if requested in writing to do so by a shareholder or shareholders holding at least 10% (or such smaller percentage as may be specified in the constitutional documents) of the voting rights in relation thereto.
A shareholder of a 1931 Act company may apply to the Court for an order if the affairs of the company are being conducted or that the powers of the directors of the company are being exercised in a manner oppressive to him or some part of the members (including himself), or in disregard of his or their proper interests as shareholder(s).
A shareholder of a 2006 Act company who considers that the affairs of the company have been, are being or are likely to be, conducted in a manner that is, or have been, or are, likely to be oppressive or unfairly prejudicial to such member in that capacity, may apply to the Court for an order.
The target’s constitutional documents may provide additional rights for its minority shareholders.
If the acquirer obtains at least 90% in value of the target’s shares and gives notice for the acquisition of share from a dissenting shareholder, the dissenting shareholder may, within one month from the date on which the notice was given, make an application to the Court for an order.
Generally any prejudiced shareholder can may apply to the Supreme Court for an order under section 169 or section 178 of the Companies Act 2001 on the basis that he considers the affairs of the company have been, or are being, or are, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him. Additionally minority shareholders may require a company or a third party arranged by the company to purchase their shares if such minority shareholders have voted against a resolution that has been approved by the majority shareholders. The dissenting shareholder of a listed GBC or a Reporting Issuer must do so within 28 days form the day which he was informed of the offeror’s acquisition of 90% or more of the voting shares of the target company.
A dissenting shareholder who receives a notice has the ability to apply to court for relief within one month after receipt of the notice by the purchaser to compulsorily acquire his/her shares. The right of a dissenting shareholder who has received a notice from the purchaser to compulsorily acquire his/her shares under section 102 of the Companies Act is not limited to having the value of his/her shares appraised. The statutory language gives the court a broad discretion to order as it thinks fit in the context of an application made by a dissenting shareholder who has received a notice pursuant to a section 102 compulsory acquisition.
The principal argument of any dissenting shareholder requesting that the court vitiate the notice of compulsory acquisition would be that, in some way, he/she is being oppressed in his/her capacity as a minority shareholder. Such oppression would usually turn on the price being offered for the shares because the court will look to shareholders as a whole and not simply the loss of control or dilution in respect of an individual shareholder. The onus is on the dissenting shareholder to convince the court that a compulsory acquisition would be unfair. The test probes whether the offer is fair to the shareholders as a body. The dissenter must convince the court that the judgment of those who have accepted the offer was somehow at fault. This is difficult to maintain where more than 90% in value of the shares of the company have accepted the purchaser’s offer to purchase their shares.
British Virgin Islands
Minority shareholders have limited rights in the British Virgin Islands which primarily relate to; (i) information rights; (ii) the right to bring legal action – personal, representative and derivative action; and (iii) just and equitable winding up.
Under the Act, a Shareholder of a target company may apply to the court if it considers that the affairs of the company have been, are being or are likely to be, conducted in a manner which is, or any act or acts of the company have been, or are likely to be, oppressive, unfairly discriminatory or unfairly prejudicial to the shareholder in its capacity as a shareholder.
If the court agrees with the shareholder, and considers it to be just and equitable that an order be made in relation to the particular conduct, it may make any order that it thinks fit, including an order requiring the company or any other person to acquire the shareholder’s shares or to pay compensation to the shareholder; regulating the future conduct of the company’s affairs; amending the memorandum or articles of the company; appointing a receiver or liquidator of the company; directing the rectification of the records of the company; and/or setting aside any decision made or action taken by the company or its directors in breach of the Act or the company’s memorandum or articles.
A derivative action refers to an action initiated by a shareholder to enforce a wrong done to the company, the action being taken in the company’s name rather than the shareholder’s name. Accordingly, the shareholder obtains no direct benefit if judgment is given in the company’s favour.
A derivative action is typically used where no action would otherwise be taken by the company because the wrongdoers are also the company’s decision-makers. A minority shareholder may need to resort to a derivative action if, for example, directors of the company have breached their fiduciary duties to the company, if the directors are also the majority shareholders and can control the vote at a general meeting, or because the directors may be able to prevent (or at least delay) a general meeting being convened to vote on whether the company should sue the directors.
If the shareholder can bring himself within one of the exceptions to the rule in Foss v Harbottle, he may be able to bring a derivative action, whereby he may bring an action in his own name but on behalf of the company (for example, where the alleged act is beyond the capacity of the company or illegal (i.e. ultra vires), constitutes a “fraud on the minority” or infringes the personal rights of an individual shareholder).
Winding Up on Just and Equitable Grounds
Under section 162 of the Insolvency Act 2003 (Insolvency Act), one of the grounds upon which the court can appoint a liquidator to wind up a company is that “the Court is of the opinion that it is just and equitable that a liquidator should be appointed”.
The Insolvency Act provides that the court must not appoint a liquidator on the basis of just and equitable grounds if it is of the opinion that some other remedy is available to the applicant, and the applicant is acting unreasonably in seeking to have a liquidator appointed instead of pursuing that other remedy. With the unfair prejudice remedy and derivative action available to shareholders, the winding up order can be considered as a last resort.
Where a bidder, has by virtue of the acceptance of an offer, acquired or contracted to acquire not less than 90 per cent in nominal value of all of the shares (or all of the shares of a particular class) of the Jersey company, the holder of any shares (or class of shares) to which the offer relates who has not accepted the offer may, by written notice to the bidder require the bidder to acquire the holder’s shares.
A single shareholder or a group of shareholders holding a minimum of 10% of the share capital in privately held companies and 5% in publicly traded companies qualify as minority shareholders and are granted certain statutory instruments to monitor and question the governance of the company.
The minority rights granted under the TCC are, among others, the right to (i) convene an extraordinary general assembly of shareholders meeting, (ii) add an item to the agenda of the general assembly meeting, (iii) request the dissolution of the company, (iv) request replacement of the auditor, and (v) veto certain rights in the shareholders meeting regarding resolutions on the fulfillment of an obligation or a secondary obligation for the closing of balance sheet losses and the transfer of the company’s head office to another country.
The minority shareholders can in certain circumstances under the ISA require their shares to be compulsorily acquired. In addition, where a minority shareholder alleges that the aﬀairs of the company are being conducted, or that the powers of the directors of the company are being exercised in a manner oppressive to it, it may be possible to bring an action under the Companies and Allied Matters Act.
Minority shareholders may have statutory put-option rights vis-á-vis a majority shareholder holding a certain level of ownership as set out in point 25 above. Also they may have contractual put-option rights or tag-along rights stipulated. In addition, minority shareholders will continue to have (besides its general shareholders’ rights such as voting and receiving dividends) certain information and involvement rights regarding the target company.
Pursuant to the Civil Code, each and every shareholder, irrespective of their stake, has the right to review the registers and documents of the company, and to request information from the management regarding the company. Information cannot be withheld, and the review of documents cannot be refused, save for the protection of the company’s business secrets, or the case if the shareholder abuses this right, or refuses to sign a non-disclosure agreement.
In addition to the above, under Hungarian law, minority shareholders owning together at least 5% of a private company, and at least 1% of the votes in a public company limited by shares, may commence certain measures for the protection of their interests in the company: Minority shareholders may arrange for (i) the meeting of the company’s supreme body to be convened with the aim and purpose specified by the minority shareholders, (ii) any economic event related to the activity of the management from the preceding two years, or the latest financial report to be examined by an independent auditor, (iii) a claim of the company to be enforced against any of its shareholders, or members of the management, or the auditor, or members of the supervisory board, (iv) amending the agenda of the shareholders’ meeting. Also, minority shareholders owning together at least 5% of the votes in a private company limited by, and 1% of the votes in a public company limited by shares, have the right to request the court to appoint an auditor to examine payments made by the company from its equity to the shareholders.
In companies limited by shares, rights attached to a certain series of shares can be changed detrimentally only if the shareholders owning such shares specifically consent to the change as set forth in the company’s articles of association. The same rule applies in case the registered capital of such companies is increased: if the capital increase would affect the rights attached to certain shares, the increase can be validly implemented only if all concerned shareholders approve. These provisions can be ruled out in a private company limited by shares but not in a public company limited by shares.