It is common for Omani companies to have at least one minority shareholder – i.e., a shareholder that owns less than 50% of the company’s shares. Some companies are formed with minority shareholders as part of the original ownership structure, such as a joint venture company in which the majority partner owns 70% of the shares and the minority partner owns 30% of the shares. Other companies add minority shareholders at a later stage, for example by granting a minority interest to a new investor in exchange for an infusion of capital.
For any such company, minority shareholder rights represent a key corporate governance issue. The minority shareholder will desire legal protections to ensure that the majority shareholder cannot use its voting control over the company to abuse the minority shareholder’s interests. Protections for minority shareholders not only promote fair and responsible governance, but also encourage investment by giving parties comfort to invest in companies in which they will not be able to exert voting control.
Minority shareholder rights mainly come in two forms: (i) rights conferred by statute, and (ii) contractual rights between the minority shareholder and the company’s other shareholders, enshrined either in the company’s charter or in a shareholders’ agreement.
Statutory Rights – the Commercial Companies Law
In Oman, statutory protection for minority shareholders generally is limited to requirements under the Commercial Companies Law that certain key corporate decisions be made by a unanimous vote of the company’s shareholders. The requirement of shareholder unanimity effectively grants the minority shareholder a “blocking right” over the covered actions.
For LLCs
The Commercial Companies Law provides particularly robust blocking rights with respect to limited liability companies, or LLCs. For an LLC, a unanimous shareholder vote is required to:
In addition, the Commercial Companies law states that, unless the company’s constitutive contract provides otherwise, a unanimous shareholder vote is required before the company’s managers:
Finally, approval by a majority of the company’s shareholders representing at least 75% of the shares is required for certain other key actions by an LLC, such as amending the constitutive contract, transforming the LLC into a joint stock company, or dissolving the company. Although this “super-majority” voting requirement does not necessarily grant minority shareholders blocking rights, it often will do so in practice – e.g., for minority shareholders that hold a greater than 25% shareholding (in Oman, many minority shareholders have a 30% interest in the LLC), and for smaller minority shareholders that act together and have a combined shareholding in excess of 25%.
For SAOCs
The Commercial Companies Law does not provide such extensive blocking rights for minority shareholders of closed joint-stock companies (“SAOCs”), likely because SAOCs are already subject to more rigorous corporate governance standards. However, the Commercial Companies Law does require that certain key actions by an SAOC be taken at an extraordinary general meeting (“EGM”). This serves to protect minority shareholders, as EGM resolutions must receive 75% of the votes cast in order to be adopted. Capital increases by issuance of preferred shares, or amendments to the company’s articles of association, for example, require approval by an EGM resolution.
Contractual Rights – Company Charter and Shareholders’ Agreement
Beyond the safeguards provided by the Commercial Companies Law, minority shareholders may obtain additional protection from contractual terms agreed to by the company’s other shareholders. Those rights typically would be enshrined either in (i) the company’s charter or (ii) a shareholders’ agreement.
From the perspective of enforceability, it is preferable to include minority shareholder rights in the company’s charter, as in Omani courts it is normally quicker and easier to pursue claims based on violation of the company’s charter than claims based on breach of a shareholders’ agreement. However, as a practical matter, it may be difficult for the minority shareholder to include the provisions it desires in the company’s charter, as the Omani Ministry of Commerce and Industry is often reluctant to permit a company to deviate significantly from the terms of the model charter that is used for registration purposes.
Thus, it is common for minority shareholders to insist on entering into a separate contract with the company’s other shareholders to set out protections for the minority shareholder. This contract, called a shareholders’ agreement, typically will include provisions on such matters as:
Company charters and shareholders’ agreements are key legal documents that should be meticulously crafted and reviewed to protect shareholders’ rights. We strongly recommend that companies and investors seek professional legal advice in preparing such documents.
Friday, September 3, 2010
Focus on Corporate Law: Minority Shareholder Rights
Tuesday, March 2, 2010
Nuclear Energy Development
When a nation such as Oman decides to develop a peaceful nuclear energy program, the first step in essence will decide the political and economic consequences of the entire process. This first step is to become a party to the Treaty on the Non-Proliferation of Nuclear Weapons (NPT). That step is important because nations that lack the domestic capacity to develop nuclear energy will require technological support from other nations. In order to obtain this technological support, the country seeking to develop nuclear energy will need to join the NPT and fulfill a number of political obligations and related criteria.
Joining the Non-Proliferation Treaty
The NPT came into force on 5 March 1970 and includes 189 signatory nations, including Oman. Oman ratified the NPT in 1997 and therefore already fulfills this basic fundamental criteria. The NPT includes three basic "pillars": non-proliferation, disarmament, and the right to peacefully use nuclear technology. The provisions on peaceful use of nuclear technology are most important for Oman’s current plans, and are addressed in Article 4 of the NPT.
Article 4 of the NPT gives a county seeking to embark on a nuclear energy program the inalienable right to use nuclear energy for peaceful purposes within the parameters laid down by the obligations in the treaty.
A country such as Oman, which lacks the domestic technical resources and capacity for nuclear energy development, may seek to avail itself of Article 4(2) of the treaty. Article 4(2) deals with the exchange of equipment, materials and scientific technical information for the peaceful use of nuclear energy between member states. Article 4(2) also sets out the non-binding moral obligations of member states to support the responsible spread of the use of peaceful nuclear technology.
In practice, Article 4(2) is monitored by a group of forty six nuclear supplier states, including China, Russia and the U.S., that have voluntarily agreed to coordinate their export controls governing transfers of civilian nuclear material and technology to non-nuclear weapon states. This group is known as the Nuclear Suppliers Group (NSG), and was created in 1975 after an incident involving India’s explosion of a nuclear device. This incident demonstrated that nuclear technology transferred for peaceful purposes can be misused. The objective of the NSG is to prevent nuclear exports for commercial and peaceful purposes from being used to make nuclear weapons. Under the NSG structure, members are obligated to refrain from nuclear trade with governments that do not subject themselves to international inspections of their nuclear imports. The inspections are designed to provide confidence that their nuclear imports are not being used to develop a nuclear arsenal.
As Oman will require technical support from the international community in developing a nuclear program, it is important to instill confidence in the International Atomic Energy Agency (IAEA) and the NSG to ensure that the international community understands that Oman’s intentions are NPT compliant. Specifically, a nation in this situation should show its adherence to international instruments and inspections.
Developing Effective Legislation
A country seeking to develop a nuclear program will require legislation to move the process forward. Specifically, nuclear legislation should:
Tuesday, February 9, 2010
Selling Shares in a Limited Liability Company
Shareholders owning shares in a limited liability company (LLC) may seek to sell or transfer the shares at some point during the life of the company. In such a case, there are specific legal requirements in the Commercial Companies Law of Oman pertaining to such a sale or transfer.
Specifically, the shareholder wishing to sell his shares first must give notice of his intention to the manager(s) of the LLC and the other shareholders in the LLC. Each shareholder in an LLC has a right of first refusal, meaning a right to purchase the shares on the same terms, but before they are offered to a non-member of the company.
The non-selling members of the LLC may choose to purchase the offered shares before allowing those shares to be sold to an outsider. Issues may arise in cases where more than one shareholder is interested in purchasing the shares that are being offered. In such a case, the shares will be allocated between the members seeking to purchase such shares according to their proportional ownership in the LLC.
The specific procedures for selling the shares in an LLC are outlined as follows:
