A voted down shareholder will challenge an unfavorable resolution

During meetings of shareholders of a limited liability company (sp. z o.o.), a minority shareholder must take into account that he will be voted down by those who hold the majority of shares. Does this mean that he has no chance to prevent adopting resolutions that are unfavorable to him?

If such resolutions are harmful to the minority shareholder and are contrary to accepted principles of morality, and also affect interests of a company, then he may quash them in court. This happened in the case of a dispute which was decided by the Court of Appeal in Warsaw in its judgment of 4 July 2018 (reference number VIIAGa 1395/18). The meetings of shareholders each year adopted a resolution on the transfer of profits to the reserve capital of the company. Shareholders also determined remuneration for members of the management board, being the majority shareholders in the company. The minority shareholder appealed against these resolutions. The Court ruled that the shareholders may decide to allocate the profits to the reserve capital of the company and determine whether the company's profit will be invested or paid to the shareholders. Such a resolution does not require unanimity of shareholders, unless the articles of association provide otherwise. It is also permissible for shareholders to determine remuneration for members of the management board, unless the articles of association provide otherwise. However, the resolutions appealed against had to be assessed jointly. Their aim was to exclude the payment of dividends to shareholders and thus to deprive them of their share in profits. In addition, they provided the two shareholders who are also members of the board with remuneration for which a significant part of the company's profit was allocated. Therefore, they led to the payment of the company's profit to two majority shareholders in the form of remuneration for performing functions in the management board. This solution was harmful to the minority shareholders who were not members of this body. They did not participate in profit either as shareholders or as board members. According to the Court, the company acted against the accepted principles of morality. The two majority shareholders used their position to adopt resolutions in the first place favorable to themselves. In this way, they shared a significant part of the profits solely among themselves.

The article was published in Dziennik Gazeta Prawna on 19 March 2019.

View the entire publication