Article 2437 of the Civil Code sets out several rules relating to shareholders' right to withdraw from a company in the event that they vote against or abstain from company resolutions which:
- materially alter the company's scope;
- transform the company (eg, from a shares company to a limited liability company);
- move the company's registered offices abroad;
- revoke the company's winding up;
- cancel one or more instances of withdrawal provided for in the company's articles of association;
- amend the criteria for assessing share value in the event of a shareholder's withdrawal; or
- amend the articles of associations with regard to shareholders' voting rights or their participation.
Further, shareholders can exercise their right of withdrawal with regard to resolutions to postpone their company's term and share limitations (eg, lock-up or pre-emption rights), subject to the articles of association.
Therefore, if a shareholder exercises their withdrawal rights, the company must compensate them financially.
A recent Court of Cassation decision (13845/2019) concerned the amendment of a company's articles of association clauses relating to dividend distribution. The amendment in question considerably increased the percentage of legal reserve (from 5% to 12%) and extraordinary statutory reserve (from 5% to 40%) before dividends were distributed in favour of shareholders. The question before the court was whether such an amendment was grounds for a shareholders' withdrawal on the basis that it was an amendment of the articles of association with regard to shareholders' voting rights or their participation.
On 22 May 2019 the Supreme Court of Cassation ruled as follows:
- Shareholders' right of withdrawal is a mandatory rule which aims to protect minority shareholders and allow the disposal of a shareholding participation in limited cases.
- Profit distribution is a shareholder objective. As such, an amendment of a company's articles of association with regard to dividend distribution constitutes a legitimate ground on which shareholders can exercise their right of withdrawal.
- Under Article 2437 of the Civil Code, minority shareholders can lawfully exercise their right of withdrawal where their company's articles of association are amended in a way that adversely affects their monetary rights, such as increasing the percentage of the company's reserve before allowing a dividend payment.
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