Commercial Companies Code - preference of shares in respect of dividends
Preference allowed in all capital companies
The provisions of the Commercial Companies Code (the “CCC”) allow for preference of shares with regard to dividends in all capital companies. In addition, based on the cross-reference provision in Article 126 § 1(2) of the CCC, the said preference may be provided for in a limited joint-stock partnership.
Requirement of unanimity at the stage of incorporation of the company
The establishment of a preference with regard to the distribution of profit is already permitted in the initial version of the articles of association or the statute. If such differentiation is introduced at the incorporation stage, the conclusion of the respective articles of association or the signing of the statute will require the consensus of all founders.
Introduction of a prerogative during the existence of a given corporation
The granting of the relevant prerogative already after the registration of the corporation involves a resolution of the ownership body and a constitutive entry in the register.
The restrictions to be met when adopting a resolution on the privileging of shares vary depending on the type of company.
Privileging of shareholding rights in a limited liability company
With regard to a limited liability company, the adoption of a resolution providing for dividend preference falls within the hypothesis of Article 246 § 3 of the CCC. Pursuant to its content, a resolution concerning an amendment to the articles of association, increasing the benefits of shareholders or depleting share rights or rights granted personally to individual shareholders, requires the consent of all the shareholders it concerns. The Supreme Court”s case law aptly assumes that the depletion of a shareholder's participation rights within the meaning of Article 246 § 3 of the CCC relates to all rights arising from the share held, which in my opinion includes the right to profit (cf. the Supreme Court's judgment of 13 June 2013, IV CSK 694/12, Legalis).
It is worth emphasising that the aforementioned provision provides for the requirement of unanimity of all shareholders affected by the reduction of shareholding rights, not only those present at the shareholders' meeting.
Group voting in a simple joint-stock company and a joint-stock company
In contrast, the legislator has adopted a different solution for simple joint-stock company and joint-stock company.
In both cases, group voting must be conducted, which results from the disposition of Articles 30098 § 4 and 419 § 1 of the CCC, respectively.
Pursuant to Article 30098 § 4 of the CCC, concerning simple joint-stock company, if there are shares with different rights in the company, a resolution concerning an amendment to the articles of association affecting the rights of shareholders of a particular type of shares should be adopted by a separate vote at the general meeting in a group of shareholders of single-type shares whose rights are affected by the amendment to the articles of association. In a group of shareholders, the resolution shall be adopted by the majority of votes required to pass such a resolution at a general meeting. The absence of the shareholders whose rights are affected does not prevent the general meeting from adopting the resolution.
On the other hand, pursuant to the similar provision of Article 419 § 1 of the CCC, which applies to joint-stock company, if there are shares with different rights in the company, resolutions to amend the statute, to reduce the share capital and to redeem shares, which may infringe the rights of the shareholders of a given type of shares, should be adopted by a separate vote in each group (type) of shares. In each group of shareholders resolution should be adopted by the majority of votes required to pass such a resolution at a general meeting.
As regards the requirement of group voting, it is worth quoting the judgment of the Supreme Court of 17 May 2012 (I CSK 466/11, Legalis), according to which, pursuant to the provision of Article 419 § 1 of the CCC, it is sufficient that an infringement of the rights of preference shares is of a potential nature (verba legis – “could infringe the rights of shareholders of a given type of shares”), with the reality of such infringement to be considered concretely.
Should a possible reduction of rights be announced in the agenda?
The aforementioned question must be answered in the affirmative.
At the very least, it is good practice and an elementary manifestation of loyalty to the economic owners to clearly state this issue on the agenda, and in as much detail as possible.
When convening the decision-making body, it should be indicated:
- which specific shares are to be privileged;
- to what extent the relevant shares will be privileged (taking into account the limits set by law as regards limited liability company and joint-stock company).
How to apply the aforementioned provisions in practice?
In practice, there are instances of group voting in joint-stock company. One such situation occurred recently in relation to a public company from a regulated market.
Below is a link containing the content of the notice convening the AGM, in which the issue of preference of shares and its extent was explicitly mentioned in the agenda.
Furthermore, the Management Board, in justifying the content of the resolution, explicitly stated: “In addition, the amendments to the Statute provide for the granting of a new preference in terms of dividend rights to shares of series C1 to C6 in total. The Management Board notes that granting this preference may infringe on the rights of shareholders who are entitled to the remaining shares (other than shares of series C1 to C6 inclusive). Therefore, the Management Board plans that the resolution to amend the Statute will be adopted by a separate vote in each group (type) of shares. In each group of shareholders, the resolution should be passed by the majority of votes required to pass a resolution of this kind at a general meeting.”
How is group voting to be conducted?
Regarding the procedure for group voting, the chairman of the body should:
- order the formation of separate groups of shares;
- order a separate vote for each group (type) of shares, including proposing the election of a chairman for each group who will conduct the vote;
- in the event that positive resolutions are passed by all groups, resume the plenary session and order that the resolutions of the shareholders gathered within each group be adopted by the general meeting as a body of the company.
In my opinion, in the case of a public company, the resolutions of each group and the general meeting as a body should be published by the issuer, as is the case below:
