In our previous article, we looked into the distribution of shares (with or without consideration) to members of the SA Board of Directors, its executives and employees. As well as to those who provide their services to it. We also looked into the share allocation program in the form of an option to acquire them (: Art. 113 Law 4548/2018). Specifically, the beneficiaries and the competent bodies for its issuance. Also the content of the relevant decision as well as the right of option of the beneficiaries. In the present article we will examine the free distribution of shares in the context of the relevant program (: art. 114). Basically, what we have pointed out in detail in the above article is valid. However, it is considered appropriate, for the integrated approach of the whole subject, to record a brief overview of the individual sections, with special emphasis and highlights on the particularities of the free distribution of shares and the relevant concerns.
Purpose, benefits and risks
We already focused on the intended purposes, benefits and risks of the sale of shares by the SA in the context of the relevant program. It should be noted that the free distribution of shares to the beneficiaries constitutes an extremely attractive tool for their (active) stay within the SA. However, it is also a tool for achieving goals and an important motivation for better quality performance. In order to manage the non-negligible risks from such a distribution of shares, we also noted that the distribution in question should be linked to the achievement of specific, realistic, goals by the beneficiaries. Especially for non-listed SAs, we have also confirmed that the free distribution of shares should concern shares that are restricted. The content of the commitment could be whatever is necessary for each company (ind.: retention obligation for a specific period of time, inability to sell to competitors, right of preference of specific shareholders, approval by the Board of Directors or the General Assembly etc.).
Beneficiaries of Free Shares
Beneficiaries of acquiring shares within the framework of such a program may be (art. 114 § 1), in this case as well, the members of the Board of Directors and the staff of the SA (employees and managers). Also, natural persons who bear the corresponding properties to any legal persons related to the SA in question. Also, persons who provide their services to the SA (which disposes of its shares) on a regular basis (and not circumstancially). E.g. lawyers, accountants, suppliers, distributors.
Competent Corporate Body
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 Meeting (art. 114 § 1). The relevant decision will be taken, here too, with an increased quorum and majority. However, when such a program has been included in the decision of the General Assembly approving the Remuneration Policy of a listed SA, an independent decision is not required.
The company’s Board of Directors cannot get involved in the whole process by taking, by authorization of the General Assembly, the decisions mentioned above. Actions of an executive nature (indicatively, the delivery of shares) remain, however, within the competence of the Board of Directors. Also, the actions to implement the disposal program belong, according to the law, to the Board of Directors. It is also possible for the Board of Directors, to be authorized by the General Assembly, not to take the central (regarding free distribution) decision, but in order to determine, simply, part of its content – incl. beneficiaries or their categories (art. 114 § 2, ed. c΄).
Mandatory (Minimum) Content of the Decision
The main, clearly noticeable difference between the options for the distribution of shares (free or for consideration) is the provision of consideration for the acquisition of the shares. After all, the free disposal usually takes place once (since it is not part of a program and there is no obligation to exercise an option beforehand).
The minimum, mandatory, content of the decision of the General Assembly, regarding the free distribution of shares, is provided for in the law (art. 114 § 2, ed. a’ & b’). Specifically:
(a) The origin (and class) of the shares to be disposed of.
As long as it is a sale of SA’s own shares, the special provisions of the law on own shares also applies. If, however, the program concerns shares, which are to be issued after an increase in the share capital of the SA, the corresponding provisions apply. In the latter case, the shares available may result from the capitalization of undistributed profits or distributable (ie, optional) reserves (as opposed to those, by law, mandatory such as, e.g., the regular reserve of art. 158). Alternatively, from the capitalization of the premium difference (art. 114 § 2). In each of these cases, however, there must be a relevant decision of the General Assembly (separate and/or integrated in the disposal decision). It is not excluded, however, that it may be received prior to the distribution of the shares. In addition, despite the legislator’s incorrect reference to Article 27 § 2 in fine, in these cases the exercise of a right of preference by the shareholders is not excersized (nor, by extension, its exclusion).
It is noted that, if it is decided to issue preferred shares, the relevant approval must have been obtained beforehand from the shareholders of any existing special category.
(b) The maximum number of shares to be sold.
The total nominal value of the free shares to be distributed cannot exceed, in total, one τεντη 1/10 of the paid-up (at the time of the decision) share capital. In order to find the maximum nominal value of the shares that can be allocated for free, we subtract from the percentage mentioned the nominal value of the options that may be pending for the allocation of shares for consideration (under no. 113).
(c) Beneficiaries (or categories of beneficiaries).
It is necessary to determine the persons eligible to participate in such programs (individuals or categories thereof). Since the program is aimed at employees, the principle of equal treatment as well as the principle of non-discrimination should be taken into account.
(d) The duration of the program.
The law, although it claims as necessary the determination of the duration of the program, does not provide for minimum or maximum time limits. As long as the shares to be sold are the SA’s own shares, the more specific provisions and time limits of the law apply to them.
(e) The terms of sale of the shares and other (related) terms of sale.
It is possible to condition the beneficiaries’ efficiency. Also the maintenance of their position until the exercise of the option. Or even the obligation to hold the shares for a minimum period of time.
Potential Content of the Decision
For the potential content of the decision of the General Assembly, regarding the free distribution of shares, the law (art. 114 § 2, ed. c) gives us an indicative context. Specifically, in said decision it is possible to include: (a) the assignment to the Board of Directors of the determination of the beneficiaries or their categories, (b) any obligation to hold the freely distributed shares for a specific period of time, as well as (c) any other condition of the share allocation program.
The free distribution of shares to the beneficiaries in the context of a relevant program that will be adopted by the SA constitutes, in accordance with what was mentioned above, an extremely attractive tool: a tool for achieving its goals, enchansing the performance of the beneficiaries, maintaining cooperation between them and the SA. The expected benefit for the beneficiaries will arise at the time of the sale of the shares in question. It is extremely useful, therefore, for the SA – if not necessary – to set restrictions on their transferability. These restrictions would be desirable – and safer – to refer to restricted shares and, according to their content, to serve the corporate interest and (obviously) the interest of the majority shareholders.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 3rd, 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.