What matters are subject to approval by the shareholders and what are the typical quorum requirements and approval standards? How do shareholders approve matters (e.g., voted at a meeting, written consent)?
The general rule is that the shareholders shall have not direct influence on the management of the company.
Accordingly, the main matters subject to approval by the shareholders relate to changes of the company's structure (i.e. amendments to the articles of association, issuance of new stock, mergers and spin-offs, the dissolution of the company), the appropriation of the profit or the appointment of members of the supervisory board.
Under Brazilian law, the shareholders’ meeting has exclusive authority to:
- amend the by-laws;
- elect or discharge the company’s senior management and fiscal board members;
- receive the annual accounts of the senior management and resolve on the financial statements presented by them;
- suspend the exercise of rights by a shareholder;
- resolve on the appraisal of assets contributed by any shareholder to the company’s capital;
- authorize the issuance of participation certificates;
- resolve on the transformation, merger, consolidation, spin-off, winding-up and liquidation of the company; elect and dismiss liquidators; and examine the liquidators’ accounts; and
- authorize the senior managers to admit bankruptcy of the company and to file for debt rehabilitation.
As a rule, resolutions of the shareholders shall be taken by the majority vote, representing fifty percent (50%) plus one (1) vote, of the attendee shareholders, whenever a higher quorum is not provided by law or by the relevant bylaws. For instance, the transformation of a company’s corporate type (into a limited liability company) depends upon the totality of the shareholders’ votes. Moreover, shareholders representing at least fifty percent (50%) of the voting shares issued by the company must approve changes to the company’s corporate purpose or mandatory dividend, transactions such as mergers, spins-off and dissolutions, as well as liquidation procedures.
As for the rights of dissenting shareholders, certain fundamental changes in the company entitle the shareholders who have not voted in favour of the resolution to withdraw, by refund of their shares, under the circumstances below:
- in the case of the creation of preferred shares or increase of an existing class without maintaining its ratio in relation to the other classes, and change of a preference, a privilege or a condition of redemption or amortisation conferred upon one or more classes of preferred shares, or creation of a new and more favored class;
- the spin-off of the company only triggers the right to withdraw if it results in a change in the corporate purposes – except when the spun-off company is transferred to a corporation with a main line of business that coincides with the line of business of the spun-off company – a reduction in the mandatory dividend or participation in a group of corporations;
- the reduction of the compulsory dividend in any specific fiscal year, change of corporate purpose and insertion of an arbitration clause in the by-laws;
- the approval of the ‘merger of shares’ entitles shareholders of both companies involved to withdraw; and
- a shareholder who has not voted in favor of the acquisition by the listed company of which he or she is a shareholder of the control of a business corporation is entitled to withdraw if the purchase price exceeds 1.5 times the greatest of: the average quotation of the shares on the stock exchange during the 90 days prior to the contracting date; the net value of each share or quota, the assets and liabilities having been valued at market prices (liquidation value); and the net profit of each share or quota, which may not exceed 15 times the annual net profit per share during the past two fiscal years, monetarily adjusted.
The questions which must be submitted to approval by the shareholders, and required quorum and majority for these decisions, are as follows:
- For an SA or SCA, annual approval of accounts and appointment or removal of members of the board of directors or supervisory board and other questions not subject to extraordinary meeting are decided in an ordinary shareholder meeting, by majority vote with a quorum of one-fifth of voting shares on first convocation and no minimum quorum on the second convocation (the quorum can be increased by the bylaws for non-listed SAs). For an SARL, annual approval of accounts and certain other decisions must be decided by an ordinary shareholder meeting; the required majority is 50% of all shares on first convocation and a majority of votes expressed on second convocation (the bylaws can provide higher majority rules; there is no quorum requirement).
- Certain decisions are required to be taken by an extraordinary general meeting, including changing the company’s purpose, dissolution of the company, increase and decrease in capital, approval or change in rules relating to transfer of shares, modification of the company’s structure, merger, etc. For an SA or SCA, the quorum is one-fourth of voting shares on the first convocation and one-fifth on the second convocation. For an extraordinary meeting in an SARL, the quorum is one-fifth on first convocation and one-fourth on second convocation and in either case the minimum majority requirement is two thirds of all shares present or represented at the meeting (unless the bylaws provide for a higher majority rule, but the bylaws may not provide for unanimous decisions).
- In the case of an SCA the above rules apply to decisions of limited-liability shareholders, but all shareholder decisions (except appointment of supervisory board members) must also be approved by the unlimited-liability shareholders, with quorum and majority determined by the bylaws.
In general, if the bylaws permit, shareholders can participate in the meeting by audio or video conference (and, for non-listed companies, the entire meeting can be held by video conference, if allowed by the bylaws and if not opposed by at least 5% of the shareholders).
For an SARL, decisions other than annual approval of accounts and certain other decisions can be taken by written document taking a decision either unanimously or by the required majority, and indicating the position taken by each shareholder.
For an SAS, the bylaws determine the quorum and majority necessary for shareholder decisions and other matters relating to shareholder meetings or taking decisions by written consent, with great flexibility permitted except that unanimous agreement is required for certain key decisions including any change that increases the obligations of shareholders.
The shareholders have very limited influence on the conduct of the company’s business. The supervision of management remains with the Supervisory Board. The company’s articles of association or the Supervisory Board at its own discretion are required by German law to provide a list of certain transactions that require the Supervisory Board’s prior written approval.
A number of transactions that are fundamental to the company’s corporate structure or interfering with the legal positions and financial interests of the shareholders require a 75% majority vote.
The following list comprises of typical topics for shareholder approval:
- the distribution of profits (simple majority);
- election of supervisory board members and the auditor (simple majority);
- removal of supervisory board members from office (75% majority vote, unless reduced to simple majority in the articles of association);
- issuance of new shares for cash without exclusion of pre-emptive rights (75% majority vote, unless reduced to simple majority in the articles of association)
- the sale of all or significant parts of the company’s assets (75% majority vote);
- the issuance of shares with exclusion of the statutory pre-emptive rights of the shareholders (75% majority vote);
- the issuance of convertible bonds and bonds with warrants (75% majority vote);
- the conclusion of profit and loss transfer agreements (75% majority vote); and
- acquisition of own shares by the company (75% majority vote).
Furthermore, any transactions under the German Transformation Act, e.g. mergers (Verschmelzung), demergers (Spaltung) and form-changing conversions (Formwechsel) require a 75% majority vote.
The general meeting of shareholders is the supreme body of the company and is entitled to decide on each corporate affair in accordance with the Law. Its decisions also bind the absent or dissenting shareholders.
The general meeting shall have sole power to resolve on:
a) Amendments to the articles of incorporation. Amendments include capital increases, regular or extraordinary, and capital reductions. b) Election of board members and auditors. c) Approval of the overall management of the company and the discharge of the auditors. d) Approval of the annual and any consolidated financial statements. e) Allocation of annual profits. f) The authorization to provide remuneration or advance payment as described above. g) For listed companies, the adoption of remuneration policy and the salary report. h) Merging, splitting, transforming, reviving, extending the duration or dissolution of the company and i) the Appointment of liquidators.
The General Meeting is in quorum and validly deliberates on the items on the agenda when shareholders representing at least one-fifth (1/5) of the paid-up capital are present or represented therein.
If this quorum is not reached, the general meeting shall meet again within twenty (20) days of the date of the canceled meeting, following an invitation to the shareholders of at least 10 full days. At the repetitive general meeting the general meeting is in quorum and validly meets on the issues of the original agenda, no matter what part of the paid-up capital represented in it.
By way of exception, in the case of resolutions relating to changes in the company's nationality, the change in the scope of the company, the increase in the obligations of shareholders, the regular increase of capital, unless required by law or by capitalization of reserves, the reduction of the capital, changes in the way profits are allocated, merged, split, transform, revive, extend or dissolution of the company, the renewal of authority to the Board to increase the capital, and in other cases specified in the law, then the General Meeting is in quorum when shareholders representing ½ of the paid-up capital are present or represented therein.
In the case of the exceptions described in the above paragraph, if the required quorum is not reached, the general meeting shall be invited and convene anew and shall be considered to be in quorum and validly resolve on the items on the original agenda, when shareholders representing at least one third (1/3) of the paid-up capital are represented or represented therein. In the case of listed companies or, in any event, when a decision to increase capital is to be taken, the general meeting in the repetitive general meeting is considered to be in quorum when shareholders representing at least one-fifth (1/5) are present or represented therein of the paid-up capital. The articles of incorporation may set higher quorum percentages.
The shareholders approve matters either by a) convocation of a general meeting, b) a vote without holding a meeting or c) without holding a meeting, only by signing minutes of the resolution.
Voting without the convocation of a general meeting may only be effected, if the following preconditions apply:
a) The company's shares are not listed on a regulated market; b) There is specific mention of the possibility of such voting in the articles of incorporation. Decisions on matters of the ordinary general meeting may not be taken in accordance with the procedure set out herein; c) All shareholders have communicated to the company their electronic contact details; d) A minority of one-fifth (1/5) of the capital shall not object to a decision under the procedure set out herein.
For companies whose shares are not listed on a regulated market, the shareholders may resolve on matters without holding a meeting, only by signing the minutes of their resolution. The signatures of the shareholders or their representatives may be replaced by an exchange of messages by e-mail or other electronic means, if provided for in the articles of incorporation.
It is to be noted that the articles of incorporation may provide for the possibility of attending the general meeting from a distance by audiovisual or other electronic means, without the physical presence of the shareholder at the venue. Furthermore, the articles of incorporation may provide for the possibility of participating in the voting from a distance, by a letter or by electronic means, held before the meeting. The items of the agenda and ballots may be available and completed electronically via the Internet or in paper form at the headquarters of the company.
Shareholders are allowed to make decisions by an ordinary resolution (a simple majority vote, i.e., voted by more than 50% of shareholders present at a shareholders’ meeting) or a special resolution (a not less than 75% majority vote by shareholders present at a shareholders’ meeting). While the day-to-day management of a company’s affairs vests in the board, the articles of association of a company may reserve power for the shareholders to direct the directors to take or refrain from taking specified action by special resolution. The Companies Ordinance and the C(WUMP)O prescribes certain powers that are specifically given to the shareholders, including:
- to change the company’s name by a special resolution (section 107 of the Companies Ordinance);
- to alter the articles of association or objects by a special resolution (section 88-89 of the Companies Ordinance);
- to alter the articles of association in respect of the maximum number of shares a company can issue by ordinary resolution; (section 88 of the Companies Ordinance)
- to approve non-pro rata allotment of shares by an ordinary resolution (section 141 of the Companies Ordinance);
- to authorise a reduction of share capital by a special resolution (section 226 of the Companies Ordinance);
- to remove directors prior to the expiration of their term of office by an ordinary resolution requiring Special Notice (section 462 of the Companies Ordinance);
- to remove auditors prior to the expiration of their term of office by an ordinary resolution requiring Special Notice (section 419 of the Companies Ordinance);
- to authorise a company to purchase its own shares out of capital by a special resolution (section 260 of the Companies Ordinance);
- to give financial assistance in connection with the acquisition of the company’s shares by an ordinary resolution or by unanimous shareholders’ approval subject to certain prescribed procedures (sections 284, 285 of the Companies Ordinance); and
- to voluntarily wind up a company by a special resolution pursuant to the C(WUMP)O (section 228 of C(WUMP)O).
The aforesaid matters are usually dealt with in the AGM or in general meetings which can be convened by way of a physical meeting, a telephone or video conference, or by appointing a proxy if a shareholder cannot attend in person (section 584 of the Companies Ordinance). Unless the articles of association provide otherwise, two members present or by proxy shall be a quorum, and in a one-member company, one member present in person or by proxy shall be a quorum (section 585 of the Companies Ordinance). During the meeting, shareholders are allowed to vote on one or more resolutions on show of hands, a demand on poll, or by way of proxy (section 588 of the Companies Ordinance).
For listed companies, shareholders’ approval at a general meeting may be required for notifiable transactions under Chapter 14 of the Main Board Listing Rules and Chapter 19 of the GEM Listing Rules depending on the category of the notifiable transaction. Any shareholder and his close associates must abstain from voting if such shareholder has a material interest in the transaction (rule 14.33 of the Main Board Listing Rules; rule 19.33 of the GEM Listing Rules). Connected transactions under Chapter 14A of the Main Board Listing Rules and Chapter 20 of the GEM Listing Rules must be conditional on shareholders’ approval at a general meeting held by the listed company. Any shareholder who has a material interest in the transaction must also abstain from voting on the resolution (rule 14A.36 of the Main Board Listing Rules; rule 20.34 of the GEM Listing Rules).
In a typical shareholders’ agreement, each existing shareholder prior to the share subscription may be required to procure others and the company to ensure prior written consent of a particular shareholder is obtained before the completion of a certain type of transaction. For matters that require approval by an ordinary resolution or a special resolution, the vote of a particular shareholder in favour of such resolution may also be required. In some cases where one or more minority shareholders are also parties to the shareholders’ agreement, they may be given power, by rotation, to appoint and maintain in office a director for a certain percentage of the total issued shares that the minority shareholders hold in aggregate, and veto rights against certain reserved matters.
The operation and management of the company is the responsibility of directors or executive officers, and only material issues must be approved by a shareholders' meeting. Most items (e.g., appointment and dismissal of directors, payment of dividends) can be resolved by a majority of the voting rights of shareholders present at the meeting (ordinary resolution); however, some material issues (e.g., amendments to the articles of incorporation, mergers) must be resolved by a greater proportion of voting rights, such as two-thirds or more of the voting rights of shareholders present at the meeting (extraordinary resolution).
a) Main matters approved by the shareholders in limited companies:
i. Consent to the division or sale of quotas;
ii. Approval of annual reports and accounts and allocation of profits;
iii. Dismissal of corporate bodies;
iv. Election of corporate bodies and certain management decisions (as transactions over real estate assets and shareholdings), unless otherwise provided in the by-laws; and
v. Amendments to the by-laws, including capital variations and mergers/demergers.
b) Main matters approved by the shareholders in stock companies:
i. Acquisition/sale of own shares;
ii. Approval of annual reports and accounts and allocation of profits;
iii. Election and dismissal of corporate bodies;
iv. Amendments to the by-laws, including capital variations and mergers/demergers.
Resolutions may be adopted by unanimous written consent or at a meeting by simple majority (except for qualified majority resolutions on the matters in a) v. and b) iv. or other matters set out in the by-laws or the law).
(1) Matters subject to GMS resolutions and relevant requirements
Although the GMS may be considered as a Company’s highest decision-making body, the KCC limits its power to those matters specifically set forth in the KCC or the Company’s AOI. Under the KCC, the following matters must be authorized by a shareholders resolution duly adopted at a GMS.
(a) Matters Requiring Ordinary Resolution
Certain matters must be authorized by an “ordinary” resolution of the shareholders, which refers to a resolution adopted by a majority of the votes of the shareholders present representing at least one-fourth of the total number of issued and outstanding shares. A Company’s AOI may make the voting requirement more stringent, but may not relax such requirement. Such matters include:
- Election of a director or a statutory auditor;
- Election of a representative director (if the AOI requires a GMS resolution for such election);
- Determination of remuneration of directors, statutory auditor(s) or liquidators;
- Approval of annual financial statements and declaration of dividends (could be delegated to the BOD pursuant to the AOI under certain conditions);
- Approval of the largest shareholder’s squeeze-out of minority shareholders;
- Election or dismissal of a liquidator; and
- Approval of completion of liquidation.
(b) Matters Requiring Special Resolution
Other matters must be authorized by a “special” resolution of the shareholders, which refers to a resolution adopted by at least two-thirds of the votes of the shareholders present representing at least one-third of the total number of the issued and outstanding shares. While not specifically prescribed in relevant regulations, according to the prevailing view, a Company’s AOI may make the voting requirement more stringent but may not relax the requirement. The matters requiring a “special” resolution include:
- Amendment of the AOI;
- Transfer of all or an important part of the business;
- Making, altering, or rescinding a contract for leasing the whole of the business, for giving authority to manage such business or for sharing with another person all profits and losses in relation to the business, or any similar contract;
- Acquiring all or a part of the business of another entity that has a material impact on the business of the Company;
- Dismissal of a director or a statutory auditor;
- Issuance of shares at a price less than par value;
- Reduction of paid in capital;
- Dissolution and liquidation;
- Approval of a merger or spin-off;
- Approval of a comprehensive stock swap; and
- Issuance of stock options.
(c) Matters Requiring Unanimity
Releasing a promoter, a director or a statutory auditor from a liability owed to the Company requires the unanimous consent of all shareholders, although not necessarily by means of a resolution adopted at a GMS. The change of a company structure from a Company to a limited company (Yuhan Hoesa in Korean) also requires a resolution adopted by the unanimous vote of all shareholders.
(2) Shareholder Approval Method
In principle, shareholders or the authorized proxies attend the GMS and participate in exercising voting rights, and to the extent the AOI contains applicable provisions, voting may be done in writing in lieu of attending the shareholders meeting. If a shareholder submits a document expressing the intention to exercise his or her voting right in writing, such voting right is deemed as represented at the meeting, and counted as affirmative or negative as expressed.
Electronic voting is also possible pursuant to a BOD resolution. Shareholders exercising their voting rights electronically must obtain shareholder confirmation with a certified digital signature as set forth in the Digital Signature Act, and then cast their electronic votes in the manner prescribed by the Company, after logging on to the website notified by the Company. While the Company determines the electronic voting period, the electronic voting must be closed by the day immediately preceding the date of the GMS.
In the case of small-sized Companies with a total amount of paid-in capital less than KRW 1 billion, a matter could be approved via written resolutions in lieu of resolutions by the GMS. Unlike the written voting system, such a written resolution does not require for a GMS to be convened at all. While the KCC, in principle, requires shareholder resolutions to be made at physical GMS, this is an exception for small-sized Companies to reduce their operating expenses.
According to the CO, the following matters are subject to the approval by the general meeting of shareholders:
- adoption and amendment of the articles of association;
- appointment or removal of the members of the board and the auditors;
- approval or rejection of the management report, including, if applicable, the consolidated financial statements;
- approval or rejection of the use of the balance sheet profits and, in particular, the declaration of dividends;
- discharge of the members of the board from liability; and
- matters that are by law (such as the OaEC or the Merger Act) or by the articles of association reserved to the shareholders’ meeting.
Unless otherwise provided by law or the articles of association, the general meeting passes resolutions by an absolute majority of the voting rights represented. The CO sets out certain important matters, such as but not limited to the amendment of the purpose of the company, the restriction of the transferability of registered shares or the dissolution of the company, for which at least two-thirds of the voting rights represented and an absolute majority of the nominal value of shares represented are required. The articles of association quite often change the default majority into a relative majority (i.e. abstentions do not count as votes cast) and sometimes contain other deviations (e.g. additional supermajority requirements).
Shareholders may only resolve on matters by voting on physical meetings. However, representation by proxy, namely instruction to the independent proxy, is generally permitted.
Common stock ownership in a publicly-traded company typically comes with the right to vote on certain corporate matters pursuant to state law, stock exchange listing requirements and the company’s Charter Documents. While the nature of the rights and the specific issues shareholders are entitled to vote on can vary from company to company, shareholder approval is typically required to:
- elect the board of directors;
- amend organizational documents, such as the Certificate of Incorporation;
- enter into fundamental corporate transactions, such as a proposed merger or acquisition;
- alter certain stock ownership rights, such as establishing or amending stock option plans or stock splits;
- permit interested director transactions;
- set certain executive compensation packages; and
- make fundamental structural changes or shifts in corporate aims.
Shareholders can exercise their voting rights by attending the company’s annual meeting of shareholders or at a special meeting convened in accordance with the company’s organizational documents. Alternatively, shareholders can appoint a proxy to vote their shares by completing and returning the proxy cards provided to them by the company by mail or electronically prior to the meeting date. Corporate bylaws typically require a quorum for shareholder action to be taken at a meeting. A quorum generally means that the shareholders present or represented at the meeting own over half of the company’s shares. A simple majority (i.e., more than 50 percent of outstanding shares voting or present at the meeting) is the most common requirement to approve a resolution. A company’s organizational documents may require a greater percentage of votes to approve certain exceptional resolutions, such as a merger or amending the organizational documents. A company’s organizational documents may also require a plurality vote for director elections (i.e., a nominee only needs to get more votes than a competing candidate, not a majority of the votes cast in his or her election).
Shareholders may also act by written consent under certain circumstances as described below.
If a company has only one shareholder, the quorum for a shareholder's meeting is one. Otherwise, quorum requirements are regulated by the company's articles, with the default being two. Written resolutions must be signed by all shareholders and the procedure is available only to private companies. Shareholder resolutions may be proposed as ordinary resolutions (which require a simple majority to pass) or special resolutions (which require a supermajority of 75% to pass). In both cases, whether the approved threshold is met will be determined by reference to shareholders actually present and voting, in person or by proxy. Shareholder meetings may be conducted on a show of hands (where each shareholder gets one vote) or on a poll (where each shareholder has the number of votes equal to the number of shares he holds which carry the right to vote). Where a vote is conducted on a show of hands, a shareholders holding 10% of the voting rights may demand a poll. For listed companies, voting would be by way of a poll.
By default, a variety of matters are reserved to shareholders under the Companies Act 2006, including:
(A) changes to the company's name, legal form, share capital structure and constitution;
(B) removal of directors and auditors;
(C) authorisations of directors' conflicts of interest;
(D) substantial property transactions with directors;
(E) compensation payments to directors;
(F) disapplication of statutory pre-emption rights (if applicable);
(G) authority to allot shares and to make market purchases of a company's own shares;
(H) declaration of final dividends.
In addition to the company law requirements, for premium listed companies shareholder approval is required for certain additional matters (for example, related party transactions and certain other significant transactions).
Shareholders are required to elect the board of directors, appoint an auditor and receive annual financial statements on an annual basis. Corporate laws also require that certain transactions and fundamental changes to the corporation be approved by shareholders. TSX-listed issuers also require shareholder approval for certain share capital transactions where such approval may not otherwise be triggered under corporate law. Quorum requirements for Canadian companies vary, but 20% to 30% is a common standard.
The election of directors is by plurality in Canada and shareholders can withhold their vote from the election of a director, but are unable to vote against such election. However, the TSX requires the adoption of a majority voting policy for elections where the number of candidates is equal to the number of available board seats, pursuant to which elected directors must tender their resignation is they do not receive a majority or votes in favour of their election.
Most matters that are subject to shareholder approval require only a simple majority of the votes cast by the shareholders present or represented by proxy at a shareholder meeting. Fundamental change transactions typically require approval by two-thirds of the votes cast and in certain circumstances securities laws may also require class approval or approval of a majority of unconflicted shareholders, again on the basis of votes cast. Amendments to the articles of a corporation typically require approval by at least two-thirds of the votes cast by shareholders and amendments to the by-laws of the corporation typically require approval by a simple majority. In order to be effective, written consents of shareholders require unanimous approval, so are not a feasible means of approval for a public corporation.
Shareholders or quotaholders’ general meetings are “ordinary” or “extraordinary” depending on the items to be addressed and meet at first and second calling (prima and seconda convocazione).
The meeting is entitled to resolve upon the matters granted to its competence by the applicable laws and regulations, which most significantly include: (i) appointment of directors and statutory auditors, (ii) filing of corporate suits against directors and statutory auditors, (iii) approval of financial statements and distribution of profits, (iv) share buyback programs, (v) amendments to the by-laws, (vi) mergers and demergers, conversions, (vii) etc.
Shareholders’ meetings are prevented from resolving upon any management matter, which is reserved to the directors’ competence.
Meetings operate based on the majority principle, provided that the by-laws may provide for the existence and issuance of special classes of shares, granted with certain rights or obligations (see point 18 above). The applicable quorums and majorities are to be determined based on: (a) type of company (listed or non-listed), (b) type of meeting (“ordinary” or “extraordinary”), (c) calling (first or second), (d) super-quorums and/or majorities set forth under the by-laws, if any.
Only limited liability companies’ by-laws may provide for non-at-meeting voting methods, i.e. written consent or circular resolution (joint stock companies shareholders’ resolutions shall always be taken with at-meeting voting methods).