We have already been concerned, in the context of our previous articles, with the specific participle and its importance. Also with a series of related issues. We were also concerned with the principle of the indivisibility of the share (“…shares are indivisible”). In this context, is co-ownership of shares possible? And, if so, do any issues arise? The present article will explore these (only apparently simple) questions.
Regulation
The issue of the co-ownership of shares is regulated, for the first time, in the law on SAs (art. 53 law 4548/2018). There was no relevant regulatory provision in the previous law no. 2190/1920. The new provision regulates the relevant issue, approximately as it had already been formulated in practice (see Petition Report on art. 53 law 4548/2018). This is a provision of mandatory law. Its application, therefore, cannot be excluded by means of a (contrary) statutory provision or, much less, an agreement.
Purpose
The regulation in question aims to legislate the principle of the indivisibility of the share referred to in the introduction (art. 53 § 1). However, it expressly foresees and regulates what is permitted by the society on the shares of the SA, removing any potential doubt (art. 53 §2). It further regulates the relations of most of the beneficiaries of the shares with each other and with the SA itself. It facilitates and protects, respectively, both them and the company.
The Principle Of The Indivisible Character of Shares
Content
We have already been concerned with the principle of indivisibility of titles (art. 33 §4)- a more specific manifestation of which the corresponding principle applies on shares (art. 53 §1). The dual content of the latter is analyzed:
(a) In the prohibition of splitting of the rights and obligations arising from the share (see related Explanatory Report of law 4548/2018 on art. 53).
The rights deriving from the share (we have already seen how) are divided into: (i) administrative (eg right to vote, representation at the General Assembly) and (ii) property (eg right to participate in profits and to the product of liquidation). However, it is not possible, within the framework of this principle, neither to divide them nor to transfer them to separate persons. Only the (single and total) transfer of the shareholding relationship is possible.
(b) In the prohibition of division into smaller “sub- shares ” (see related Explanatory Report of law 4548/2018 on art. 53).
A person acquires the status of shareholder independently for each share that comes into their ownership. The acquisition of a share, respectively, by several persons (e.g. due to inheritance) implies the maintenance of its indivisibility. This means that this share is not divided into (more) sub-shares corresponding to the number of the more than one beneficiaries. However, a social relationship is established between them.
It should be clarified, here, that the statutory (and always possible) division (: split) of the shares into more is a different matter; provided, of course, that the statutory minimum nominal value of the share is not affected (€0.04 – Art. 35 §1).
Exceptions
The establishment of a usufruct and pledge on a share introduces a bending of the principle of indivisibility (art. 54). Both the usufructuary (art. 1177 Civil Code) and the pledgee (art. 1245 Civil Code) are entitled, in principle, to participate in the shareholders’ General Assembly – subject to a different agreement or statutory provision.
Permissible, exceptionally, (as we have already pointed out) is also the possibility of separate, free transfer of property only rights arising from the title issued by the SA (art. 53§1 & 33 §5 law 4548/ 2018 and 455 of the Civil Code): of the payment claim, e.g., any dividend. Accordingly: the right of preference, the right to the product of the capital reduction or depreciation and the right to the liquidation product (see Memorandum Report of law 4587/2018 on art. 33§5).
Specific exceptions, however, can be ruled out, resulting in a return to the indivisibility rule. In particular, the law provides that the aforementioned exceptions are subject to the different provision of the articles of association or the terms of issuance of the relevant securities (article 33 §5 in fine).
Co-ownership of Shares
Concept & Content
A co-ownership of a share exists in the event that the share belongs to or will fall to more than one beneficiary (natural or legal persons). It is established by deed (eg acquisition of share/shares from several parties – jointly) or created by law (eg inheritance).
The type of share and the time of incorporation of the company are of no importance whatsoever. It should be noted, however, that the arrangement in question acquires, in practice, value, with the registration of most of the beneficiaries/owners in the shareholders’ book.
A condition, therefore, for the application of this regulation is the existence of a full right in rem (ownership) over the share. A partnership is not created, therefore, in the event of coexistence on the same share of some limited right in rem of another person (e.g. lien or usufruct). Not even in the case of the existence of several economic beneficiaries on the same share in the context of a debt relationship (eg a dormant partnership).
As long as there is a co-ownership on shares, they are characterized as “common”. The common shares, as a result of the formation of a company, will be analyzed below. However, the compared term should not be confused with the category of common shares – i.e., those that are issued without having specific, by law, characteristics (such as, e.g., preferred or redeemable shares).
Management of Co-owned Shares
The creation of the partnership between the majority of the beneficiaries of the co-owned share or shares implies the direct application of the provisions on the co-ownership (785 et seq. Civil Code).
As a rule, according to the correct opinion, the collective (and joint) administration by all the co-owners applies (788 §1 Civil Code). The consent of the co-owners is required to carry out serious acts of administration (792 §1 Civil Code).
Instead, a simple majority vote is sufficient to decide how the common shares are to be regularly managed or held. Also, for carrying out other acts of current administration (789 Civil Code).
If the shareholders or their majority are unable to make a decision regarding the management of the common shares, the relevant decision can be taken by the court – if one of the shareholders appeals to it. For the relevant lawsuit, the competent court is the Multi-member Court of First Instance, (given the non- monetary subject matter of the lawsuit) which hears according to the regular procedure.
The court, if necessary, appoints an administrator of the common shares (: Civil Code 790), whose authority it determines. The administrator may be either a co-owner or a third party; they act as the representative of the co-owners.
For their appointment, the particularities of each co-ownership must be taken into account (correlation of forces, the interest of all co-owners, any particular privileges of shareholders) and obviously the corporate interest.
In any case, it is also possible to take injunctive measures, following a relevant application to the Single-Member Court of First Instance for the temporary appointment of an administrator (682 et seq. Code of Civil Procedure).
Designation of a Common Representative
In the case of an SA, most of the beneficiaries are obliged to indicate to the SA their common representative (art. 53 § 2 sub. a’).
One or more natural or legal persons (either a co-owner or a third party) are indicated/appointed as a representative. However, the free appointment of a representative is limited in the event that this is provided for by law or, possibly, by contract.
The suggestion constitutes a multi-person, unilateral addressable declaration of the society of shareholders to the SA. It can be time-limited; it can be freely recalled. Furthermore, it is advisable that both the suggestion and any change thereof (e.g. resignation of a common representative) be entered in the shareholders’ book for reasons of legal certainty.
After the nomination of a common representative and the relevant declaration to the SA, the common representative has the authority to represent the co-owners (art. 211 et seq. Civil Code).
Failure to nominate a common representative results in the suspension of the rights deriving from the common shares. Declarations related to the shareholders’ status of the partners can be made, validly, to any of them (art. 53 §2, sec. b΄).
In the event of a lack of agreement on the nomination of a common representative by the shareholders, the latter may request from the Court the appointment of an administrator – according to article 790 of the Civil Code (art. 53 §2, section c).
Declarations of Intent to Shareholders
Declarations related to the common shares (which do not, however, pertain to individual co-owners), can be made, validly, by the SA to the common representative of the shareholders. However, until such a decision is made, any relevant statement by the SA is addressed to any co-owner (art. 53 § 2, sec. b’).
Distribution of Common Shares
Each member reserves the right to request the dissolution of the co-ownership at any time (795 Civil Code). In case of co-ownership of several shares, it is possible to carry out their immediate distribution, following a relevant decision of the Court (480 § 2 of the Civil Code). Clearly, provided that it is possible to divide them into parts proportional to the shares of the societies. That is, as long as their value is not reduced (e.g. by the creation of a strong majority and, respectively, insignificant minorities). However, the auction sale (by virtue of the issued court decision) of common shares could not be ruled out: in the case, e.g., where co- ownership of a single share, crucial for the formation of a majority, arose.
Partnership/co-ownership of SA shares is not uncommon. The case of hereditary succession seems to be the most common cause for its creation. Although the co-ownership in question looks, as mentioned in the introduction, simple, it turns out to be quite complex: its individual parameters and aspects can be (positively or negatively) decisive, in some cases, for the interests of the shareholders – of course of the SA as well. But what happens when things get more complex—as in the cases of usufruct and pledge of shares? About them: see our next article.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 25th, 2022).
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.