Controlling minority?

Such a situation (i.e. example 2) is possibly less desirable from the company’s perspective, certainly where the more essential decision-making is concerned. Although decisions should be taken on the basis of a discussion of content and it will not always be possible to predict how the meeting of shareholders will vote, the possibility of ‘accidental’ majorities (whereby a minority shareholder nevertheless has the majority through the absence of others at the meeting of shareholders) leads to less predictability, or at least to greater uncertainty.

If a company has, for example, one 30% shareholder and the remaining 70 shareholders each have 1%, then some protection can be offered to the minority shareholders with a quorum requirement and/or supermajority. Suppose in this example that the 30% shareholder is the only one to attend the meeting, then – if the articles of association contain no limitations – the full decision-making power rests at that moment in his hands. If it is laid down in the articles of association with regard to decision-making on certain fundamental resolutions that a minimum of 75% of the issued capital must be present or represented, then the 30% shareholder cannot legally pass these resolutions on his own.

Lastly, I would remark that it can be desirable to prescribe a supermajority in the articles of association for what are sometimes called “modification resolutions”, so that there is a convincing majority for them. Apart from an amendment to the articles themselves and the dissolution of a company, think also of a change in the identity of the structure of the company. The identity can be changed, for example, by changing the description of the purpose in the articles of association (followed by an actual change in the business operations): someone who is a shareholder in a paint factory can thereby become a shareholder in a factory producing chemical weapons. And probably not all the shareholders would welcome that!

Karel Frielink
Attorney (Lawyer) / Partner

(15 October 2013)

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