What are the key decision-making organs of a target company and what approval rights do shareholders have?
Mergers & Acquisitions
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 may approve the transaction.
If certain thresholds are exceeded (e.g., more than 300 employees) a supervisory board needs to be established.
In joint stock corporations, the decision-making process is different. Under the Joint 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 joint 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 like spin-offs or transformations require the approval of the shareholders.
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 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 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.
Unlike in the US and in the UK, Brazilian companies and corporations usually have very clear and visible controlling shareholders. Thus, as far as “pure” M&A deals are concerned (e.g., those involving a disposal of control or a relevant part of the capital stock by a controlling or a relevant shareholder), the approval rights of minority shareholders and company organs are very limited. Brazilian regulation however establishes mandatory tender offers (“MTO”), which are only applicable to publicly held companies, which are triggered in several cases, the most visible and important of which is the MTO caused by a disposal of the controlling stake of a listed company. In this case, minority shareholders would be entitled to sell their shares to the new controlling shareholder for at least 80% of the value paid to the party disposing of the controlling stake (this percentage however usually moves all the way up to 100%, depending on the corporate governance level where the company is listed at the local stock exchange). Also, several bylaws contain poison pills which push the value of an M&A up by increasing the cost of acquisition of control to a new buyer.
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 company (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.
However, the directors of a company 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 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 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.
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.
A scheme of arrangement will require the approval of each of the relevant class(es) of members whose rights are to be subject to the scheme - majorities which must be achieved for approval of each class of members are the same as those applicable to creditors.
ZL: According to Company Law, in a limited liability company, the shareholder meeting is the decision making organ; in an incorporated company, general meeting of shareholders is the decision making organ. Through the shareholder meeting or general meeting of shareholders, shareholders are entitled to make decisions on important items of the company, including guidelines of operation, investment plans, merger of companies, increasing or decreasing capital, separation, dissolution, liquidation, or company change.
According to Company Law, there is also a setup of board of directors (or an executive director) in a company, which is elected by and shall report to the shareholder meeting or general meeting of shareholders.
If the potential acquirer intends to acquire the target company by subscribing the increased capital or newly issued shares of the target company, the shareholder meeting or general meeting of shareholders of the target company will make resolutions on such capital increase; if the potential acquirer intends to acquire the target company by purchasing existing shares, the existing shareholders of the target company may have pre-emptive rights to purchase the shares to be transferred; additionally, in handling the formalities of change of shareholders as a result of the intended acquisition, cooperation of existing shareholders and their directors is indispensable.
The key decision making body in any limited liability company is the Board of Directors, which generally has the authority to resolve upon the disclosure of the target’s confidential information for due diligence purposes. If the target company is a contracting party in the transaction, the Board of Directors is also primarily responsible for deciding upon the transaction. However, if such transaction involves an acquisition or sale of a significant part of the company’s business operations or assets, then shareholder approval may also be required depending, e.g. on the articles of association of the target company.
German stock corporations (AG) are governed by a two-tier board system. While the executive board (Vorstand) is responsible for the day-to-day management of the company, the supervisory board (Aufsichtsrat) controls and advises the executive board. The same governance system applies to the SE unless the company opts for a one-tier system (rarely done in practice). In a German limited liability company (GmbH) the managing directors are responsible for the day to day business. A supervisory board is in principal not required. However the articles of association may provide for a supervisory board (Aufsichtsrat) or a similar organ (e.g. Beirat). Approval rights for the supervisory board of a stock corporation or limited liability company are usually provided for in the articles of association. Certain structural measures such as a capital increase or a statutory merger require the approval of the shareholders’ meeting. Further approval requirements of the shareholders’ meeting may be stipulated in the articles of association. Apart from such approval requirements fundamental decisions also require the approval of the shareholders’ meeting of a stock corporation according to the Holzmüller/Gelatine-judgements of the German Federal Court of Justice (Bundesgerichtshof). A similar concept applies to the limited liability company in which unusual management measures (außergewöhnliche Geschäftsführungsmaßnahmen) require the shareholders’ approval.
The two key decision making organs of Greek companies limited by shares are the Board of Directors and the General Meeting of Shareholders. The decision regarding the merging of a target company with another is made by the General Meeting of Shareholders, which approves the merger on the basis of a transformation balance sheet as well as the draft merger agreement prepared by the Board of Directors. If the share capital of the company is comprised by more categories of shares, the decision of the General Meeting on the merger is subject to the approval of the specific categories of shareholders, whose rights are affected by the merger. In share deals, shareholders are directly involved as contracting parties in the sale and transfer of shares transactions, whereby minority / non-selling shareholders may have veto, first refusal or similar rights depending on the specific provisions of the articles of association of the target company. Asset deals may also entail approval rights of shareholders, for example in major asset sale transactions, on the basis of relevant provisions of the articles of association and the companies’ law, usually in relation to intra-group transactions.
The shareholders of the target company (or the relevant requisite majority of shareholders) ultimately decide whether to approve the proposed acquisition/merger and there would usually also be Board approval.
The requisite shareholder majorities to approve an amalgamation or scheme of arrangement are set out at 5. above.
In order for the offeror to exercise statutory squeeze out rights (as discussed at 26. below), the takeover offer must be approved by shareholders comprising not less than 90% in value of the shares affected.
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 takeover offer must be approved by shareholders representing more than 50% of the voting rights in the target, although a higher threshold may be specified.
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 statutory merger must be authorised by:
- a resolution passed by a shareholder or shareholders holding at least 75% of the voting rights exercised at the relevant shareholder meeting; and
- a resolution passed by a shareholder or shareholders holding at least 75% of the voting rights exercised by each class entitled to vote as a class (at the time of the vote and following any amendments to the constitutional documents of the target).
The decision making organs of a Japanese company are usually the representative director, the board and the shareholders; although the representative director has wide-ranging authority to act on behalf of a company, major decisions, such a sale of a substantial part of its business or the shares in a subsidiary would require board, and sometimes shareholder approval.
In the case of share transfers, shareholders of a target company do not usually have approval rights, though the approval of the shareholders or the board of the target company is sometimes required by the company’s articles; this would still be the case even if the company is wholly-owned by the seller. If board approval is required, it should be noted that the directors of the target company have fiduciary duties to the company and it cannot be assumed that board approval will be given, even if the seller is the controlling shareholder of the target. The articles of the target company need to be checked at an early stage for any such restriction; it is sometimes prudent to revise the articles to remove the consent restrictions.
In most cases, a business transfer (i.e. the transfer of all or a substantial part of the target’s business), and certain technical procedures which are sometimes used for M&A deals must be approved by a super majority shareholders’ resolution (affirmative votes of at least two-thirds of shareholders) at a shareholders' meeting of the target company; this does not apply if at least 90% of the issued shares of the target company are held by another (parent) company.
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. As described under question 5, a merger will always 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.
Key decision making organs, depending on the form of the target company, are:
(i) 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’s is set forth in the law and cannot be changed or delegated to the board of director/ management board. The list of reserved matters includes 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).
Limited Liability Companies ("LLCs")
LLCs are managed through a single manager or a board of managers, the members of which are appointed by the shareholders. An LLC with more than 20 shareholders must also appoint a supervisory board composed of at least three shareholders to oversee and advise the manager or board of managers. The shareholders typically appoint and remove the managers by ordinary resolution (50%+1), though the LLC articles might require a higher threshold. The LLC articles can also give board appointment rights to specific shareholders.
There are no age, gender or nationality restrictions on managers (so non-Saudi nationals can have board seats), and there is no requirement for managers to actually hold shares in the LLC itself. The governance procedures for any board of managers will be set out in the LLC's articles and, if there is one, the relevant shareholders agreement. The NCL does not specify anything in particular on this, though the MOCI has an approved model form of articles for LLCs.
Only a single class of shares is permitted in an LLC, so voting rights will be consistent across all shares. Unless the LLC articles provide otherwise, shareholders will receive dividends in proportion to the number of shares that they hold, share in the company's assets upon a liquidation and have the right to review the company books. Any specific approval matters on items required by a shareholder will need to be incorporated into the LLC articles. Amending the LLC articles can only be done by way of a resolution signed by all LLC shareholders before a Saudi notary public. A draft resolution amending the articles must be pre-approved and stamped by the MOCI.
By law, members of an LLC have a right of first refusal on a transfer of shares in an LLC.
Joint Stock Companies ("JSCs")
JSCs are managed by a board of directors. The directors are entitled to exercise all the powers of the company, and can delegate these powers to committees or individual directors. As with LLCs, shareholders typically appoint and remove JSC directors by ordinary resolution (50%+1), though JSC articles also typically provide for the retirement of directors. Note, however, that the NCL introduced the principle of cumulative voting for JSCs, which can offer greater protection to minority interests (see question 25).
Directors of JSCs are appointed for a maximum of three years (except for the first board which can be appointed for up to five years). Re-appointment of directors is typical, though must be permitted under the JSCs bylaws.
A JSC board will elect a chairman from its members and may also appoint a managing director, who usually acts as CEO and can be removed or replaced by the board. As with LLCs, there are no age, gender or nationality restrictions on directors of JSCs.
The NCL has specific requirements for the governance of JSC board meetings, including that: (i) the quorum should be at least half of the members and in any event at least three members (unless the articles provide for a larger number); and (ii) the Chairman has a casting vote unless the articles provide otherwise.
Voting rights and matters requiring shareholder approval will be set out in the JSC's bylaws, although the MOCI tends not to be flexible in allowing material deviations from its model JSC bylaws. Amending the JSC's bylaws can only be done by way of a resolution approved at an extraordinary general assembly meeting, where the approval threshold is two-thirds or three-quarters depending on the type of amendment. Broadly speaking, resolutions of the extraordinary general assembly are passed by a two-thirds majority vote of the shares represented at the meeting, unless such resolution relates to: (i) capital increases or reductions; (ii) extensions of the JSC's term; (iii) premature dissolution of the JSC; or (iv) merger of the JSC with another company (in such cases, the resolutions will only be valid if passed by a three-quarters majority vote).
Unless the bylaws provide otherwise, JSC shareholders do not have a right of first refusal on a transfer of shares in a JSC.
The key decision-making organs of a target company are the board of directors and the shareholders meeting.
For a secondary share sale, there is generally no requirement for approval from the target company, either from the board of directors or the 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 ¾ of the total number of votes of shareholders who attend the meeting and have the right to vote (or 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 which approves the issue 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 with 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).
A company operates at the different levels through its two organs – the general meeting and the board of directors. The Listing Rules provide that the context of an offering process, the target company may only proceed to disclose such information that would enable prospective bona fide offerors to make an offer for the shareholding in the company once the consent of the general meeting has been obtained. In the case of a hostile bid being launched, the board may only implement measures aimed at frustrating the bid if such action has been sanctioned by the shareholders. The merger of a company requires the approval, by means of an extraordinary resolution, of each of the amalgamating companies.
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 fulfil 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 organisational 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% of 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.
In Vietnam, there are three basic forms which any Vietnam-domiciled company may take, namely:
- a JSC;
- an LLC with one member (an LLC1); or
- an LLC with two or more members (an LLC2).
In the case of a JSC, the governance and management structure is similar to that of companies domiciled in many more developed jurisdictions, and involves:
- a General Meeting of Shareholders, being the highest decision-making body of the JSC;
- a Board of Management, being a governance body which is elected by the General Meeting of Shareholders and subordinate only to the General Meeting of Shareholders;
- a General Director, being the most senior executive manager of the JSC and reporting to the Board of Management; and
- an Inspection Committee, which performs a supervisory function and reports to the General Meeting of Shareholders.
In the case of an LLC1, the governance and management structure involves:
- at the election of the owner, either a sole President (being the sole “Authorised Representative” of the owner) or a Member’s Council consisting of two or more “Authorised Representatives” of the owner – in each case, empowered to make decisions on behalf of the owner;
- a General Director (having functions being substantially similar to those of the General Director of a JSC); and
- an Inspection Committee (which is only compulsory in some cases) and has functions being substantially similar to those of the Inspection Committee of a JSC).
In the case of an LLC2, the governance and management structure is substantially similar to that of an LLC1, except that a Members’ Council (as opposed to a sole President) governance structure is mandatory.
The Law on Enterprises reserves for the shareholders or members exclusive decision-making powers in relation to a range of key corporate matters, which generally include (with differences, depending upon the form of the target company):
- high-level strategic direction;
- amendments to or supplementation of the charter;
- increase or decrease of the registered charter capital;
- transactions having a dilutive effect on equity, voting rights, or profit distribution rights;
- merger, consolidation, separation, or other restructuring;
- liquidation and dissolution;
- declaration of dividends or profit distributions;
- election, removal, or replacement of Board representatives (in the case of a JSC only);
- high-value related party transactions; and
- high-value investments, acquisitions, asset disposals, or other contractual commitments.
In most cases, target company shareholder or member approval is not required at law in respect of M&A transactions, except that in the case of an LLC2, the other members have pro rata pre-emptive rights to acquire any contributed charter capital which any member proposes to sell.
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 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.
In terms of corporate governance, the general meeting of shareholders is the supreme body of any Romanian incorporated company (the “general meeting of shareholders”). Actual management of the company is entrusted to directors, or a board of directors (where the company is subject to a unitary management system), or a directorate supervised by a supervising council (where the company is subject to a dualist management system) (“management bodies”).
The powers of the general meeting of shareholders’ are provided by law and concern the most important aspects of a company’s business (including merger, spin off, reorganization, dissolution, etc.). Some of the powers may be delegated to the management bodies of the company.
The company’s business is managed by management bodies which decide(s) on the main course of activity and development, accounting and financial plan, managers’ appointment and dismissing, the organization of the general meeting of shareholders and the implementation of its decision.
Every shareholder has the right to attend and vote in the general meetings of shareholders (unless he holds priority shares with no voting right). M&A transactions are, to a large extent, decided and approved by the general meeting of shareholders.
The key decision making body is the board of directors, with shareholders having approval rights depending on the nature / structure of the transaction and the provisions of any shareholders’ agreement and its constitution.
For a sale of the entire business undertaking by a target company, shareholder approvals would be required:
- from 75% of the shareholders entitled to vote and voting on the transaction – under the “major transaction” provisions of the Companies Act; and
- if the target company is listed, from at least 50% of the shareholders entitled to vote and voting on the transaction – under the material transaction thresholds of the Listing Rules.
The directors of a company are responsible for the day to day operation of the company and are required to act in the best interests of the company.
In the public M&A context, the directors of a target company will be responsible for leading negotiations with bidders with a view to maximising the value available for realisation by all shareholders.
Although it is for the directors of a target company to decide whether to recommend a proposed bid to shareholders, it is ultimately the shareholders who decide on whether an offer will be accepted or not (either by accepting an offer, in the case of an open offer, or by voting to approve a proposed scheme of arrangement). As a consequence, target directors will generally consult with major shareholders and will, in practice, be unlikely to recommend a proposed offer if they are not confident that it will be acceptable to them.
The process of negotiating a public merger can be hugely time-consuming and, as a result, it is often the case that a target board will appoint a committee of directors to deal with the offer. The Code requires, even where responsibility for the conduct of the offer has been delegated in this manner, that each of the remaining directors of the target's board must reasonably believe that the persons to whom supervision is being delegated is competent to carry out that function and that the directors remain collectively responsible.
In addition to the above, under the Listing Rules, where a listed company proposes to dispose of a significant part of its business or a material asset (generally speaking, measured in the region of 25% or more of the overall size of the company), or is proposing to enter into a transaction with a related party, it will be necessary for the directors of the company to secure the approval of shareholders prior to consummating that transaction.
In a private M&A situation, the directors or officers of the seller will, again generally lead the process in negotiating the terms of a proposed sale. However, as is the case in a public M&A situation, it is ultimately the holders of shares in the target company that must agree to sell those shares.
An exception to the above is where a business or assets are being sold by a private company, in which case, absent any prohibition in the articles of the company or any shareholder agreement, there is unlikely to be any specific requirement for shareholder approval, although a well advised seller will often ask that evidence of such approval be provided in any event prior to closing the transaction.
The key decision making organs of the target company are the Managing Body (formed by a minimum of three directors) or the Administrators (the company may have a Sole Administrator, joint Administrators or joint and several Administrators) and the shareholders, through a general Shareholders’ meeting. A unipersonal (or sole shareholder) company (having a one and only shareholder and a special regimen) is also permitted.
Regarding the rights of the shareholders, by law, they have the right to decide (through the general Shareholders’ meeting) an eventual sell of the company’s essential assets, being understood as such any amounting to 25% or above in relation to the company´s total assets.
With regards to the sale of the shares of the company, according to law, there is a difference between Sociedades de Responsabilidad Limitada (Private Limited Liability Companies) and Sociedades Anónimas (Private Companies). The first ones having a pre-emption right on the acquisition of the shares and the seconds being in principle freely transferred. Without prejudice to the above, provided that it is foreseen in the by-laws of the company and/or in a shareholders’ agreement, most of the times, those pre-emption rights – which should be specifically waived in the event of a potential transaction – apply to all types of companies. In addition, if it is also agreed in the by-laws or in a shareholders’ agreement (if only in the latter, their binding effects towards third parties may be challenged) they may have a right (tag-along right) to join the transaction and sell his stake in the company if another shareholder sells his stake. This right is designed to protect the minority shareholders. On the contrary, for the majority shareholders there may be a drag-along right, which enables a majority shareholder to force a minority shareholder to mandatorily join in the sale of a company under the specific conditions agreed between shareholders.
The management and representation is ensured (i) in a limited liability company, by one manager or by a board of managers and (ii) in a joint-stock company, by the board of directors consisting of one or more members. The duties and powers of the management body include all matters which are not specifically referred to the general assembly of shareholders by virtue of laws or articles of association. In particular, the top management of the company is among the inalienable duties and powers of the management body.
Strictly speaking of M&A transactions:
In a merger transaction, the general assembly of shareholders is the ultimate corporate body of approval in both limited liability companies and joint-stock companies, except where simplified procedure is applied (see Question 5 above). In this respect, the merger agreement must be approved by the general assembly (i) of a limited liability company with affirmative votes of 3/4 of the shareholders representing at least 3/4 of the total share capital and (ii) of a joint-stock company with 3/4 of the votes present at a meeting, representing majority of the total share capital.
As for a share transfer transaction, in limited liability companies, the transfer of shares must also be approved by the general assembly of shareholders (with majority of the votes present at the meeting) in order to be valid.
The transfer of shares in joint-stock companies is in principle not subject to any restriction / approval. However, it is possible that a provision be included in the articles of association of a joint-stock company, requiring the approval of the company (the board of directors) for transfer of registered shares (in limited situations to be defined in the articles of association).