We explored, in our previous article, the distribution of shares (with or without consideration) to members of the SA Board of Directors, its executives and employees. Also, to those who provide their services to it. We will be concerned, here, with the share allocation program in the form of an option to acquire them (: art. 113 of law 4548/2018). The beneficiaries, in particular, and the competent bodies for its issuance.
Beneficiaries of Acquisition of Shares
The SA (more precisely the General Assembly or, subject to conditions, its Board of Directors) may establish a share allocation program, in the form of granting an option for the purpose of acquiring its shares (art. 113 §1 Law 4548/2018).
Beneficiaries of such a program may be the members of the Board of Directors and the staff of the SA that disposes of shares. Also, natural persons who have the corresponding properties in any legal persons connected to the SA in question (see art. 32 of Law 4308/2014).
The concept of “personnel” includes the natural persons employed by the SA in a dependent employment relationship (in accordance with the dependency theories developed in the context of Labor Law). The concept of “personnel” also includes management employees [despite the fact that they hold “… a position of supervision or management, or a position of trust” (: art. 2 par. a’ of the International Convention of the Washington International Conference, sanctioned by the first paragraph of Law 2269/1920) and despite their high degree of independence and their significantly higher salaries compared to other staff].
The right to acquire shares is not recognized, on the contrary (in the best opinion – and despite the lack of a relevant legislative provision), to persons who are employed by the company on a temporary, merely, basis (e.g. in the case of an employee employed by the SA in the context of a hiring-out of workers program). The specific assumption, in fact, seems reasonable as any allocation of shares to employees of this category cannot meet the justification and purposes of the institution: The creation, i.e. incentives for optimizing their performance and consolidating strong ties with the SA.
In addition to the above persons, the share allocation program – as it was also applicable based on the existing provision (: art. 13 §13 law 2190/1920) – can be addressed, in addition, to anyone who provides their services to the SA (who disposes of its shares) on a fixed (and not occasional) basis (: art. 113 §1 in fine). Among the beneficiaries it is possible to include persons connected to the company through relationships of independent services, salaried project mandate, etc. However, those who provide their services on a regular basis to companies affiliated with the SA cannot be beneficiaries.
In the category of beneficiaries who provide their services on a fixed basis, it is possible to include, therefore, regular partners of the company whose provision of services is characterized by repetition. As such they could be lawyers/solicitors, accountants, suppliers, distributors and so on. Of course, any occasional and haphazard cooperation is not enough. Precisely because of the valuable (usually) contribution of the above persons to the corporate development, it is reasonable that the SA wishes not only to reward them, but also to strengthen and maintain the ties between it and them.
Competent Corporate Body
Competence of the General Assembly
The authority to take a decision to establish a share distribution program in the form of an option belongs, by law, to the (statutory) General Assembly. A summary of the relevant decision of the General Assembly is published in the company’s file kept at the Business Registry (art. 113 §1 section a’).
The importance of the specific decision makes understandable the requirement of the law for an increased quorum and majority regarding its adoption (art. 113 § 1 paragraph a’ – as correspondingly, it is also required in the (regular) increase of the share capital). Through this decision, moreover, the shareholder composition of the SA is changed and shares are allocated to third parties. Such a change can only presuppose broad acceptance by shareholders.
It is noteworthy that the shareholders of the SA are not granted a right of preference in the event of an increase in the share capital in order to distribute the shares that will arise to the beneficiaries of such a program (art. 113 §3 in fine). Besides, the matter of possible exclusion of the right of preference of the old shareholders does not arise when the distribution of shares is addressed to the staff of the SA (: art. 27 §2 in fine). And further: since, from the beginning, there is no right of preference, it is not possible to ask (despite the wording of the law) the question of its exclusion.
It should be noted that there is no need for authorization of the distribution program by virtue of a decision of the General Assembly if such was included in the decision deciding on the Remuneration Policy (see Petition Report n. 4548/2018 on art. 113 §5).
Competence of the Board of Directors
The legislator did not exclude the involvement of the Board of Directors from the process of establishing a share allocation program. In particular, the company’s Board of Directors can:
(a) Obtain, exceptionally, the competence to take the relevant decision, after a relevant authorization from the General Assembly, which is also obtained with an increased quorum and majority (art. 113 §4).
The aim of this regulation is, on the one hand, to ease the work of the General Assembly and, on the other hand, to create a program that is as attractive as possible (in the prevailing market conditions). The authorization to the Board of Directors follows, in particular, the corresponding standard that also applies to the authorized competence of the Board of Directors for an extraordinary increase (art. 24) of the company’s capital. Especially regarding its maximum five-year duration. The above-mentioned authorizations of the Board of Directors (: to establish a share allocation program and an extraordinary increase) do not affect each other – despite the fact that they are, potentially, concurrent (art. 113 §4 section b’). And, further: the fulfillment (or not) of the conditions applicable, by law, in one case (e.g. the quantitative limitations of art. 24) in no way affect the fulfillment (or not) of those applied in the other.
Although according to article 113 §4 sec. c) the decision of the Board of Directors “…is taken under the conditions applicable to the General Assembly”, a normal-only, and not an increased, quorum and (absolute) majority of its present and represented members is required (: art. 92 §§1 and 2). Moreover, there is no legislative provision for increased percentages in terms of decisions of the Board of Directors.
(b) Participate, in part, in determining the minimum content of the program, after a relevant authorization from the General Assembly (art. 113 §2 section c)
The decisive competence for the allocation of shares does not escape, therefore-in this case, the General Assembly. The Board of Directors can, e.g., (also) be assigned the determination of the beneficiaries.
(c) Take decisions of an executive nature and take actions to implement the disposal program.
The specific competence of the Board of Directors does not require the authorization of the General Assembly. On the contrary, it is provided for by law.
In this context, the powers of the Board of Directors include, among other things, the issuance of share acquisition rights certificates to the beneficiaries of the program who have exercised the option (art. 113 §3 paragraph a’). The nature of said certificates is, exclusively, evidential. This implies that it simply incorporates the beneficiary’s claim on the shares to be acquired.
The issuance of the specific certificates does not imply the self-righteous emergence of the shareholding relationship. This depends on the fulfillment of the conditions set in each case. In this context, the issuance and delivery by the Board of the shares provided for by the program to their beneficiaries as well as the acquisition, consequently, of the status of shareholder takes place, in principle, with the conclusion of the contract for the acquisition of (newly issued) shares or sale (of the already existing) own shares of the company. The shares that have already been issued are delivered to their beneficiaries per calendar quarter – at the latest (art. 113 §3 section a’).
In the event that shares resulting from an increase in the share capital are available, the Board of Directors is responsible for the payment in full of the amount of the increase. Also, for the amendment of the relevant article of the company’s articles of association (art. 113 §3 sec. a’ and c’). The actions in question take place on a regular basis – per calendar quarter (by way of derogation from the provisions of art. 20). They are also subject to the relevant publicity formalities.
Beneficiaries of the share allocation program in the form of an option to acquire them are, primarily, employees, executives and members of the SA’s Board of Directors. But they can also be close regular partners of the company. The competent body for the issuance of such a program is the General Assembly – subject to conditions and the Board. But their decisions need special attention. (And not only in substance but) also on a legal level. Correspondingly, serious issues arise in the case of free distribution of shares. About them, however, see our next article.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 13th, 2023).
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.