Equal Shareholders in an SA. A blessing or a curse?

Equal Shareholders in an SA. A blessing or a curse?

Exactly one hundred years ago, the Greek legislator dealt with the SAfor the first time. They had in mind a legal entity where the shareholders would be, in principle, different from those who would run it. The shareholders would exercise their rights through the General Assembly. The members of the Board of Directors and the management of the company would be discrete roles. We find, over time, that the property right over the company (: shareholders) is “confused” or identified with the company’s management. Often the participation in the company’s share capital, for reasons of (projected) equality, (but mainly due to both sides’ insecurity) is set at 50% -50% for the two, unique, shareholders / groups of shareholders. Some would characterize these percentages as a blessing. Some as a curse. For those who know: Two equal / only shareholders prove to be problematic for any legal entity. And maybe it is a bit worse in an SA. But again, maybe not…


Images drawn from life (and not from movie scripts)…

Every new business starts, as a rule, with the best intentions. When the founder is just one person, things are more simple.

When they are two, it is less…

At the beginning of a business cooperation, the two, only, founders & equal partners, usually walk harmoniously. But then, sometimes, things change. One of the two (and / or both) sometimes chooses to exercise power over the other. Others times, possibly, their problematic personal relationships are mirrored in the management of the company. And, of course, in the legal entity itself and its business activity. That is when we have a problem. Sometimes, a very serious one.

It is possible to reach the same problem when the founders-brothers (or very close friends) and 50% shareholders are replaced, over time, by their successors. Successors (or heirs) who will seek to get the “upper hand” in the, among them, informal bras de fer.

The same problem may arise when the only founder and shareholder of the SA dies and leaves (by will or without one) as equal heirs and successors their two children. Children who, when it comes to claiming power, may prove to not love each other enough. Let’s also not forget that their spouses’ meddling (often, as we see) gives them a nudge to that direction as well.

We all know such (and many other similar) stories. And continue to see them. All too often. More often in family businesses (do not forget, after all, that in our country they make up 80% of the total number of businesses). However, we will encounter such phenomena in all sub-categories of businesses. Without exception.

So what happens next?

We are all too familiar!

At the most part, it is not pleasant…


The «50/50» SA

In other words:

The main problem, on a practical level, arises when we are faced with only two, equal, voting rights.

We usually attribute this phenomenon with the term “SA: 50/50”.

The point when it is created varies. It can be created at the point of the establishment of the company (: when it is founded by two, equal, shareholders). It can also be created during the company’s operation (: subsequent configuration of two, equal, shareholdings).

“Equal participation” may also be the result of the existence (or creation) of groups of shareholders (whether or not bound by extra-corporate agreements). Each of these groups holds 50% of a company’s voting rights. Shareholders (or groups of shareholders) may, at times, not be just two. Such a case would be encountered, for example, when two shareholders (or groups of shareholders) hold 1/3 of the shares and voting rights each, while the shareholders representing the last 1/3 abstain from making decisions.

The two, equal, shareholdings are problematic when the holders of the 50% voting rights of the company do not agree in making critical corporate decisions and / or in the election of the Board of Directors.

As the case law accepts, “in these cases, the lack of communication between the shareholders, leads to the immobilization of the company and its operation is lead to a deadlock, as it is impossible to reach a simple majority in the General Assembly to make decisions, with the main problem being the General Assembly not being able to elect a Board of Directors.” (18191/2014 Multimember Court of First Instance of Thessaloniki).


The provisions of the legislator

The legislator could not ignore those specific, problematic cases. Those cases where the SA cannot operate. Or worse, those cases where the company reaches a deadlock due to the inability of the General Assembly (and/or of the Board of Directors) to make decisions.

The dissolution of the company by a court

The law generally provides the possibility of dissolving the company, “if there is an important reason for this, which, in an obvious and permanent way, makes the continuation of the company impossible” (article 166 §1 law 4548/2018).

Moreover: “An important reason according to paragraph 1 exists, in particular, if, due to equal participation of shareholders in the company, the election of the board of directors is impossible or the company cannot operate”. (article 166 par. 2).

The SA is dissolved by virtue of a court decision. Procedural prerequisite: the submission of a relevant application before the Single Member Court of First Instance of the place of the company’s registered office. An application notified to the latter and adjudicated by the non-contentious procedure (article 166 §3).


The acquisition of the shares of the SA

The company’s dissolution must, reasonably, be the last resort to address the impasses created in a company with equal shareholders. This is because a direct consequence of such is the loss of the shareholder status of all the shareholders, the termination of the company as a legal entity and the ultimate disappearance of the latter from the legal and business world.

In an effort to avoid the last resort of the dissolution of the SA, the legislator provides for/prefers an alternative. A solution that promotes the continuation of the company. This is the option (and possibility) of acquiring the shares of the company. Specifically:

…by decision of the Court

The Court, which will handdle the request for the dissolution of the SA, “… before issuing its decision, provides the company and the shareholders with a reasonable period of time to remove the grounds for dissolution, in particular through redemption of shares between the shareholders, unless it reasonably considers that this measure is pointless. This deadline can be two (2) to four (4) months. If the above deadline is provided, the court may order measures for the temporary settlement of corporate cases.” (article 166 par. 4). Such a deadline (: for the removal of the grounds for termination) cannot be extended (as provided by the previous legislation).

or as an initiative of the other shareholders

However, the shareholders themselves, those who do not want the company’s dissolution, are also given the opportunity to claim the redemption of the shares of the one (or of those) who request the company’s judicial dissolution. This is the power of the (non-applicant) shareholders of 1/3 of the share capital (and not of the 1/5, as the pre-existing law required) to excursive a main intervention in the lawsuit opened regarding the dissolution of the company. Specifically:

“Shareholders representing at least one third (1/3) of the capital, can intervene in the relevant lawsuit and request the redemption of all the shares of the applicant or applicants. In this case, the court orders the redemption and determines the consideration, which must be fair and correspond to the value of these shares, as well as the terms of its payment. In order to determine the value, the court may order an expert examination carried out in accordance with Article 17. The redemption value may not exceed the amount that the plaintiffs are likely to receive in the event of liquidation of the company, which the court may increase up to twenty percent (20%)” (Article 166 §5).

It should be noted here that this provision absolutely determines the method of valuation of the redeemed shares. It is well known that there are many such methods that enable those who perform them to get a wide range of results. The legislator here explicitly chooses the value “which the plaintiffs are likely to receive in case of liquidation of the company”. This value can be increased by the court “up to twenty percent (20%)”.

In the event of a redemption of shares, in accordance with the manner immediately mentioned above, “any provisions of the articles of association for the freezing of such shares … shall not be taken into account, unless the articles of association provide otherwise. (article 166 par. 6).


The exception of listed companies

The SAs whose shares are listed on a regulated market (and consequently the equal shareholding rights in it) are explicitly excluded from the possibility of a judicial dissolution for a “great” reason (article 166 par. 9 law 4548 / 2018).

We find a corresponding provision in the pre-existing law (article 48a par. 9 of law 2190/1920). A justification for this legislative choice is (also) foundin the explanatory memorandum of Law 3604/2007, which amended the aforementioned provision of article 48a. Specifically, as it is explicitly noted in it, the provisions of article 48a “… apply only to non-listed companies, because in listed companies the shareholder can in principle leave the company by selling their shares.”.


Conditions for exercising the right to a judicial dissolution due to “equal participation in the company”

The provision of article 166 of law 4548/2018 is mandatory. This means that any statutory arrangements that are contrary (or divergent) in content to this provision are void. The conditions for exercising this right can be summarized as follows:

The standing to bring an action

The right to request a judicial dissolution of the company is exercised only by a shareholder. Therefore, members of the Board of Directors, creditors of the company and auditors do not have this right. Even if they justify, in some way, a relevant legal interest.

The condition of the applicant being a shareholder is supplemented by the requirement of the holding of a specific, minimum, percentage of the share capital. Applicant shareholders (one or more) must raise at least 1/3 of the paid-up share capital. According to the wording of the relevant provision, a simple holding of shares is not sufficient. Their value must also have been paid for in full. However, the type of shares that make up the necessary 1/3 is irrelevant.


The existence of a “great” reason

The right to request the dissolution of the SA has, as already mentioned, a central goal. To solve impasses that the SA and its shareholders have reached.

Therefore, “a great reason is required, which, in an obvious and permanent way, makes the continuation of the company impossible” (art. 166 §1).

Such an important (according to article 166 §2) reason “exists, especially if, due to equal shareholders in the company, the election of the board of directors is impossible or the company cannot function”.

Therefore: the existence of equal shareholders is not enough to request the dissolution of an SA. A great reason is required, like the one required by law. The inability, e.g., to elect the Board of Directors and of the operation of the company due to the existence of two equal (with equal voting rights) shareholders (or groups of shareholders) who are unable, systematically, to agree on the decisions necessary for the operation of the company.

In fact, the situation mentioned above must lead to the impossibility of electing a Board of Directors or must obstruct the operation of the company in general. In particular:

Regarding the impossibility of electing a Board of Directors:

The impossibility, in this case, concerns the General Assembly. Specifically, the case in which the General Assembly is unable to make a decision regarding the election of the Board of Directors. A prerequisite, in fact, is the “… situation that shows elements of permanence.” (3494/2010 Multimember Court of First Instance of Athens). The alleged inability to make a decision, for example, in a single (extraordinary) general assembly “… primarily lacks the element of permanence required to be present, in order to substantiate the great reason for the decision of the court to dissolve … the SA.” While, at the same time, general statements of the applicant that “… they intend to vote against in any future proposal or issue raised in the General Assembly… and will concern issues of major importance for the operation of the SA, such as the approval of balance sheets, and that this event will make it obviously and permanently impossible to continue the operation of the company, it is not enough to make their claim legally stand …, since no preventive judicial protection is provided… ”(18191/2014 Multimember Court of First Instance of Thessaloniki).


Regarding the inability of the company to operate:

The inability, in this case, concerns the Board of Directors. This is the case in which a fictitious lack of administration is identified. In other words: there is a Board of Directors, but it is unable to make decisions. This fact obstructs the operation of the societe anonyme. In fact, in a complete and permanent way.

However, it is completely different when the operation of the SA is not obstructed in a complete and permanent way. In the case that “… the inability to make decisions is at the level of the Board, or because there has been a real lack of administration due to e.g. death or resignation of some or all members of the Board, or because there has been a fictitious lack of management due to e.g. stubbornness or assertiveness of its members…, implicit resignation-abstention from decision-making…, disagreements of members resulting in inability to exercise management…, the problem can be solved even with the removal of the members of the Board and the appointment of new members by the General Assembly, after the appointment of an interim administration that will convene the General Assembly“. (18191/2014 Multimember Court of First Instance of Thessaloniki).

Therefore, the inability of the Board of Directors to form decisions, which can be addressed by:

(a) Removal of its members and election of new members by the General Assembly and / or

(b) appointment of an interim administration under Article 69 of the Civil Code;

cannot constitute an important reason for a judicial dissolution of the SA. Provided, of course, that the internal involvement is not permanent and, at the same time, it is not found within the General Assembly. It is clear that an SA cannot operate indefinitely with judicially appointed administrations.

The above disagreements of the shareholders or of the members of the Board of Directors should be demonstrated through the minutes of the meetings of the General Meeting or of the Board of Directors. At the same time, the correlations of forces may be proved by other means, such as, for example, from the extra-corporate agreements of the shareholders (18191/2014 Multimember Court of First Instance of Thessaloniki, 3494/2010 Multimember Court of First Instance of Athens).


Equal participation in an SA (especially in the case of 50/50 SAs) creates, quite frequently, insurmountable problems.

Unanimity is required in the General Assembly that is called, for example, to elect a Board of Directors. If unanimity is not reached, in a continuous and permanent manner, the SA is left without administration. However, the company is also left without administration in case there is a Board of Directors, but one that is unable to make decisions.

In both cases, the company cannot operate.

To address the extremely serious problem, the law provides specific, quite effective, tools. The dissolution (or threat of dissolution) of the company is one. One that is so strong that it, in fact, sometimes, shocks. Justifiably. Because sometimes such (shocking and extreme) solutions are required, in order to ensure the survival of the company at the last moment.

It is obvious that the solutions provided by law should be adopted as a last resort.

Before these extreme solutions there are, without a doubt, other, milder ones.

Extra-corporate shareholder agreements, statutory arrangements and provisions, the management of minority rights are some of them.

And first of all:

The avoidance, for as long as possible, of the establishment and operation of as SA with its shares and voting rights divided in two.

The responsibility of the founders, the transferring shareholders and of those who plan their succession proves to be extremely serious. It is, however, perfectly manageable.

As long as timely management of the whole issue takes place. Before, of course, the cration of the problem.

Ex-post solutions, although painful, still exist.

In any case: there are no “canned” solutions.

Only tailor made.


Stavros Koumentakis
Managing Partner


P.S. A brief version of this article has been published in MAKEDONIA Newspaper (October 18, 2020).


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.


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