Taking counsel

  • 2005-11-16
  • By Laura Zalana [ LOZE, GRUNTE & CERS ]
Minority shareholders'

ability to influence company activities

Usually the majority shareholders, who have larger influence on the decision-making and initiating process, are represented at the top of a company's management 's in the board of directors and supervisory board 's while the minority shareholders play a rather symbolic role in the company management process.

However, it is worth knowing that even the smallest shareholder, in terms of percentage of shares represented, enjoys the legal capability, for at least some period of time, to become the main decision-maker in a company.

Pursuant to the Commercial Law, all the owners (shareholders) of a company are entitled to participate in the decision making process in regards to important matters 's i.e., changes in the articles of association, share capital and board member structure are the competency of the shareholders' meeting.

However, in practice, minority shareholders find out about the company's activities and decisions regarding its development only after they have been made. This often means that a set of requirements related to procedure of carrying out a shareholders' meeting, determined by the Commercial Law, has not been followed.

Article 217 of the Commercial Law provides for the possibility that minority shareholders dispute decisions made. It states that within three months from the day when a decision was taken, any shareholder may claim to declare the decision as void if a significant violation has been allowed in the convening of the meeting and if any of the shareholders has not been informed of such a meeting and issues to be covered in it. Having taken into account all the conditions of the case a court may declare the claims brought after the three-month period determined by the law to be justified.

If a shareholder considers that he has incurred material loss due to such a violation of the shareholders' decision-making procedure, other than bring a claim to the court on disputing the decisions, he can request the shares of other shareholders be seized, thus denying them voting rights. In a situation when the court seizes the shares of other shareholders, until the moment the case is heard in court decisions are made by the shareholder whose decision making ability is not seized 's i.e., the claimant.

But since hearing a case in court may take several months or even years such a situation may seriously influence the company's activities during that period. Owners of the seized votes may request the court to cancel the seizure of the shares.

Likewise, hearing a case in court may be a lengthy process, as a result of which the judgment has strength of law. So company owners should comply with the provisions of the law and follow the procedures for shareholders' meetings, especially in cases when disagreements on making a certain decision may arise between shareholders. It is essential not to forget minority shareholders and their ability to influence the development of the company significantly.

Laura Zalana is associate attorney of Law at Loze, Grunte & Cers in Riga