Monday, October 18, 2010

Super-Majority Voting Requirements

Under the Commercial Companies Law, a number of corporate actions require approval by a “super-majority” vote – for example, 75% – of the company’s shareholders. (Similarly, some corporate actions require a unanimous vote of the company’s shareholders.)

Super-majority voting requirements can play an important role in protecting the rights of the company’s minority shareholders. Moreover, super-majority requirements can also help to promote the long-term stability of the company and harmony among its shareholders, by ensuring that the key corporate decisions are undertaken only with a larger consensus.

Our article on minority shareholder rights (September 3, 2010) discussed a number of corporate actions for which the Commercial Companies Law mandates super-majority or unanimous shareholder votes. However, there are a number of other important matters which, unless specified in a company’s charter or in a shareholders’ agreement, would be subject to a simple majority vote. Such key areas and actions, for which a company may wish to enshrine super-majority (or unanimous) voting requirements in its charter or in a shareholders’ agreement, include the following:

  • approval of the business plan and annual budget;
  • merger or acquisition transactions;
  • sale or purchase of assets that are material to the business;
  • investments in other companies;
  • commencement or settlement of legal actions;
  • related-party transactions; and
  • appropriate distribution of the company’s profits and bonus payments.
We note that while super-majority voting requirements, when prudently used, can promote minority shareholder rights and the stable and harmonious operation of the company, the injudicious or excessive use of super-majority voting requirements can potentially stymie the company’s ability to act nimbly and cause gridlock. We therefore recommend that you consult with legal advisors to help carefully craft the voting requirements in your company’s charter or shareholders’ agreement.