The new power of the minority partner
Minority shareholder: Can I demand the distribution of dividends?
As of January 1, 2017, there has been a regulatory change that favors the rights of minority shareholders. On that date, article 348 bis of the Capital Companies Act with the following text:
“From the fifth year counting from the registration in the Mercantile Registry of the company, the partner who has voted in favor of the distribution of corporate profits will have the right of separation in the event that the general meeting does not agree on the distribution as a dividend of at least one third of the profits inherent to the exploitation of the corporate purpose obtained during the previous year, which are legally distributable .”
The content of the aforementioned article allows the minority shareholder to demand a distribution of at least one third of the profits obtained by the company with respect to its main activity. If the company refuses to distribute dividends after the minority shareholder’s request, the latter may request separation by transferring its shares or participations at the corresponding price.
The new power of the minority partner
In our previous article, Right of separation of the partner, we explained the conditions under which a partner exercises his right of separation, and the methods to value the price of the shares that the company must pay, being able to designate the appointment of an independent expert by part of the Mercantile Registry so that I can carry out the valuation.
The truth is that the application of art. 348 bis can be a tremendously valuable faculty for the minority shareholder. It should be understood that transferring to the company the decision to distribute dividends or having to face the separation of the partner with the cost that this entails, can mean a choice between “scare or death”.
There is some controversy in legal doctrine due to the consequences that this precept could have, due to the ability of the minority shareholder to undermine the effective control of strategic decisions of greater depth, impose their position before the management bodies, or even due to the possibility that the minority shareholder ends up using the power granted by art. 348 bis abusively.
The introduction of the article may imply an important change in partner relationships, and even an increase in litigation within family partnerships.
This change in the distribution of powers is expected to have a relevant effect in companies where there is a pre-established conflict between the minority shareholder and the majority shareholder, since prior to the entry into force of the regulation, the decision on the distribution of dividends fell exclusively on the General Meeting controlled by the majority of the shareholders.
There are two requirements imposed by article 348 bis for the partner to be able to avail himself of the right of separation:
Having voted in favor at the general meeting to approve the distribution of at least one third of the dividends.
Foreseeably, the courts will not require that the vote have taken place, since this question does not depend on the will of the minority shareholder. Therefore, it will suffice for the partner to have shown firm opposition to not distributing the dividends, which can be proven by recording it in the minutes of the meeting. The minority shareholder is recommended to make sure that his position has been included in the minutes. P>
That at least five years have elapsed since the company was registered in the Mercantile Registry.
It is understood that having had to elapse five years before the partner can have access to the power of art. 348 bis, the right of separation may not operate before the company has completed its sixth year of life.
The Law also makes the disquisition that this power conferred on the minority shareholder will not take effect in listed companies.
The different positions that authors and jurists have expressed in this regard show the conflictive nature of this rule. It is not a novel regulatory text, it was actually already in force since its initial approval in the Law 25/2011, of August 1, to be subsequently suspended until December 31, 2014, in accordance with Law 1/2012, of June 22< /a>. The suspension was extended again until December 31, 2016 to enter into force again from January 2017.
The Spanish legislator was forced to incorporate this right of the minority shareholder by order of Directive 2007/36/EC, of the European Parliament and of the Council, of July 11, on the exercise of certain rights of shareholders of listed companies.
However, the legislator has preferred not to reduce the autonomous capacity of companies and that is why its entry into force has been postponed during the most critical years of the economic crisis.
What is clear, after the repeated suspensions of its application, and the strong controversy generated, is that we are faced with the legal uncertainty of not having a certain future< /strong>.
We do not know what the future of events will be before a possible new modification of the norm. The courts will also be able to give a more precise interpretation to issues that are still unknown.
Meanwhile, the minority shareholder must know that it has an interesting weapon to demand the distribution of dividends, but also to impose its criteria or decant the balance against the majority shareholder under the threat of exercising the right conferred by art. 348 bis, and even force a negotiation in their favor on any issue in which there is a conflict of interest.
The new power of the minority partner. Can I demand the distribution of dividends?