What are the key decision-making organs of a target company and what approval rights do shareholders have?
Mergers & Acquisitions (3rd edition)
The board of directors has general decision-making power with the exception of those items explicitly requiring a decision of the shareholders’ meeting.
Depending on the nature of the M&A transaction and from a target company’s perspective, the decision-making powers can lie with:
- the shareholders’ meeting of the target;
- the individual shareholders of the target;
- the board of directors of the target.
Transactions taking place in application of a procedure laid down in the Belgian Companies’ Code (such as mergers, demergers, a transfer of a universality of goods) will typically require a decision of the shareholders’ meeting. The board of directors will be involved in the preparatory phase (and will for example prepare the proposal for the transaction, which must include certain mandatory information in relation to the companies involved and some transactional related information, and might be required to issue a special report, in which it explains the proposed transaction from a legal and economic perspective – also see below – question 9).
In share deals, including public offers, it is up to the individual shareholders of the target to decide whether to sell their shares. There might, however, be certain transfer restrictions pursuant to which the prior approval of the target’s shareholders’ meeting is required (more relevant in private M&A). Also, the board of directors of a target may influence the deal by deciding to frustrate a public bid and take action accordingly (see in this regard below – question 24).
Cherry-picking asset deals through an asset purchase agreement may occur by means of a decision of the board of directors. It, however, occurs in practice that transactions exceeding a certain threshold require the prior consent of the shareholders’ meeting.
The key decision making organs of a target company are its board of directors. The Board of Directors as in other jurisdictions must comply and be mindful of their duties owed to the company when making any decisions.
All shareholders, whether or not they ordinarily have the right to vote, have the right to vote on a merger or amalgamation under the Companies Act. In addition, pursuant to the Companies Act, any shareholder who did not vote in favour of the amalgamation or merger and who is not satisfied that he/she has been offered fair value for the shares may within one month of the giving of the notice required under the Companies Act in respect of the merger or amalgamation apply to the courts in Bermuda to appraise the fair value of his/her shares. The Companies Act sets out this appeal process and what should occur in the event that the Court appraises the fair value of the shares of the target company.
Although the key decision-making organs will vary depending on the type of company, the principal corporate organs of a target company are:
(i) In a corporation, there is a shareholder´s assembly and a board of directors; the principal power of the shareholders assembly will be to amend the by-laws of the company (therefore approving a spin-off or merger) and decide on the main corporate decisions of a company. The board of directors will normally approve the entering into material agreements by the company, including the sale of assets of the target company, and in general undertake the managing of the company; and
(ii) In a simplified stock corporation, the corporate organs will be similar to the ones provided for the corporation, but in this type of company the board of directors is optional.
a) Croatian joint-stock company
Fundamental corporate decisions are adopted by the general assembly (glavna skupština), provided that the shareholders are not entitled to issue binding instructions to the management board (uprava), which is obliged to act in the best interest of the company. The supervisory board (nadzorni odbor) appoints and revokes management board members, reviews and controls their work and reports to the general assembly. The general assembly’s rights mainly concern most significant corporate decisions such as amendments of the articles of association, increase / decrease of the registered share capital, approval of the merger or demerger plan, transformation into another legal form, sale of significant business asset and similar. In private M&A transactions where the target is the joint-stock company, the articles of association may provide that an approval of the target (i.e. its management board) for the transfer of shares is required.
b) Croatian limited liability company
The corporate bodies of a limited liability company consist of the management board (uprava), the shareholders’ meeting (skupština) and, depending on a company’s voluntary business decision or in cases prescribed by law, the supervisory board (nadzorni odbor). The management board represents the company and is subject to mandatory shareholders instructions. The shareholders’ meeting is the ultimate decision-making body of the company. The decisions concerning the constitution and existence of the company (the articles of association’s amendments, bankruptcy and liquidation of the company) as well as the operation of the company’s business (e.g. the appointment and/or revocation of managing directors and members of the supervisory board) are within the shareholders’ competence. Where existing, the supervisory board appoints management board and usually provides expert know-how, but is not operationally engaged in company’s management activities.
As opposed to the joint-stock company, the members of the management board in a limited liability company are bound by the instructions issued by the shareholders’ meeting. Generally, the ability of the shareholders to guide, instruct and influence the policy and management is considerably stronger than that of shareholders in joint-stock company.
Share deal: only the shareholders considered individually have the right to resolve the sale of their shares. Unless a binding Shareholders Agreement exits, no need to obtain consent from non-selling shareholders.
Asset deal: depending on the bylaws of the company, the Shareholders or Board of Directors (if applicable) could have to approve the deal.
In limited liability companies, which is the dominant corporate form in Austria, shareholders typically have a very strong position and the shareholders' meeting is the ultimate decision-making body of the company. While the managing directors are responsible for the management and the representation of the company, the shareholders have the right to issue instructions to the managing directors and typically have the right to approve or veto important matters regarding transactions as set forth in the articles of association. Asset deals typically will require the approval of the shareholders. Share deals in private M&A transactions do not require the approval of the target company, though for companies with multiple shareholders the articles of association may provide that the company itself has to approve the transaction.
If certain thresholds are exceeded (e.g., more than 300 employees) a supervisory board needs to be established in limited liability companies.
In joint stock corporations, the decision-making process is different. Under the Stock Corporations Act, shareholders are not entitled to issue instructions to the board of directors, which generally acts independently. The board of directors is appointed and supervised by a supervisory board, which in turn is appointed by the general assembly of the shareholders. In private M&A transactions where the target is a stock corporation, the articles of association can foresee that an approval of the target for the transfer of the shares is required.
Mergers and other reorganisations, spin-offs or transformations require the approval of the shareholders.
Company directors generally must act in accordance with the business judgment rule. The following prerequisites must be fulfilled so that the business judgement rule is complied with: (i) the subject matter of the decision is a business matter which provides options to proceed (unternehmerische Entscheidung); (ii) the business decision is not based on extraneous interests (i.e. personal interest of the management, third parties' interests) (keine sachfremden Interessen); (iii) the business decision is based on adequate information (Handeln auf Grundlage angemessener Information); (iv) the decision is based on the available information in an ex ante view in the best interest of the company itself (Handeln zum Wohl der Gesellschaft); and (v) the Management Board neither exceeds its competence by rendering the decision to implement the restructuring nor concludes an insider transaction (Insichgeschäft).
The most common types of companies in the Czech Republic are limited liability company (in Czech: společnost s ručením omezeným) and joint-stock company (in Czech: akciová společnost). Partnerships are less frequently used in the Czech Republic.
The general meeting/shareholders make the most important decisions related to the existence and business activity of the company, including granting an approval of share and some asset deals (e.g. sell of an business enterprise or its part), mergers and other reorganisations, spin-offs or transformations. While it is possible to have further decisions made subject to the approval of the general meeting/shareholders, the general meeting/shareholders are not entitled to issue direct instructions to the board of directors/managing directors as the executive bodies. The board of directors/managing directors are appointed by the general meeting (or, if stipulated in the articles of association, by a supervisory board). The supervisory board supervises the exercising of powers by the executive bodies whereby the supervisory board may not been established in the limited liability companies. Under circumstances given in the Business Corporations Act, the powers of the board of directors and the supervisory board may be accumulated in the so called administrative board of the joint-stock company.
British Virgin Islands
The Board of Directors of the target company will be integral in consummating a merger or acquisition, whether by statutory merger, plan or scheme of arrangement, equity acquisition or asset acquisition.
In the context of a statutory merger, the directors will be required to approve the terms of the transaction. In the case of a plan or scheme of arrangement, the approval of the directors will be required. The standard position for a BVI company (other than a listed company) is that any transfer of shares is subject to the consent of the directors.
It is common for the directors of a listed company to elect to establish an independent committee of uninterested directors to consider takeover offers. Whilst this may assist from a risk-management perspective, it does not provide the same “safe harbour” or “roadmap” protection it may offer in other jurisdictions.
After the directors of each constituent company have approved the Plan of Merger by resolution, the Plan of Merger needs to be authorised by a resolution of each constituent company’s members. Where a constituent company has more than one class of shares outstanding and its memorandum and articles so provide (or if the Plan of Merger contains any provision that, if contained in a proposed amendment to the memorandum or articles, would entitle the class to vote on the proposed amendment as a class), the holders of each class will be entitled to vote on the Plan of Merger separately as a class.
If a meeting of members is to be held to obtain a resolution of members, then notice of the meeting, together with a copy of the Plan of Merger, must be provided to each member, whether or not he is entitled to vote on the merger.
If the written consent of members is sought, a copy of the Plan of Merger must be provided to each member, whether or not he is entitled to consent to the Plan of Merger.
As mentioned above, in the case of a merger of a parent company with one or more subsidiary companies, shareholder approval is not required.
The directors of a company or the manager(s)/managing member(s) of an LLC (as applicable) (the “Board”) will be integral in consummating a merger or acquisition, whether by merger, scheme of arrangement or equity acquisition.
In the context of a merger, the Board will be required to approve the terms of the transaction on behalf of the company. For a scheme of arrangement, the company must consent to the scheme which will involve the consent of the Board. It is traditional that the transfer of shares in a Cayman Islands company or membership interests in a Cayman Islands LLC (other than a listed company) is subject to the consent of the Board. As such, the Board will generally be able to control an equity acquisition.
In relation to a company, the directors will, in making decisions on a proposed takeover, need to act consistently with their fiduciary duties, including (i) by acting bona fide in the best interests of the company (meaning the shareholders of the company as whole), and (ii) by not allowing their personal interests to conflict with their duties to the company. Directors of a company have a strict duty to avoid a conflict of interest. However, the constitutional documents of a company will almost invariably contain provisions which relax this duty, usually by allowing directors to vote and count in the quorum in connection with transactions in which they are interested, provided they make appropriate disclosures (albeit such provisions do not modify the directors’ overriding duty to act bona fide in the best interests of the company).
In relation to an LLC, the default position under the LLC Law is that, subject to any express provisions in the LLC agreement, the manager(s)/managing member(s) of an LLC will not owe any duty (fiduciary or otherwise) to the LLC other than the duty to act in good faith, including when making decisions on a proposed takeover. A higher standard is often imposed on the manager(s)/managing member(s) (in such capacity) in the LLC agreement.
It is common for the Board of a listed company to elect to establish an independent committee of uninterested members to consider takeover offers. While this may assist from a risk-management perspective, it does not provide the same ‘safe harbour’ or ‘roadmap’ protection which it may offer in other jurisdictions.
Absent any special thresholds or consent required by the constitutional documents of a company and the consents discussed above, shareholder approval of two-thirds of those attending and voting at the relevant meeting is required for a merger or consolidation of a Cayman Islands company or an LLC.
A scheme of arrangement will require the approval of a majority in number representing 75% in value of the members or class of members, as the case may be, present and voting at the meeting.
Where the transaction is structured as a sale and purchase of shares, the role of the corporate bodies of the target are generally limited.
Conversely, where the deal is structured as a merger or a share capital increase, the shareholders’ meeting of the target company, play an important role.
Finally, where an public offer is filed, the target’s board must provide a reasoned opinion on the offer, such opinion being made public in the offer documentation.
The key decision-making organs of SAs are the Board of Directors (BoD) and the General Assembly (GA). The BoD represents the company and decides about any type of action relating to the management of the company, the handling of its assets and the implementation of its goals. The GA is exclusively competent for issues such as the amendment of the company’s articles, election the BoD, profit distribution, increase or reduction of the share capital, and the merger, division, modification, revival, extension or resolution of the company. Each share category decides separately too. Approval/first refusal/veto rights may be contained in the articles of the company. The ambit of the statutory formations that can be agreed in the articles has been expanded through the recently passed reformed company law.
The key decision-making organ of a target company is its board of directors. However, in relatively small transactions, a representative director, or an executive officer who is authorized by a representative director, may have the power to make decisions for the target company on such transactions.
Shareholder approval is required when a Japanese company desires to engage in or conduct certain transactions stipulated in its Articles of Incorporation or by law, e.g., a sale of a subsidiary, a business transfer or certain statutory corporate reorganizations such as a merger or a demerger (kaisha bunkatsu). Although, in each case, if the size of the transaction does not meet a certain threshold, shareholder approval may not be necessary.
The directors of a company will be integral in consummating a merger or acquisition, whether by way of merger, scheme of arrangement or share acquisition.
Scheme of Arrangement – a key condition is that the compromise or arrangement is approved by a majority in number representing 75% of the voting rights of the members (or value of creditors).
Merger – a merger agreement must be prepared which must be submitted for approval by a special resolution of each merging company.
The shareholders of the target company decide whether or not to approve the proposed acquisition but depending on the method of acquisition, board approval and an order granted by the Supreme Court of Mauritius may also be necessary. Where an entity involved is licensed in Mauritius, the consent of the FSC will likely be required. The offeror may also need to notify the Competition Commission prior to the acquisition if the latter results in acquiring more than 30% of a market.
The key decision-making organs are the general meeting and board of directors.
In terms of approval rights, as noted in question 5, 75 per cent of shareholders must approve a scheme of arrangement. In addition, under the MCL, the directors of a public company, a subsidiary of a public company or (if its constitution provides) a private company, cannot sell or dispose of such company’s main undertaking without the consent of the company in a general meeting.
The key decision making organs of a target company is in most situations, the chief executive officer (CEO)/the management team, the board of directors, and the shareholders meeting (the general meeting). Some Norwegian companies may also have appointed a corporate assembly. Such corporate assembly must be appointed in private (AS) and public (ASA) companies with more than 200-employees unless the company has entered into an agreement with the majority of employees or the trade unions agreeing otherwise.
The board of directors of both AS-companies and ASA-companies has an overall management function and a supervisory function over the company and the CEO. The board is, unless otherwise provided in the articles of association, or if the company is obliged to have a corporate assembly, elected by the company's shareholders (please note however, that in companies with 30 employees or more there are rules of employees' appointment of board members). If a corporate assembly is required (see above), the board must instead be elected by such corporate assembly, while the majority of the corporate assembly is elected by the shareholders.
The shareholders execute their shareholding rights through the general meeting. A merger will be subject to approval from the general meeting. However, note that statutory mergers cannot be carried out without the board’s consent, as it is the board’s responsibility to prepare the merger and present it for the shareholders’ approval at the general meeting.
If an acquisition is effected using a voluntary tender offer, the approval rights of the shareholders will normally depend exclusively on the level of required acceptances set out by the bidder. A bidder seeking to obtain control over the target’s board will, require more than 50 per cent of the votes on the target’s general assembly. To amend a target’s articles of association requires at least two-thirds of the votes and the capital. To effect a squeeze-out requires more than 90 % of the votes and share capital on the target’s general meeting. Most takeover offers will include an acceptance condition of more than 90 per cent of the shares, a condition that can be waived by the bidder.
The articles of association and a shareholders’ agreement may also contain provisions that give existing shareholders approval rights over a planned acquisition of shares or assets in the target company. A sale of the shares in a Norwegian target company, may under certain circumstances require the consent from more than 2/3rd of the shareholders in such target’s parent company, if such parent has no other activity and/or holds no other assets than the shares in the target company. Asset transactions, especially if a substantial part of the target company’s business is disposed of, may also require the approval of the general meeting of the target company.
The key decision-making organs of a company are the General Shareholders Meeting and the Board of Directors. These organs can oversee, discuss and decide on relevant agreements such as the selling of a part or the whole company as well as other relevant matters related to an M&A transaction. These organs must comply with the quorum to approve a proposal, according to the bylaws or the Corporations Law, otherwise the approved agreement could be void.
The principal approval rights that the shareholders have, regarding an M&A operation, are the following: (i) the removing of the directors from the board; (ii) amendment of the bylaws; (iii) agreeing on the disposal, in one only act, of assets whose book value exceed the fifty percent of the capital of the company. The second most important decision-making organ is the Board of Directors. The members of the board are designated by the shareholders and it’s their duty to advice and support the General Shareholders Meeting in decision-taking on matters related to the company common activities and other matters that the General Shareholders Meeting designate to them.
In certain cases, it is possible that the bylaws of the target company provides for an approval of the shareholders prior to transferring certain amount of shares, or even a preemptive right in favor of the target company.
It is important to know that in Peru, direct acquisition of shares -and not mergers- is the most common mean to take control of a corporation. Accordingly, in a direct negotiation with controlling shareholders, the participation of the board of the target company is secondary.
As a general rule, the Board of Directors (“BOD”) is the central repository of all corporate powers although certain management powers may be delegated to executive or management committees. The extent of delegated powers of executive or management committees are provided for by the by-laws.
In general, a majority vote by the BOD is all that is required to enable the corporation to transact. Shareholders’ approval is required in extraordinary corporate acts such as: (a) extension or shortening of corporate term, (b) increasing or decreasing authorized capital stock, (c) incurring, creating, or increasing bonded indebtedness, (d) denying pre-emptive rights, (e) selling, disposing, leasing, encumbering all or substantially all of corporate assets, (f) investing in another corporation or business or any purpose other than in the primary purpose, (g) declaring stock dividends, (h) entering into management contracts, (i) amending the AOI, (j) adopting or repealing the by-laws, (k) delegating to the board the power to amend the by-laws, (l) fixing the issued value price of shares, and (m) mergers and consolidations.
Isle of Man
In an asset sale, subject to the provisions of the target’s constitutional documents, the board of directors have legal power to act without shareholder consent, however in practice, the directors would seek the approval of the shareholders.
A scheme of arrangement requires the approval of a majority in number representing at least 75% in value of the shareholders or class of shareholders present and voting at the relevant shareholder meeting, together with the approval of the Court.
A takeover offer must be approved by the holders of not less than nine-tenths in value of the shares affected.
In private M&A deals, the transaction documentation is usually negotiated directly between the seller(s) and the purchaser(s) and therefore the decision to sell or purchase of a company rests solely with such parties.
Any decision that may be required from the target in the context of the M&A deal will usually fall within the powers of its management or – depending of the type of company – shareholders.
In public M&A deals, the board of directors is called upon to review the prospectus the bidder files with the CMVM, and issue a report on the offer, branding it as either hostile, friendly or neutral.
Shareholders do not exercise any formal approval right and are only called to issue acceptance orders once the PTO is duly registered and running. In certain cases, shareholders may convene to resolve on matters related to the PTO but not the PTO itself – for instance, to approve the removal of voting caps or other defensive measures or a merger or share swap that may occur as a result of the PTO.
Depending on the type of target company, the key decision-making bodies are the shareholders meeting, the board of directors (one tier system), the supervisory council and the directorate (two tier system).
The powers of the shareholders meeting are usually set out in the articles of association. In principle, any material transactions require approval from the shareholders meeting, but the materiality thresholds may differ.
Key decision-making organs, depending on the form of the target company, are as follows:
(i) Modern Russian law provides for the possibility of extensive fine tuning of decision-making mechanics in a non-public company, and relevant specifics are provided in companies’ charters. Usually, in a non-public company, a general meeting of participants (shareholders) of the company acts as the managing body with ultimate authority, including a number of issues expressly reserved to it by law, such as reorganisations (including mergers) or introduction of changes to the company’s charter. Other issues typically reserved for the general meeting (unless delegated to the board of directors, an optional body) include approval of major and interested party transactions, thresholds for which are set in the law and the charter of the company. Additional approvals can be required by the charter of the company. Everyday business is managed by a chief executive body, which may now consist of one or several persons, acting together or independently from each other. Optionally, a board of directors and/or a management board may be formed as, accordingly, supervisory or collective management authority.
(ii) In a public joint-stock company, the scope of issues reserved to the competence of a general shareholders’ meeting is set forth in the law and cannot be changed or delegated to the board of directors/ management board. The list of reserved matters includes, among others, decisions on reorganisation, changes in the company’s charter, approval of major and interested party transactions. No additional requirements related to sales of shares can be set in the charter of a public joint-stock company. Everyday business is managed by a chief executive body, plus a company should form a board of directors as supervisory authority and may form a collective management body (management board).
The board of directors are the key decision makers of all companies in South Africa, however approval rights are directly linked to the means of the acquisition.
A scheme of arrangement as explained in question 5 above will require the approval of the board of directors and the independent board under the Takeover Regulations. However, in a general offer, the offer is made directly to the shareholders. Similarly, in a mandatory offer no board approval is required.
The key decision-making organs of a limited liability company are the Board of Directors and the shareholders’ meeting. The Board of Directors is in charge of the company and runs its business while certain issues, such as the issuing of equity instruments and appointment of the board members, require resolutions from the shareholders’ meeting. In a private Swedish share transfer transaction it is the shareholders of the target company that make the transaction related decisions while the Board of Directors of the target company normally only is involved in the due diligence exercise. In an asset deal, the Board of Directors of the selling company will be the decision making body (although the final decision may sometimes be referred to a shareholders’ meeting if the assets sold are considered material to the selling company’s operations).
In furtherance of the above, a public takeover offer is by its nature directed towards the shareholders of the target company and each shareholder will have to decide whether to accept the offer. However, the Board of Directors is normally obliged to, inter alia, announce its opinion regarding the offer.
The key decision-making body of a target company is the board of directors.
In a friendly transaction the board of directors of the target negotiates with the bidder the terms of the contemplated tender offer. If the negotiations are successful, the company and the bidder typically enter into a transaction agreement in which, among others, the board agrees to support and recommend the offer to its shareholders for acceptance.
In an asset deal, it is the board of directors that approves the sale or purchase of the assets or business. However, the sale of all (or substantially all) assets of a company would be outside the board's authority and would have to be approved by the general meeting of shareholders. The same holds true if in connection with a transaction the articles of incorporation of the company need to be amended (e.g., because new shares are issued, or the corporate purpose is changed).
Statutory mergers of and de-mergers by the company under the Swiss Merger Act require the approval of the general meeting of shareholders.
The key decision-making organs of a target company are the board of directors and the shareholders meetings.
For a secondary share sale, there is generally no requirement for approval from the target company, either from a board of directors or shareholders meeting, unless the articles of association of the target company specify otherwise.
For a primary share issue/sale, shareholder approval by a majority of not less than three-fourth of the total number of votes of shareholders who attend the meeting and have the right to vote (or a higher proportion of votes specified in the company’s articles of association) (special resolution) is required for an increase of capital and allotment of new shares. Further, a private company cannot issue new shares directly to persons who are not already shareholders, so the acquirer must first obtain a small shareholding before the shareholders meeting is held to approve the issuance of new shares to the acquirer.
Under Section 107 of the PLC Act, the direct acquisition of a business of another company (which includes the acquisition of shares in another company which becomes a subsidiary as a result of the transaction) requires approval by a special resolution. This requirement does not apply if the acquisition is done by a subsidiary.
In addition, in the case of a listed company, if the acquisition is of a material size compared to the size of a listed company (various tests are applied) it may require shareholder approval by a special resolution.
In the case of an acquisition of primary shares (i.e. newly-issued shares) of a listed company, the issuer will require shareholder approval for the increase of capital (by a special resolution) and allotment of new shares (by a simple majority vote) (ordinary resolution).
Typically, the board of directors and the shareholders are the key decision-making organs of any target company. The Companies Law sets forth certain matters that require shareholder approval, such as the merger or dissolution of the company. Furthermore, the shareholders’ agreement may include matters reserved for the shareholders (i.e. requiring shareholder approval).
The key decision-making organs of a target company are its board of directors. The board of directors may delegate their powers to their managing director, the manager or any other principal officer of the company. However, certain key decisions compulsorily need the approval of the target company’s shareholders.
For example, matters such as selling, leasing or otherwise disposing of the whole or substantially the whole of the undertaking of the company; borrowing monies, where the monies to be borrowed, together with the money already borrowed by the company would exceed the aggregate of its paid-up share capital, free reserves and securities premium; investing the amount of compensation received as a result of any merger or amalgamation; to remit, or give time for the repayment of, any debt due from a director.
8.1 There are three key corporate forms under Vietnam law. All Vietnam-domiciled companies (with isolated exceptions) exist under one of these three corporate forms. These three corporate forms include:
(i) joint stock companies (also referred to as “shareholding companies”) (JSCs);
(ii) limited liability companies with one member (LLC1s); and
(iii) limited liability companies with two or more members (LLC2s).
8.2 All public companies take the corporate form of a JSC, but there are also JSCs which are not public companies. In the case of all JSCs (whether public or private):
(i) the ultimate decision-making body is the General Meeting of Shareholders, which:
(a) consists of all of the holders of issued and paid-up ordinary or other voting shares;
(b) retains exclusive decision-making authority in relation to the most fundamentally important aspects of the ownership, structure, and corporate and business affairs of the JSC; and
(c) in most cases requires a 51% affirmative vote to pass ordinary resolutions and a 65% affirmative vote to pass special resolutions.
(ii) the General Meeting of Shareholders elects a governance body, which:
(a) is referred to as the “Board of Management”;
(b) is akin to the governance body referred to in most jurisdictions worldwide as the “Board of Directors”;
(c) retains exclusive decision-making authority in relation to many key aspects of the corporate and business affairs of the JSC;
(d) in most cases, requires a bare majority affirmative vote of >50% in in order to pass any resolution, with the Chairman normally having a casting vote in the event of a deadlocked vote;
(e) is chaired by a Chairman elected by the Board of Management (who performs important functions not only in relation to the operations of the Board of Management but also in relation to the convening and administration of meetings of the General Meeting of Shareholders); and
(f) is answerable to the superior decision-making authority of the General Meeting of Shareholders,
(iii) the Board of Management appoints a “General Director”, who is:
(a) the most senior executive managerial officer of the JSC;
(b) akin to the office referred to in most jurisdictions worldwide as the “Chief Executive Officer”;
(c) responsible for managing the day-to-day business operations of the JSC; and
(d) answerable to the superior decision-making authority of the Board of Management, and
(iv) the General Meeting of Shareholders in most cases elects a separate and distinct “Inspection Committee” (also referred to as the “Board of Supervisors”), which:
(a) was until recently a compulsory body but is now capable of being opted out of, pursuant to special resolutions of the General Meeting of Shareholders (subject to certain specified conditions);
(b) is responsible for supervising and reporting to the General Meeting of Shareholders in relation to the operations of the Board of Management, the General Director, and the other managerial officers and/or employees of the JSC;
(c) is broadly akin to the concept of an Audit Committee in many other jurisdictions worldwide;
(d) has broad powers to require the provision by the Board of Management, the General Director, or other managerial officers and/or employees of the JSC, of information and documents; and
(e) is answerable only to the General Meeting of Shareholders.
8.3 In the context of JSCs, amongst other exclusive decision-making powers of the General Meeting of Shareholders:
(i) whether the JSC is public or private, the capital structure of the JSC cannot be changed, new shares of any class cannot be authorised for issuance, and no dilutive issuance of shares or convertible instruments may be implemented, without special resolution approval by the General Meeting of Shareholders (usually ≥65% affirmative vote); and
(ii) in relation to public JSCs (and depending upon the express provisions of the charter of the relevant public JSC), the requirement for certain acquisitions to be implemented by way of a Mandatory Public Offer can only be waived by ordinary resolution approval of the General Meeting of Shareholders (usually a ≥51% affirmative vote).
8.4 Vietnam-domiciled companies having only one member (shareholder) can exist only in the form of an LLC1. In relation to LLC1s:
(i) there is no separate owner’s decision-making body (such as a General Meeting of Shareholders) and governance body (such as a Board of Management);
(ii) the sole member (owner) of the LLC1 (the Owner) must choose to have the LLC1 governed either by:
(a) a sole Chairman (also referred to as the sole “President”), appointed by the Owner as its “authorised representative” to:
(I) represent the Owner in respect of its 100% equity interest in the LLC1; and
(II) make decisions for and on behalf of the Owner, or
(b) a “Member’s Council”, consisting of two or more “authorised representatives” of the Owner, appointed by the Owner to:
(I) represent the Owner’s 100% equity interest in the LLC1 in equal proportions or in such other proportions as may be allocated by the Owner; and
(II) make decisions for and on behalf of the Owner,
(iii) the sole Chairman or Member’s Council (as applicable):
(a) operates, in effect, as an owner’s body (such as a General Meeting of Shareholders) and a governance body (such as a Board of Management), rolled into one; and
(b) retains exclusive decision-making power in relation to most of the key aspects of the ownership, governance, and corporate and business affairs of the LLC1 (with very limited exceptions which are reserved for resolutions of the Owner itself),
(iv) the sole Chairman or Member’s Council (as applicable) appoints a General Director, who is:
(a) the most senior executive managerial officer of the LLC1;
(b) akin to the office referred to in most jurisdictions worldwide as the “Chief Executive Officer”;
(c) responsible for managing the day-to-day business operations of the LLC1; and
(d) answerable to the superior decision-making authority of the sole Chairman or Member’s Council (as applicable), and
(v) the Owner appoints one or more Inspectors (who, where there is more than one Inspector, form an Inspection Committee), being:
(a) responsible for supervising and reporting to the Owner in relation to the operations of the sole Chairman or Member’s Council (as applicable), the General Director, and the other managerial officers and/or employees of the LLC1;
(b) broadly akin to the concept of an Audit Committee in many other jurisdictions worldwide;
(c) in possession of broad powers to require the provision by the sole Chairman or Member’s Council (as applicable), the General Director, or other managerial officers and/or employees of the JSC, of information and documents; and
(e) is answerable only to the Owner.
8.5 In the context of LLC1s, no changes in the capital structure of the LLC1 can occur without the approval of the sole Chairman or the Member’s Council (as applicable) and/or resolutions of the Owner itself (depending upon the charter of the LLC1) and this includes any transfer of the whole or any part of the contributed charter capital of the LLC1.
8.6 In order for any part of the contributed charter capital of any LLC1 to be transferred by the Owner to any transferee, it is firstly necessary for the corporate form of the LLC1 to be converted into that of a JSC (which require a minimum of three shareholders) or an LLC2. This cannot occur without the approval of the sole Chairman or the Member’s Council (as applicable) and/or resolutions of the Owner itself (depending upon the charter of the LLC1).
8.7 In addition, in practical terms, no part of the contributed charter capital of any LLC1 can be transferred without the approval of the relevant provincial or municipal corporate licensing authority (being, in most cases, the relevant provincial or municipal Department of Planning and Investment (the DPI)).
8.8 In relation to LLC2s:
(i) there is no separate owner’s decision-making body (such as a General Meeting of Shareholders) and governance body (such as a Board of Management);
(ii) the LLC2 is governed by a “Members’ Council”, consisting of:
(a) all of the members (Owners) being natural persons; and
(b) in relation to each Owner being a company or other non-natural legal entity, one or more “authorised representatives” of that Owner, appointed by that Owner to represent specified proportions of that Owner’s equity ownership interest in the contributed charter capital of the LLC2, for the purposes of sitting on the Members’ Council and voting the charter capital percentages allocated to them,
(iii) the Members’ Council:
(a) operates, in effect, as an owner’s body (such as a General Meeting of Shareholders) and a governance body (such as a Board of Management), rolled into one; and
(b) retains exclusive decision-making power in relation to all of the key aspects of the ownership, governance, and corporate and business affairs of the LLC2,
(iv) the Members’ Council appoints a General Director, who is:
(a) the most senior executive managerial officer of the LLC2;
(b) akin to the office referred to in most jurisdictions worldwide as the “Chief Executive Officer”;
(c) responsible for managing the day-to-day business operations of the LLC2; and
(d) answerable to the superior decision-making authority of the Members’ Council,
(v) where there are more than 11 Owners, the Owners must appoint an Inspection Committee, but where there are 11 or less Owners, the appointment of an Inspection Committee is optional;
(vi) where an Inspection Committee is appointed, that Inspection Committee:
(a) must consist of two or more Inspectors;
(b) is responsible for supervising and reporting to the Owner in relation to the operations of the Members’ Council, the General Director, and the other managerial officers and/or employees of the LLC2;
(c) broadly akin to the concept of an Audit Committee in many other jurisdictions worldwide;
(d) in possession of broad powers to require the provision by the Members’ Council, the General Director, or other managerial officers and/or employees of the LLC2, of information and documents; and
(e) is answerable only to the Owners.
8.9 In the context of the Members’ Council of an LLC2:
(i) voting power is dictated by the percentage of the contributed charter capital (in the case of Owners being natural persons) held by each respective Owner or (in the case of Owners being companies or other non-natural legal entities) the “authorised representatives” of each respective Owner having been appointed by that Owner to sit on the Members’ Council;
(ii) ordinary resolutions in most cases require an affirmative vote representative of ≥65% of the contributed charter capital of the LLC2, in order to be passed (depending upon the provisions of the charter of the LLC2); and
(iii) special resolutions in most cases require an affirmative vote representative of ≥75% of the contributed charter capital of the LLC2, in order to be passed (depending upon the provisions of the charter of the LLC2).
8.10 In relation to LLC2s:
(i) no changes to the charter capital (that is, any increase or decrease of the registered charter capital) of the LLC2 may be made without special resolution approval of the Members’ Council;
(ii) Owners enjoy pro rata pre-emptive rights to participate in any charter capital increases and are thus protected from dilution;
(iii) Owners enjoy pro rata pre-emptive rights in relation to any proposed sale by any Owner of the whole or any part of its contributed charter capital (provided that the other Owners are given due and proper opportunity to exercise their pre-emptive rights, transfers of contributed charter capital do not require any further internal corporate approvals unless specified otherwise in the express provisions of the charter of the relevant LLC2); and
(iv) no part of the contributed charter capital of the LLC2 may be transferred without the approval of the relevant provincial or municipal corporate licensing authority (in most cases, the DPI).
8.11 Although the voting percentage thresholds outlined above in this Section 8 are common and reflect the prevailing norms, the charter of any JSC (whether public or private), LLC1, or LLC2 must always be checked in order to verify the specific requirements for the passing of resolutions by the relevant shareholders’ or members’ body.
The key decision-making body of a company is its board of directors. Although the board typically delegates running the day-to-day operations to management, it is nonetheless ultimately responsible for the management of the company, and directors are expected to supervise managers and exercise oversight in order to fulfill their fiduciary duties. This authority translates to the M&A context where the board is the primary initial decision-maker of the target with respect to a potential transaction. In negotiated acquisitions, the target’s board decides whether to approve a transaction in the first instance and, in the case of a public company, what recommendation to make to shareholders. In hostile transactions, although the hostile bidder typically makes an offer directly to shareholders, the target’s board must still make a recommendation to its shareholders. Moreover, in practice, hostile takeover attempts generally turn into a battle over the board of the target company, either by attempting to replace the directors with a friendly slate of directors that will negotiate with the hostile bidder, or by attempting to persuade the directors to change their minds.
Shareholders of a company elect its board of directors. Shareholders are also generally entitled to vote on any extraordinary transactions, such as selling all or substantially all the assets of the company, mergers and changes to organizational documents. A buyer’s shareholders generally do not have the right to vote on an acquisition unless the certificate of incorporation provides otherwise or under certain other circumstances, such as if there will be changes to the certificate of incorporation or a substantial amount of stock will be issued as consideration (typically 20% or more of the shares outstanding prior to issuance). In certain states (not including Delaware), the state corporation law does entitle a buyer’s shareholders to vote on significant acquisitions.
The shareholders’ meeting is typically the highest decision-making organ of a PRC company, followed by the board of directors. Subject to ,a company’s articles of association, typically simple majority approval by the shareholders’ meeting is required for most material corporate actions. One exception to this structure, however, is a Sino-foreign equity joint venture (EJV), in which there is no shareholders’ meeting, making the board of directors the highest decision-making organ in an EJV. As a result, shareholders technically have no approval rights in an EJV. However, PRC law requires that certain actions are unanimously approved by the board of directors, amendments to the EJV’s articles of association, suspension or dissolution of the EJV, registered capital increases or decreases, and mergers or divisions. All other decisions require a simple majority of an EJV’s board of directors.
The key decision-making organs in a target company are its board of directors and the general assembly of its shareholders. The board is responsible for the management and operation of the target company within its vested authorities, but may not, unless it is explicitly authorized to do so by the general assembly, decide on matters that fall within the prerogatives of the shareholders in the general assembly. Pursuant to Companies Law, the board of directors is authorized to increase the company’s issued capital within the authorized capital. However, the board of directors of a listed company may not exercise such an authority which falls within the authority of the ordinary general assembly of the shareholders.
The ordinary general assembly of shareholders is competent to decide on matters including approving the financial statements, increasing the issued capital, distribution of dividends and appointing the auditor. The extraordinary general assembly of shareholders is competent to decide on matters including amendment of the statutes of the target company, increasing its authorized capital or decreasing its capital, extending its term and entering into liquidation or a merger.
The shareholders of the target company (or the relevant requisite majority of shareholders) ultimately decide whether to approve the proposed acquisition/merger. Typically the board will deal with much of the negotiations and preparations in relation to a transaction, presenting the results to the shareholders for approval and execution where necessary.
Statutory squeeze out rights exist in Guernsey that allow for a decision approved by 90% of the shareholders to sell the entire issued share capital of a company to bind any remaining dissenting shareholders. This figure is reduced to 75% shareholder approval for a scheme of arrangement, however such a scheme requires the sanctioning of the Royal Court of Guernsey who will consider the rights and potential impacts on all of the shareholders and creditors of the company when deciding on whether to approve such a scheme.
Further details on the required shareholder majorities to approve an amalgamation or scheme of arrangement are set out at paragraph 5 above.
Please refer to the relevant Offshore Chapter for the key decision-making organs of a target company and the approval rights of shareholders in the respective offshore jurisdiction.
In both public and private M&A transactions, the board of directors of the target company is the key decision making body of a company and the directors must have regard to their fiduciary duties and act in the best interests of the company for the benefit of its shareholders as a whole. In public M&A transactions, the Code sets out a number of requirements in relation to the responsibilities and conduct of the target company’s directors. All directors, not just the executive directors, are responsible for the target company’s compliance with the Code and this extends to situations where powers are delegated to a committee. In addition, the Code requires that all target directors take responsibility for the documents published in connection with a takeover bid, except for any separate opinion of the employee representatives of the target company or the trustees of the target company’s pension scheme.
Shareholders in a public M&A transaction will be able to either approve the scheme of arrangement or accept a takeover offer in respect of their shares. Significant shareholders may also be consulted by the target board shortly before a deal is announced (provided the shareholders in question have agreed to become “insiders”) in the context of the board determining whether or not to recommend a bid.
Where the transaction in question is of a particular size (broadly speaking, if the deal is 25% or more of the size of the listed company), under the UK Listing Rules, the listed bidder will need to obtain the approval of its shareholders to any such transaction. Similarly, if the transaction is with a related party, the listed bidder will need to obtain the approval of its shareholders to the proposed transaction.
In a private M&A transaction, selling shareholders will ultimately decide whether to sell their shares or not. In terms of approval rights, there may be specific shareholder approval rights contained in a company’s articles of association and/or in a shareholders’ agreement which may be triggered by a particular transaction contemplated by a private UK company. Absent this, and if the transaction is not one that the UK legislation specifically requires shareholder approval (for example, the sale to or purchase from a director of the company of a substantial asset which does require shareholder approval), specific shareholder approval in a private M&A transaction is not typically required.
The two decision-making organs of a target company are the company’s shareholders and board of directors. Although the ultimate decision is vested with the shareholders who will accept or reject a bid, the views of the board of directors on a bid are still of vital importance given that the views of the board of directors usually affect in practice the decision of the shareholders.
In the case of a private M&A transaction, the respective boards of directors will discuss, negotiate and approve the terms of the merger and subsequently present them to the shareholders and creditors of the merging companies for their approval.
In the case of an acquisition, the board of directors of the target company may reject a bid made, on a confidential basis and not announce the bid and/or its rejection to the shareholders. It must be noted, however, that as of the date that the directors take notice of a bid, they cannot take several actions unless authorised by the shareholders in a general meeting.
Shareholders’ meeting and management body Under the general corporate governance regime set out in the Civil Code, corporate decisions are basically taken at two levels in case of Hungarian companies: Essential strategic, business and personal matters of the target company are decided at the shareholders’ level, such decisions being taken by the company’s supreme body comprised of all shareholders (the shareholders’ meeting). Matters not referred to the competence of the shareholders are decided by the management of the company consisting either of one or more managing directors (in case of a limited liability company) or a board of directors / sole director ) in case of a company limited by shares. Matters referred to the competence of the management usually include operative issues.
Hungarian corporate law clearly divides and protects the competence of the different corporate decision making bodies. Although the management body must abide by the decisions made by the shareholders’ meeting in its competence, the shareholders’ meeting does not have the right to limit the management body’s competence and refer certain matters to the competence of the shareholders’ meeting on an ad hoc basis. Also, the shareholders’ meeting does not have the right to instruct the management body in matters falling into the management body’s competence. As an exemption, the Civil Code provides that the sole owner of a target company has the right to instruct the management body in any matter, and the management body is obliged to follow such instructions.
In general, it is the competence of the shareholders’ meeting to decide on the following essential matters regarding the target company:
i) merger and demerger,
iii) increase or decrease of registered capital,
iv) modifying the target company’s articles of association,
v) approval of acquisition of shares in the target company by a third person (if applicable), purchasing the shares in the target company to be offered to a third person or designating another third person to purchase (if applicable),
vi) appointment and dismissal of the management body, the auditor and the members of the supervisory board (if applicable),
vii) bringing damage claims against the members of the management body, a shareholder, the auditor or any member of the supervisory board.
As a general rule, the shareholders’ meeting takes its decisions with the majority set forth in the articles of association (usually 50 per cent plus one vote or two thirds of the votes), but in some of the above cases a legal minimum majority of three fourths of the votes is necessary to pass a decision.
Supervisory board According to the target company’s articles of association, certain decisions of the shareholders’ meeting and those of the management body may be subject to the prior approval of the target company’s supervisory board. Further, the supervisory board may be vested with corporate decision making competences in case of which the supervisory board essentially takes on the role of the management body in respect of the matters referred to its competence.
The shareholders’ meeting and the board are the approving organs.
In a private limited company the managing directors are responsible for the day to day business. The articles of association may provide for a supervisory board; however, such an organ is not obligatory. In accordance with Article 505 of Companies Act (ZGD-1) shareholders decide on the adoption of the annual report and the use of accumulated profit, request for payment of basic inputs, return of subsequent payments, division and termination of business shares, setting up and recalling managing directors, measures to review and supervise the work of managing directors and enforcement of the company's claims against managing directors. According to Article 481 of ZGD-1 shareholders have a pre-emptive right to acquire business shares before other persons; however, this right can be excluded by the articles of association. In line with Article 620 of ZGD-1 mergers must be approved by a resolution of the shareholders adopted with at least a three-quarters majority of votes, whereby the articles of association may stipulate a larger majority and lay down other requirements. Unless provided by the articles of association, shareholders of the target company do not have other approval rights.
Public limited companies are governed either by one-tier board system or a two-tier board system. The management board in a one-tier board system and board of directors in a two-tier board system are responsible for the management of the company. In a one-tier board system the board of directors also has supervisory authority. In a two-tier board system the managing board is supervised by a supervisory board. Shareholders exercise their rights at the general meeting and are not entitled to issue instructions to the board of directors or management board, which generally acts independently.
In accordance with Article 293 of the Companies Act (ZGD-1) the general meeting in a public limited company decides on the adoption of the annual report, the use of accumulated profit, appointment and recall of members of the supervisory and management boards, granting discharge to the members of the management or supervisory bodies, amendments to the articles of association, measures to increase and reduce capital, the dissolution of the company and statutory restructuring. In line with Article 585 of ZGD-1 mergers must be approved by a resolution of the shareholders adopted with at least a three-quarters majority of the subscribed capital represented in the voting, whereby the articles of association may stipulate a larger majority and lay down other requirements. A transfer of assets in the value of at least 25% of its total assets is also subject to approval by the general meeting of a public limited company with a 75% majority vote. However, this restriction is only internal and does not have any legal effect against third parties. The articles of association may also set forth that the general meeting of the target company must approve an M&A transaction with a certain majority of votes.