The minority shareholder protection
Previous chapter indicated that the SMEs are different kind of companies in relation to larger companies. Although they are small, they are many, and of great importance to the economy in Europe. Current chap-ter deals with the provisions obtained in favor for minority shareholders. First the provisions in the SCA is presented and secondly the proposed provisions in the SPE proposal. This since the SCA does not regulate SMEs the reader will question if the provisions set out in the SCA really are beneficial for minority share-holders in SMEs.
In the Swedish companies act
SCA is based on the majority principle.87 This means that the owner controlling most of the votes at a general meeting decides the most issues. The majority principle is justified so the company is able to be given a strong decision and effective management. Then the starting point will be that it is difficult to justify legal solutions that give minority share-holders the right to govern and set in the company. However, there are a number of rules that give minority shareholders a limited protection against oppression from the majority owner. Hence is not a shareholder with few stocks without influence. Being able to attend the general meeting, gives one opportunity to make their voices heard which is of great im-portance. The general meeting is the body made to minority protection linked to SCA. Generally, most of the provisions which are intended to protect minority shareholders are to be found in chapter 7 in SCA and in other chapters of rules about how decisions are made. The minority protection in SCA is found in different parts of the act, most of it in chapter 7 SCA. A summary of the protection is given in the following headlines.
These provisions prohibit a part to handle cases where the person in the execu-tive is in conflict of loyalty with the company. The disqualification concerns board member and the CEO.88 Additionally, a shareholder may not vote in questions concerning his or hers liability.89
For the protection of minority shareholders there are some basic provisions which are re-gulated in SCA. There is the similarity-principle90 and the general clause91 These provisions prohibit the board to make a resolution which would be a unfair restriction of the share-holders rights.
Principle decisions can be taken by the minority and achieve effect. In SCA this is regulated as a minority who has at least 10% of the equity. This person may enforce the convening of an extraordinary general meeting, deferral of certain meetings, the refusal of discharge, div-idends, nomination of the minority auditor.92
This is the minorities rights to be resolved out or/and be liquidate from the company. In SCA this is regulated as the liquidation of the company. An alternative is that the company acquired the minority shares and the majority owners are forced to redeem the minority shares.93 This, in accordance to the shares is freely transferable.94 This principle may be re-stricted by regulations of the statutes, which can be of three kinds; consent subject, pre-sale reservations and pre-emptive reservations.
It requires qualified majority for certain decisions on the annual meeting for the minority to have the right of veto. This provision is the core of SCAs minority protection. This is regu-lated in the SCA for a minority shareholder which holds more than one third of the entire share. He or she can then prevent the amendment of the articles of the association, a di-rected share issue, reduction of share capital, purchase of own shares, merger, division and change the company category.95
The shareholder have a right to claim the decision which been made at the annual general meeting. This have to be done at court.96In the SCA a claim can be based upon formal faults and material faults. However, the resolution must have affected the shareholders le-gal rights in the company in a negative way.
In the SPE proposal
According to recital 13 of the preamble to the proposal SMEs need legal structures that can be adapted to their needs and size and are able to evolve as activity develops, shareholders of the SPE should be free to determine in their articles of association the internal organisa-tion which is best suited to their needs. Hence, mandatory provisions ensuring the protec-tion should be introduced in order to avoid any unfair treatment of shareholders. Especial-ly certain key resolutions should be adopted by a majority of no less than 2/3 of the total voting rights attached to the shares issued by the SPE.97
The SPE regulation do not have an own rule on handling ban. Article 32 in the SPE just states that related party transactions shall be governed by the provisions of the applicable national law implementing Council Directives 78/660/EEC and 83/349/EEC.98
After a resolution taken by the shareholders and on an application by the SPE, a competent court may order the expulsion of a shareholder if he has caused serious harm to the SPE’s interest or the continuation of the shareholder as a member of the SPE is detrimental to its proper operation. An application to the court shall be made within 60 calendar days of the resolution of the shareholders.99 If the court orders the expulsion of a shareholder, it shall decide whether his shares are to be acquired by the other shareholders and/or by the SPE itself and on payment of the price of the shares.
The regulation provides for a SPE to be dissolved in the following circumstances: (a) by expiry of the period for which it was established; (b) by the resolution of the shareholders; in cases set out in the applicable national law.101 Winding-up102 such as liquidation, in-solvency, suspension of payments and similar procedures103 shall be governed by the appli-cable national law.
This provision in the SPE regulation is the most significant difference in contrast to the SCA. In Article 18 of the proposal there is a given right to any shareholder in the company to withdraw from the European private company as a result of one or more of the follow-ing events:
“the SPE has been deprived of a significant part of its assets;(b) the registered office of the SPE has been transferred to another Member State;(c) the activities of the SPE have changed substantially;(d) no dividend has been distributed for at least 3 years even though the SPE’s financial position would have permitted such distribution.”104
The shareholder shall submit his withdrawal in writing to the SPE stating his reasons for the withdrawal.105 Further on, the management body of the SPE shall then without undue delay, request a resolution of the shareholders on the purchase of the shareholder’s shares by the other shareholders or by the SPE itself.106 In the case of a dispute regarding the price of the shares, their value shall be determined by an independent expert appointed by the parties or, failing an agreement between them, by the competent court or administrative au-thority.
The competent court may, if satisfied that the interests of the shareholder have suffered se-rious harm, order the acquisition of his shares by the other shareholders or by the SPE it-self and the payment of the price of the shares.108
An application to the court must be made either within 60 calendar days of the resolution of the shareholders or, where no resolution is adopted within 30 calendar days of the shareholder submitting his notice of withdrawal to the SPE, within 60 calendar days of the expiry of that period.109
The remedy of exit is hereby of particular importance for disgruntled shareholders in pri-vate limited companies, which includes SMEs, since there is no market for shares in these companies.110
The regulation provides resolutions of shareholders, which also is to be found in the SCA. The minority shareholders that controls one third of the company are able to put down a veto against decisions concerning; variation of rights attaching to shares, (b) expulsion of a shareholder, (c) withdrawal of a shareholder, (i) reduction of share capital, (l) transfer of the registered office of the SPE to another Member State, (m) transformation of the SPE, (n) mergers and divisions, (o) winding up and (p) amendments to the articles of association.111
Another con is that the article provides for the possibility to adopt a resolution without re-quiring the organization of a general meeting.112 This contributes to the minority share-holders being more relaxed, voting how they want and not having the risk to be exposed to reprisals.
Table of Contents
1.3 Method and material
2 The European Private Company
2.1 The purpose of the European private company proposal
2.2 Basic provisions
2.3 Main areas
3 Small- and medium sized enterprises
3.3 Small-and medium sized enterprises importance in the economy
3.4 Small- and medium sized enterprises in the Swedish companies act
4 The minority shareholder protection
4.1 In the Swedish companies act
4.2 In the SPE proposal
5.2 Comparison of minority shareholder protection
5.3 Is the European private company a solution?
5.4 Possibility for the potential European private company regulation to have competition?
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European Private Company A solution for minority shareholders within small- and medium sized enter-prises in Sweden?