April 11 2011
Companies that were established before the entry into force of the Law on Entrepreneurs and Commercial Companies(1) on May 21 2008 are running out of time to harmonise their internal organisation with the new provisions of the said law.
With less than two months to go until the compliance deadline, companies should ensure that they are well informed of the various changes to the law on corporate structures and have implemented any restructuring correctly. The penalty for failure is extreme, with non-compliant companies facing dissolution.
This update briefly outlines the main rules under the law as they affect shareholders' meetings and the management organisation of a limited liability company or joint stock company.
Representation of shareholders
The administrators of a limited liability company and administrators and members of the administrative council and supervisory board of a joint stock company may not represent a shareholder in the shareholders' meeting.
Shareholders' meetings of a limited liability company must be convened no less than seven days before the date of the meeting; in a joint stock company, the minimum notification period is 21 days. A shareholders' meeting in either form of company must be convened whenever the company proposes to dispose of its assets or to purchase - within two years of its registration - the assets of one of its shareholders, if such assets represent more than 5% of the company's assets as shown in the most recent audited financial statements.
Quorum and majority
In both forms of company, resolutions requiring a simple majority (ie, a majority of participating shareholders' votes), are validly passed if those present or represented at the meeting (in terms of voting shares) account for more than 30% of the share capital. For qualified majority resolutions, which require three-quarters of the votes of the participating shareholders, the required percentage is 50%.
Categories of resolutions subject to qualified majority
Unlike the previous commercial company legislation, the law requires that resolutions on the distribution of profits be passed by a qualified majority. The other categories of resolution that require such a majority remain unchanged from previous legislation.
Resolutions passed by a sole shareholder
If the limited liability company or joint stock company is owned by a sole shareholder, all resolutions passed by the sole shareholder must be registered in the resolutions book. Otherwise, the resolutions are invalid.
Two options for management of joint stock companies
A joint stock company may choose whether to be managed by an administrative council (whereby the council retains both managerial and supervisory duties – the so-called 'monist' system) or by a supervisory board and one or more administrators (whereby the administrators manage the company and the supervisory board supervises the administrators - the so-called 'dualist' system). Once the choice is made, the shareholders' meeting should be convened in order to amend the bylaws to indicate the chosen management model. The bylaws must also indicate whether administrators under a dualist system are appointed by the shareholders' meeting or the supervisory board.
Companies should note the powers that the law confers on the administrative council and administrators of a joint stock company, who are appointed by the council to run the company's day-to-day activities. The powers of the administrative council may not be delegated to the administrators. Similarly, under the dualist management system, the law sets out the powers and responsibilities that are to be granted to the administrators and supervisory board in a joint stock company.
Term of mandate
Administrators and members of the administrative council and the supervisory board of a joint stock company are appointed for a renewable period of no more than three years. The maximum term of an administrator's mandate in a limited liability company is five years, but this is also renewable.
Avoidance of conflict of interest
The law sets out provisions on the avoidance of conflict of interest in respect of individuals who may be appointed as members of the management body of a commercial company. In a limited liability company, administrators of a parent company may not be appointed administrators of its subsidiaries, and vice versa. The same rule applies to the members of the administrative council and administrators of a joint stock company (under either managerial model). Appointments contrary to these rules are invalid. In addition, the law indicates that administrators of companies which are part of the same group of companies may not be appointed as members of the supervisory board of a joint stock company under a dualist management system.
Furthermore, shareholders and administrators of a limited liability company and administrators and members of the administrative council of a joint stock company may not hold managerial office or be employed in commercial companies that undertake the same activity, or engage as entrepreneurs in the same activity. If the shareholders wish to avoid this restriction, they must amend the company's bylaws to provide that the restriction is subject to exceptions on a case-by-case basis (to be decided by the shareholders at the time of the administrator's appointment). If the shareholders wish to prevent administrators from competing with the company after their term of office has expired, they must include an appropriate prohibition in the bylaws.
Unlike the previous legislation, the law does not require that one-third of members of a joint stock company's supervisory body be elected by the employees - this remains possible, but only if the shareholders choose this option in the company bylaws.
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