If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?
Mergers & Acquisitions (3rd edition)
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.
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.
Minority shareholders will have, in principle and unless in the case of issuance of special types of shares, the same economic and politic rights granted to the majority shareholder, including to inspect the books and records of the company for an ordinary meeting. In addition, for corporations (S.A) the following decisions are required to be taken with a special majority in accordance with law:
(i) The approval of profits distribution for an amount which is lesser than 50% of those obtained in the corresponding fiscal year, require the favorable vote of 78% of the shares present in the meeting. If this majority is not obtained, the shareholders must distribute at least 50% of (i) the net profits or (ii) of the outstanding profits after compensating the losses of the corresponding fiscal year. In the event that the legal, statutory and/or occasional reserves exceed the subscribed capital of the Company in an amount equivalent to 100%, then the above-mentioned distribution percentage shall increase to 70%.
(ii) The issuance of shares which are not subject to the right of first refusal, will require the favorable vote of 70% of the shares present or duly represented in the corresponding shareholders meeting.
(iii) Dividends paid in kind by means of the issuance of shares in the Company, will require the favorable vote of 80% of the shares present or duly represented in the corresponding shareholders meeting.
(iv) The transformation of the company to a simplified stock corporation, which will require the unanimous consent of the shareholders.
Minority shareholders of a Croatian joint-stock company enjoy several protective rights. In the first place, they remain entitled to the right to be informed, voting rights and dividend rights.
Minority shareholders have the following minority rights (note that this list is more extensive so we list the most commonly used):
- To convene the company’s general meeting;
- To submit their proposals and to oppose the proposals of the management and supervisory board;
- To be informed with respect to convening of the general meeting and the insight / right to be informed on the company’s business operations;
- To decide on the transformation into a limited liability company (in case of a joint stock company);
- To raise claims for damages against:
b. management and supervisory board members / executive directors and members of the board of directors
c. a third person who uses her influence to damage company
- To waive or settle the damages claims against:
b. management and supervisory board members / executive directors and members of the board of directors
c. a third person who uses her influence to damage company
- To seek involuntary dissolution and appointment / removal of dissolution officers.
A special group of minority shareholders’ rights is associated with appointing and revoking members of the supervisory board provided that the company’s articles of association envisage that certain shareholders (determined by their respective name) have right to appoint members of the supervisory board, up to 1/3 of the supervisory board members. Minority shareholders have the right to initiate mandatory and voluntary squeeze-out, as discussed in the below item 27.
Minority shareholders enjoy the rights established in the Companies Law, those established in the company's bylaws and those set forth in a shareholder agreement.
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.
Pursuant to the Business Corporations Act, the minority shareholders of a joint-stock company possess some protective rights in relation to the actual size of the shareholding. The protective rights concern, among others, the matters falling within the scope of decision-making of the general meeting.
First of all, the significant threshold for minority rights is 25% of the votes cast because some decisions of the general meeting, such as a decision to change a type or a form of the shares, to change the rights attached to a certain type of shares or to restrict the transferability of registered shares, require a majority of 75% of the votes cast as stipulated by law or the articles of association.
Another significant threshold for minority rights is 33% of the votes cast because some decisions of the general meeting, such as an amendment of articles of association, entering into domination or profit and loss transfer agreements, a sale of the business enterprise or its part or creation of pledge over the business enterprise or its part as well as the change of the registered capital, require a majority of 66% of the votes cast by law or the articles of association.
On the top of that, the minority shareholders still possess the general rights of the shareholders; therefore, the minority shareholders still remain entitled to obtain relevant pieces of information and have voting and dividend rights.
With regard to the limited liability companies, pursuant to the Business Corporations Act, the members of the limited liability company reserve some protective rights in relation to the actual size of the shareholding. The protective rights concern, among others, the matters falling within the scope of decision-making of the general meeting.
The significant threshold for minority rights is 25% of the votes cast because some decisions of the general meeting, such as a decision to amend the content of the memorandum of association, to allow a contribution in kind or to dissolve the company with liquidation, require a majority of 75% of the votes cast by law or the memorandum of association.
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.
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 lay 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 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 (such threshold is likely to be lowered in the coming months to 90% of the share capital or voting rights). 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.).
Law 4548/2018 has not brought any significant amendments in this field. It vests minority shareholders with a number of 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 to have their shares bought by the majority shareholder at a price equal to that of the takeover bid.
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.
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.
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.
Minority shareholders have rights under sections 192 and 193 of the MCL against conduct that is oppressive.
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.
Whether the target company is private or publicly traded, the minority shareholders, which own at least one share with right to vote, have the following rights:
- The separation right, according to the Article 338 of the Peruvian Corporations Law.
- The right to participate in the distribution of dividends and shareholder’s equity resulting from the liquidation of the company, taking into consideration that, in the case of non-public traded companies, the right to collect past-due dividends expires 3 years after the date on which the dividend payments was due.
- Attend and vote at a general shareholders’ meeting.
- Supervise the way in which the management conducts its business, according to the bylaws.
- To exercise redemption rights if the company changes its corporate purpose, the place of organization to a foreign country, or other cases contemplated in the bylaws or the applicable law.
- The right to judicially challenge decisions of the general shareholders’ meeting when it is contrary to the Peruvian Corporations Law, the company’s bylaws, the interests of the company as a whole and in benefit of one or more shareholders. The judicially challenge can only be interposed by those shareholders who, in the general meeting, had their opposition to the agreement recorded in the minute, as well as by those shareholders that were absent and by those who have unlawfully been deprived of casting their vote.
- Right to request a notary public or a judge to call the annual mandatory shareholders’ meeting, or any other ordered by the bylaws, when such meeting has not been summoned within the mandatory time.
- Additionally, with 5% or more of the existing share capital with right to vote, the shareholders can request information regarding the company’s operations.
- With 20% or more of the existing share capital with right to vote, the shareholders can request the attendance of a notary public in a shareholders’ meeting.
In addition to the rights described in in the paragraphs above, the minority shareholders of a publicly traded company have the right to collect past-due dividends up to 10 years after the date on which the dividend payment was due.
Likewise, if the target company is publicly traded, the shareholders with 5% or more of the shares with right to vote can request the board to convene the General Shareholders’ Meeting and, if the board fails to do so within 15 days, to request a public notary or a judge to call it.
Finally, whether the company is private or publicly traded, the group of shareholders with 20% or more of the share capital with right to vote has the right to request the distribution of dividends in a percentage that does not exceed 50% of the annual net profits.
Under certain instances, minority shareholders may exercise their appraisal right. It is a right to demand payment from the corporation of the fair value of their shares after dissenting from certain corporate actions involving fundamental changes in corporate structure, e.g. amendments of the AOI; changing or restricting the rights of any stockholder or class of shares; authorizing preferences in any respect superior to those of outstanding shares of any class; extending or shortening the term of corporate existence; sale, lease, exchange, transfer, mortgage, pledge, or other disposition of all or substantially all of the corporate properties; merger or consolidation; and investment of funds in another corporation or business or for any purpose other than its primary purpose.
Minority shareholders also have the right to vote cumulatively and unite their votes in the election of BOD members. If a director is elected due to the cumulative votes of the minority shareholders, he/she cannot be removed from the board without cause.
For listed companies, minority shareholders are protected through the tender offer rules previously discussed which grant minority shareholders the opportunity to sell their shares in the event of a significant change in ownership of the company.
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.
All shareholders of sociedades por quotas have – in general terms – the same rights regardless of their shareholding. All shareholders are entitled, amongst others, to attend, participate and vote on shareholders’ meetings (if no limitation exists in the by-laws), request written information regarding the company, consult corporate documentation or request the convening of a shareholders’ meeting. There are exceptions, such as voting rights, rights to dividends or to share the proceeds of a liquidation, which are based on their shareholding.
As for sociedades anónimas, minority shareholders may in certain cases be entitled to sell-out. This right applies both in private companies – following an acquisition of 90% of the share capital of the target (see 27) – and in public companies – following a PTO or the approval of the target’s delisting.
For this purpose, PTOs must have resulted in the acquisition of shares representing at least 90% of the voting rights in the target company and the bidder must have acquired shares representing at least 90% of the voting rights that were the object of the offering. Minority shareholders will then be able to sell-out for a “fair consideration”, calculated pursuant to the same rules detailed in in 18 above.
These rules will also apply whenever the majority shareholder approves the delisting of a publicly traded company.
Other minority rights will vary based on the shareholding held by the relevant shareholder, although minority shareholders may group with each other to reach a minimum shareholding threshold and jointly exercise their rights.
Accordingly, while rights to dividends and the proceeds of a liquidation and the a pre-emption right in the subscription of new shares and convertible bonds are granted regardless of the shareholding, rights to special information, convene shareholders’ meetings, appoint members of the board of directors and others depend on the stake held in the company.
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.
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.
In terms of section 164 of the Companies Act, dissenting shareholders may, in the context of a scheme of arrangement, a sale of all or the greater part of assets or undertaking of the target company or a merger, require the target company to purchase their shares at fair value, known as the appraisal right.
Certain related-party transactions in terms of the Listings Requirements, as well as certain matters in terms of the Companies Act, are required to be approved by shareholders (either in terms of an ordinary or special resolution). Accordingly, depending on the percentage of control acquired, minority shareholders may be able to stifle certain activities or proposed transactions of the target company.
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.
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.
Under the general law, the only right of minority shareholders is to inspect the books and records of the target company unless special rights are included in the target company’s articles of association, as well as the right to take action against directors if the directors cause damage to the company and the company fails to take action against the directors.
Public Company (shareholders holding less than 25%)
- Request that the board of directors of the target company calls a shareholders meeting (20%).
- Institute proceedings against directors before the court (if the target company refuses to do so) for breach of fiduciary duties, the articles of association, shareholders resolutions or applicable law (5%). Given the new class rights legislation, which came into force at the end of last year, shareholders can easily gather and take legal action against the directors before the court.
- File a motion before the court for cancellation of resolutions adopted at a shareholders meeting convened or passed in violation of the articles of association or applicable law (20%).
- Submit a written application to the MoC requesting the appointment of an inspector to inspect the business operations and financial conditions of the target company, as well as the conduct of the business by the board of directors of the target company (20%).
Publicly Listed Company (shareholders holding less than 25%)
- Block an issuance of shares at a price below the current market price (10%).
- Block a delisting resolution (10%).
- Propose matters for consideration at the annual general meeting (AGM) or an extraordinary general meeting (EGM) (5%).
Public Company (shareholders holding more than 25% but below 50%)
The following transactions require the vote of shareholders holding at least three-fourths of the shares with voting rights attending a shareholders meeting. Thus, if a shareholder holds more than 25%, the shareholder can veto such a transaction.
- An increase or decrease of registered capital.
- A sale or transfer of the whole or substantial parts of the business of the target company to other persons.
- A purchase or an acceptance of transfer of the business of others by the target company.
- An entry into, amendment to or termination of a contract concerning the lease of the whole or substantial parts of the business of the target company, transfer of the management of the business of the target company to others, or a consolidation of the business with others for the purpose of profit and loss sharing.
- An amendment to the memorandum of association or articles of association.
- An issuance of debentures.
- An amalgamation.
- A dissolution.
Publicly Listed Company (shareholders holding more than 25% but below 50%)
- An issuance and offer for sale of securities to directors and employees of the target company (ESOP).
- A “whitewash” approval.
- A class transaction.
- A connected party transaction.
There are no statutory minority shareholder rights under UAE law, and their only protection lies under the company’s Articles.
At the outset, it must be noted that in case of a listed entity, at least 25% of the shares must be held by the public. Thus, if an acquirer desires to acquire the target and keep the target’s status as listed, then at least 25% of the shares would need to continue to be with the public shareholders.
As far as rights of minority shareholders are concerned, they do not have any special rights. Most decisions can be taken by a simple majority while others require a special majority of 75% of the total votes cast.
However, if a minority shareholder holds at least 10% of the voting capital or in certain other specified situations, the minority shareholder may file an application to the NCLT against oppression and/or mismanagement of the company, seek certain reliefs.
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:
(i) require the Board of Management to convene EGMs of the General Meeting of Shareholders;
(ii) nominate candidates for election to the Board of Management or the Inspection Committee; and
(iii) require the relevant JSC to provide certain types of information and documents relating to the governance, management, and/or operations of the relevant JSC.
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 minority shareholders may have veto rights over decisions of the controlling shareholder at a shareholders’ meeting or over board resolutions at a board meeting under the shareholders agreement and/or articles of association of the target company. In addition, the PRC Company Law provides that the following decisions may only be adopted upon an affirmative vote of two-thirds of the total number of shareholder votes:
- amending the articles of association;
- increasing or decreasing registered capital;
- merging, diverging or dissolving the company; and
- changing the corporate form of the company.
There are many rights and protections granted to minority shareholders under applicable Egyptian laws. The most notable rights include the following:
- Shareholders owning five percent (5%) of a company's share capital have the right to include certain matters that may affect their interests in the agenda of an ordinary general assembly meeting, while, shareholders owning at least 5% of a company’s share capital may call for such assembly to convene;
- Provided compelling reasons exist, shareholders owning ten percent (10%) of the company's capital may call for an extraordinary general meeting to convene;
- GAFI’s board of directors may, upon compelling reasons given by shareholders owning a minimum of five percent (5%) of a company’s share capital, suspend resolutions of the general assembly of the company if such resolutions (i) are issued in favor of a specific group of shareholders; (ii) may be to the detriment of a specific group of shareholders; and/or (iii) profit certain board members or others;
- All shareholders must be notified of general assembly meetings in the manner and timing set by applicable law and are entitled to attend and vote in such meetings. Shareholders are permitted to access all documents and files to be discussed at a general assembly meeting;
- Any resolution adopted at a general assembly meeting that may affect a shareholder's basic rights or increase its liabilities shall be null and void;
- Shareholders holding at least (10%) of the share capital of a company are entitled to request information or documents relating to transactions undertaken by the company and related parties agreements. In the event the company refuses to provide such information, the said shareholder(s) may submit a request to GAFI demanding delivery of the requested documents;
- A founder of a company, for a period of five years following its incorporation, or any of its board members, at any time, may not enter into an agreement presented to the board for approval, unless the ordinary general assembly pre-authorizes such contract. Any contract concluded to the contrary is deemed null and void; and
- Shareholders holding at least (20%) of the capital of a bank and shareholders holding at least (10%) of the capital of a joint stock company are entitled to request GAFI to conduct an inspection on a company in the event they believe a material violation was committed by any of its board members or auditors. GAFI may also undertake such inspection at its discretion.
Also, Companies Law was recently amended to allow for pro rata representation and cumulative voting for election of board members to be provided for in the company’s statutes. Pro-rata representation may provide for minimum representation of shareholders on the board by a maximum of 1 seat for each 10% of the capital. Cumulative voting grants each shareholder a number of votes equivalent to the number of its owned shares for the election of the board members. Both mechanisms are voluntary for companies established pursuant to the Companies Law or Investment Law. Listed companies, however, are obliged pursuant to applicable FRA decrees to adopt the cumulative voting mechanism for election of board members and amend their statutes to that effect.
Finally, for preserving minority rights, in certain cases the target company or the majority shareholder is obligated to acquire the minority stakes. For more details please refer to following question.
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.
Please refer to the relevant Offshore Chapter for detail regarding each offshore jurisdiction.
The Companies Act 2006 and the common law provide a number of protections to minority shareholders. Under the Companies Act 2006, 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 holding a specified percentage may have certain negative control under the company’s constitutional documents, while a shareholder who holds in excess of 25% of the voting right has the ability to block the passing of special resolutions of the company.
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).
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 their 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.
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)
In situations where the majority shareholder holds at least 90 percent of the share capital in a public limited company one or more minority shareholders may request that the majority shareholder offers such minority shareholders appropriate cash compensation for the purchase of all of the remaining shares within one month of receipt of the request (right of minority shareholders to exit the company or minority shareholder sell-out). If the cash consideration offered is not appropriate, each minority shareholder may propose that the court determine the appropriate level of consideration. The same shall apply if the majority shareholder offers no compensation or offers it in an inappropriate manner.
Furthermore, on a proposal by shareholders whose holdings total not less than one tenth of the subscribed capital or a nominal amount or the pertaining amount of subscribed capital totals at least 400.000,00 EUR the court may appoint a special auditor with the aim of verifying the foundation procedures and management of individual operations of a company or an extraordinary auditor with the aim of verifying a possible underestimate of items in the annual report.