Introduction
The Supreme Court has held that agreements between shareholders on voluntary capital contributions to a company may be agreed outside the articles of association and are subject to no formal requirements. According to the recently published 2014 ruling, agreements may be made by way of a unanimous shareholder resolution or a contractual arrangement between shareholders.
In its decision, the Supreme Court had to determine the nature and enforceability of a contractual agreement between shareholders of a limited liability company to make voluntary capital contributions to the company.
Capital contributions
Austrian statutory corporate law provides the following options for contributing additional capital to a limited liability company or stock corporation.
Shareholders may decide to increase the company's registered share capital formally. Formal capital increases require amendment of the company's articles of association. Under statutory law, shareholder resolutions regarding an amendment require 75% majority approval at a formal shareholders' meeting. The majority requirement may be reduced to simple majority in the company's articles of association. Once the subscription agreement between the company and shareholders willing to contribute additional capital has been finalised, the company obtains an enforceable right against the shareholders for payment of the capital increase.
The articles of association of a limited liability company (but not a stock corporation) may oblige shareholders to provide additional capital contributions. Additional capital contributions must be a fixed proportion of each shareholder's initial capital contribution. No shareholder can be excluded from the obligation to make additional capital contributions, nor can the proportion of the additional capital contributions be changed. Both amendment of the articles of association and an increase of an existing obligation require a unanimous shareholder resolution via a formal shareholder meeting. Obligations to make additional capital contributions cannot be retrospectively included in the articles of association by means of a majority shareholder resolution.
In the case at hand, the arrangement made by the shareholders did not comply with the above requirements, as no formal shareholder resolution has been made during a shareholder meeting. Rather, under the shareholder agreement, the shareholders had simply agreed in writing to provide voluntary capital contributions to the company. The Supreme Court held that voluntary contributions – either contractually agreed between shareholders or approved by a unanimous a circular resolution outside a formal shareholders' meeting – are enforceable. The restrictions applicable to additional capital contributions do not apply.
While the approval of a formal capital increase or additional capital contribution requires amendment of the company's articles of association, an agreement on voluntary capital contributions is subject to no formal requirements. In practice, agreements are usually made in a written syndicate shareholder agreement (as happened in the aforementioned case), but may also be agreed orally.
Other than formal capital increases and additional capital contributions, shareholder agreements on voluntary capital contributions often fail to result in a company's right to demand payment, as these agreements are made between shareholders and the company is only a potential beneficiary of the arrangement. Therefore, shareholders may enforce these agreements only based on general civil law principles. Corporate law provides no remedies where a contribution obligation is not fulfilled, as the obligation is based on a contractual agreement, not on corporate law, and does not derive from the position of the contracting parties as shareholders. However, companies can accede to agreements in order to obtain a right to enforce voluntary capital contributions.
Comment
The Supreme Court's decision confirms general market practice on capital contributions. The decision ensures that shareholders of stock corporations and limited liability companies have flexibility when agreeing on capital contributions outside the articles of association. Thus, shareholders must carefully draft clauses on capital contributions in syndicate agreements or in correspondence outside syndicate agreements, to avoid mere declarations of intent to strengthen a company's capital base becoming enforceable shareholder obligations.
For further information on this topic please contact Maximilian Lang at Schoenherr by telephone (+43 1 5343 70), fax (+43 1 5343 76100) or email ([email protected]). The Schoenherr website can be accessed at www.schoenherr.eu.
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