Minority shareholders have little influence on the general meeting and no control over managerial decisions. The new law on LLCs will increase the influence of minority shareholders in the appointment and dismissal of CEOs
How it used to be
Current legislation contains no mechanisms to make the votes of minority shareholders matter in decision making.
To be specific, it’s about increasing the quorum. For instance, 3 participants with 80%, 10% and 10% shares raise the quorum for making decisions regarding the CEO’s appointment to 90%. In this case, the presence of the majority owner and one of the minority ones is required – otherwise the decision will be stalled. On the other hand, this mechanism has a significant drawback: if the quorum is reached, the majority shareholder will still be able to decide as he wants, without taking into account the opinion of the minority shareholder.
How it’s going be
After the LLC law comes into force, minority shareholders will have more options to help protect their interests.
1. Increasing the number of votes necessary for the appointment or dismissal of the CEO (part 5, Art. 34). By increasing the number of votes necessary for the appointment/dismissal of the CEO to 90% in the charter, minority shareholders will be able not just to block such a decision, but also force majority owners discuss it with them. It will be impossible to make such a decision without the votes of minority shareholders.
The LLC law excludes the concept of "quorum" in the work of the general meeting altogether. Right now its authority is determined by quorum – the minimum number of the votes of participants present at the general meeting. After the entry into force of the law, the authority of this management body will depend on whether the number of votes is deemed sufficient by the law or the charter.
2. Mandatory approval of candidates for top positions by all shareholders (part 6, Art. 11). The charter could provide for the approval of candidates BEFORE the general meeting. It could also contain a provision that only the candidates approved by all shareholders are to be voted for at the general meeting. This will ensure additional protection for minority participants.
3. Protection of minority shareholders through a corporate contract (Art. 7). It is possible to put a provision in such a contract that would make one of the shareholders with, say, a 20% share responsible for nominating a candidate, while the majority participant, in turn, will have to support that candidate.