ArticlesFamily businesses & succession… (protection of minority successors & the company)

January 10, 2021by Stavros Koumentakis

Many aspects of family businesses have occupied us in the past -and still do. Among other things: as an important parameter of the national economy and as a “crossword puzzle for strong solvers” in the succession process. The issue of succession proves to be dominant in these companies. It occupies, among others, the one who is preparing to hand over, always with difficulty, the baton to their successors. The process, the time and the way of the owner being “cut off” from their share rights and the transfer of said rights to the successor were the subject of our previous article. Likewise the dangers of the “next day” (that is, the one that follows the succession) and the ways of managing them. At that time, we pointed out that a major issue is always who the successor is – who is the one to whom the reins of the business will be handed over. Not infrequently, however, minority percentages should be left to others besides the main successor. It is a given that for those (the successors of the minority), appropriate provisions should be taken. Provisions that, first of all, will concern the protection of their own rights. To limit, in other words, the “monarchy” of the majority.

The road is one and only: the appropriate statutory regulations.

Let’s approach the most basic of them-especially in the context of an SA.


The statutory regulations for the benefit of the successors

It is a given, as it was implied in the introduction, that the transferring shareholder will have to add one more concern to the not so few ones surrounding succession. In particular, they must re-approach the company’s statutory provisions on the basis of prevention, at a minimum, for: (a) safeguarding minority rights, (b) safeguarding shareholder percentages and preventing “malicious” increases of the capital (c) the equalization of the financial benefits of the shareholders through the (possible) issuance of preferrence shares.


(a) The rights of the minority

The significance of the rights of the minority and the security they provide to the minority shareholders could only have occupied us in the past (see The Minority and Its Rights in the Societe Anonyme & The Minority Rights in the Societe Anonyme: The Exceptional Auditing).

As we have already pointed out, the relatively recent law on SAs (Law 4548/2018) recognizes (like its predecessor, after all) a series of rights to minority shareholders. Rights that depend on the amount of share capital that each individually or several together represent. The rights of the minority are clearly recorded in individual provisions of the specific law (article 141-basically but are also found, scattered, in other provisions). Of particular interest, however, are the rights recognized by law (Article 142) to minority shareholders (to those representing 1/20 and 1/5 of the share capital) regarding the control of the company.

The percentages of representation of the share capital, which are required for the exercise of the rights of the minority, are not high. It is possible, however, to reduce them even further. The provision of article 141§13 is the one that provides that: “the articles of association may reduce, but not by more than half, the percentages of the paid-up capital required for the exercise of the rights, according to this article”. The regulation of article 142 §3 regarding the rights corresponding to the shareholders representing 1/5 of the share capital is similar.

The provisions, possibly also the expansion, of minority rights allow the transferring shareholder to implement a “protected” succession. A dual-purpose succession: one that provides a secure majority for the management of the SA and, at the same time, one that adequately secures minorities and their rights. Significantly limiting, by choice, the “one man principle” of the majority successor.


(b) The special provisions regarding the decision to increase the share capital

It is possible for the transferor to choose to offer the successor an increased majority. Sometimes, in fact, a majority greater than 2/3 of the share capital. It may be useful in this case to restrict the rights of the (new) majority shareholder. The reason? The prevention of the drastic restriction of the percentages and rights of the minority shareholders through, without their approval, the increase of the share capital of the company.

On the other hand, it seems appropriate, in some cases, to transfer to one of the successors the shares that would result in an increased majority (greater than 2/3) of the share capital. Such a transfer would be appropriate, for example, in the event that the successor in question would be the only one wishing to take up the family business. Said successor should most likely be given the appropriate incentive to: (a) move unhindered in the benefit of the family business and at the same time (b) have the conditions for smooth decision-making by the General Assembly.

Possibly, even in this case, it would be necessary to defend the percentages of the minority from any successive increases of the share capital with unilateral, in fact, decisions of the majority. Increases that, without being necessary, could lead to the nullification of the percentages of the minorities. Especially when the minority shareholders do not have (or do not want to provide) the capital to participate in them.

Problems arise in all the above cases. Basically the only solution is the statutory increase of the majority, of more than 2/3, for the decision to increase the share capital (articles 23, 117, 130 par. 3 and 132 par. 3 of law 4548/2018).


(c) The issuance of preference shares

A “heretical” way (quasi) of equalizing the different percentages and share rights of the successors is the issuance of preference shares (article 38 of law 4548/2018-provided, of course, that relevant statutory provisions are in place).

Preference shares can become a useful tool in the hands of the transferor, so that the latter maintains the balance between their successors. The (potential) minority shareholder will be able to look forward, for example, to receiving a fixed dividend, with no additional claim on the company’s profits and management. It is, in some cases, the appropriate solution: (a) for the minority shareholder who will thus secure a livelihood and (b) for the majority, who will have an incentive to increase the financial result of the family business, which will solely benefit them.


The adoption of provisions of the law on Corporate Governance

Proper management of the family business (and not only) is a prerequisite for its longevity. In a family business, however, decision-making is not always free of subjective elements, personal characteristics, and emotional charges.

Solutions to this problem are provided by the recent law on Corporate Governance (: Law 4706/2020). Although its application is not mandatory for non-listed companies, it is nevertheless appropriate for each company to adopt its own regulations. At least a few, at least in fragments. Moreover, any corporate governance arrangement increases the creditworthiness of the business concerned and, ultimately, its value.

One of the provisions of this law (as well) is the existence of independent non-executive members on the Board of Directors. According to the law (article 9 par. 1 law 4706/2020), a non-executive member of the Board of Directors is considered independent if, by definition and during their term in office, they do not directly or indirectly hold a percentage of voting rights greater than zero point five percent (0.5%) of the share capital of the Company and is free from financial, business, family or other dependent relationships, which may influence their decisions and independence and objective judgment.”.

These members are responsible for overseeing the executives. A more impartial and clear decision-making decision is expected from these (independent, non-executive) members. The protection, in other words, of the company and minority shareholders.

Changing our culture in the direction of good business practices is a necessity in every type of business. However, it is also considered extremely useful in the vast majority of the cases of succession in family businesses.


Choosing the successor to whom the “keys” of the family business will be handed over is only one (and not the first) step in the long and arduous process of the succession. It is a given that this successor should be provided with the conditions for the smooth exercise of administration. The other (usually weaker) minority shareholders, however, should be provided with the tools that adequately secure their rights.

Each case is, without a doubt, unique. With its own peculiarities.

The right tools available are more than enough.

They can easily be found in the provisions of the law on Corporate Governance. Also, in the of the law on SAs – when the family business is one. It is worthwhile to start with the minority rights and the company’s articles of association.

It is worthwhile to focus, with much care, on all the parameters of succession. And on all its details.

One thing is for sure: the result will not disappoint us…


Stavros Koumentakis
Managing Partner


P.S. A brief version of this article has been published in MAKEDONIA Newspaper and (January 10, 2021).


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.

Stavros Koumentakis
Nikis Avenue & 1, Morgenthau st., 54622 Thessaloniki
(+30) 2310 27 80 84

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