If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?
Mergers & Acquisitions (2nd edition)
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)