Minority shareholder in a joint-stock company (Part I)

In a joint-stock company, two groups of shareholders may be distinguished, namely minority shareholders and majority shareholders. It should be noted that a minority shareholder, despite holding an interest in the share capital, does not have a significant influence on the company’s affairs. By contrast, a majority shareholder is an entity that has a decisive influence on the actions taken by the company and its governing bodies.

In Article 20 of the Act of 15 September 2000 – the Commercial Companies Code (consolidated text of 20 July 2017, Journal of Laws of 2017, item 1577; hereinafter: the “CCC”), the legislator, recognising the problem of inequality among shareholders, imposes on the company’s governing bodies the obligation to treat shareholders equally in the same circumstances. Moreover, in the event of failure to comply with this obligation, the legislator grants minority shareholders the opportunity to take further steps in order to obtain legal protection.

Minority rights

At present, the following categories of minority shareholders’ rights are distinguished:

• minority rights sensu stricto,
• minority rights sensu largo,
• collective rights,
• individual rights.

Minority rights sensu stricto are specific legal mechanisms enabling the minority, in relation to the majority, to enforce its status within the company and thus to exercise individual rights in practice. It should be emphasized that these rights are vested in every shareholder and have an auxiliary character. Minority rights sensu largo, on the other hand, are those rights which may ad casu be used by minority shareholders to oppose the will of the majority. Collective rights are rights that depend on holding a fraction of the share capital or a certain number of votes at the General Meeting of Shareholders, whereas individual rights are those vested in each shareholder individually.

It should be borne in mind that despite the above rights, it is impermissible to equate the interest of a minority shareholder exclusively with the interest of the joint-stock company. Actions taken by a minority shareholder are often not necessarily dictated by the company’s interest or aimed at the implementation of the plans set out in the articles of association. This view was confirmed by the Supreme Court in its judgment of 5 November 2009, case file no. I CSK 158/09.

In view of the above, it should be noted that the Commercial Companies Code enables minority shareholders to exercise, inter alia, the following rights in order to secure legal protection:

• compulsory buy-out of shares (the right to demand that the majority buy shares from the minority, initiated by the minority);
• voluntary redemption of shares (Article 359 of the Commercial Companies Code; put option or tag-along right);
• compulsory “buy-out” of shares (the so-called sell-out / buy-out – Article 418¹ of the Commercial Companies Code);
• the right of buy-out in connection with a material change in the company’s business activity (Article 416 § 4 and Article 417 of the Commercial Companies Code);
• reverse squeeze-out (the so-called reverse squeeze-out – Article 418 § 2b of the Commercial Companies Code).

Summary

Minority shareholders undoubtedly do not have sufficient independent “power” to decide on the fate of a company. However, where there is a very high level of share fragmentation in a joint-stock company, the situation is quite different. In such cases, minority shareholders, by grouping together, may acquire a strong enough position to effectively influence decision-making in the company.

Article 20 of the Commercial Companies Code imposes on the company’s governing bodies the obligation to ensure that shareholders’ rights and obligations are equal. This duty grants minority shareholders both active participation in the company and protection against abuse of position by majority shareholders. In addition, a number of statutory rights granted to minority shareholders allow them to obtain effective legal protection, which in turn strengthens their position within the company.

The interests of majority and minority shareholders often conflict, and therefore disputes in joint-stock companies are not uncommon. Finding a perfect balance between shareholders in a joint-stock company is very difficult, if not impossible. Nevertheless, taking into account the Polish legal system as a whole, one should incline toward the view that the position of a minority shareholder is difficult and even insufficiently protected.

This article serves as an introduction to a detailed discussion of the rights that minority shareholders may rely on in order to obtain legal protection in a joint-stock company.