In a previous article we referred to the securities an SA is entitled to issue –in the context of its financing (among others). Among them the (better known and familiar to all of us) shares. Some of their aspects will concern us in the present. Among them: their meaning and value, the rights and obligations of their owners.
The Concept Of The Share
We have already identified the concept of the share as “multifaced!”. And this is because, as accepted by jurisprudence, the term “share” means: (a) “…the share of the corporate capital”. Also, (b) “…the right to participate in the company“. Finally, (c) “…the title in which this right is incorporated” (ind. 1227/2011 Multimembered Court of First Instance of Athens, 4968/1993 Court of Appeal of Athens). Particularly:
Section/Share of Share Capital
We have already established, in our aforementioned article, that a share means, first of all, a part/share of the share capital. The latter (share capital) of the SA is divided into equal shares. The sum of their nominal value constitutes the share capital (art. 1 §1, sec. b’ and 34, sec. a’ Law 4548/2018).
Equity Relationship
The Equity Relationship it the legal relationship that connects the shareholder with the SA. The shareholding relationship, according to jurisprudence, begins to exist after the company acquires legal personality. Only then can its transfer take place.
The shareholder status is acquired originally by undertaking at least one share during the establishment of the SA or, in the context of a share capital increase, by the issuance of new shares; in fact, before the payment of the capital. It is acquired, alternatively, in a derivative way – by transfer “inter vivos or mortis causa” (1227/2011 Multimembered Court of First Instance of Athens).
The shareholder status ceases for reasons related to: (a) the shareholder (e.g. transfer of shares, exercise of redemption right by the shareholder), (b) the SA itself (e.g. cancellation of shares due to non-payment of contributions, exercise of right of redemption by the SA) or (c) for other reasons (e.g. completion of liquidation of the SA).
The creation of the equity relationship is linked to the establishment of specific rights and obligations.
Rights From The Shareholding Relationship
Management as well as property rights derive from the shareholding relationship:
Management Rights
The shareholder is entitled to participate and vote in the General Assembly, which (is entitled to) decide on every corporate matter, in accordance with the law (art. 116). The shareholder, in this way, participates in the decision-making regarding the most important, according to the law and the articles of association, corporate issues (see related art. 130 §3). Also: to be informed about corporate affairs and control the management of the SA. Minority rights, according to the law, constitute a minimum guarantee for the shareholder.
It is possible, however, that some shareholders are deprived of the right to vote (eg: holders of non-voting preference shares). The specific shareholders look to, as the case may be, property rights.
Property Rights
The main kind of property rights are the rights relating to the participation: (a) in the profits and (b) in the product of the liquidation. However, despite the fact that the shareholder maintains, due to their status, the specific monetary claims against the SA, they do not, for this reason, become its creditor.
But especially with regard to the pre-emptive right: it has a mixed nature, as it falls under both of the above-mentioned categories of share rights (article 3403/2006 Court of Appeal of Athens) – see and our previous article.
Obligations From The Shareholding Relationship
The sole obligation of the shareholder, deriving from the shareholding relationship, seems to be, at a first glance, the payment of a contribution: upon the establishment of the SA or the increase of its share capital. However, this principle seems to be broken by the existence of additional obligations (e.g. fiscal and/or those arising from the removal of the legal autonomy of the SA). Also from the obligation of loyalty but also from the obligation of the non-abusive exercise of Management rights. In more detail:
Obligation of Non-Abusive Exercise of Management Rights
The shareholder is obliged not to abuse their rights. The exercise of the right to vote is free, but it is prohibited to be exercised abusively (according to Article 281 of the Civil Code). The majority shareholder is not entitled, i.e., to take decisions with the intention of harming the minority. In this context, any abusive vote of the shareholder suffers from invalidity. By extension, as long as the conditions of the law are met (art. 137), the relevant decision of the General Assembly is also voidable. The same applies to minority rights.
Obligation of Faith
The shareholder bears the (significant, although disputed by some lawyers) obligation of loyalty – both to the SA and to the other shareholders (432/2016 Supreme Court). Its content refers to the shareholder’s obligation not to take advantage of their status and influence in order to cause harm/damage to the SA and/or to the other shareholders.
Title
The shareholding capacity is incorporated, as we have already mentioned, in the share. In this sense, the share denotes the title (art. 34, sec. b’ of Law 4548/2018). The title in question belongs to the category of securities which enshrine the share right (1053/2012 Single membered Court of First Instance of Rhodes); they do not incorporate, i.e., a monetary claim.
As mentioned above, the shareholding relationship begins to exist after the company acquires legal personality. Not, that is, from the issuance of the shares, which is not mandatory for the SA. This means that the issuance of the securities has a declaratory and not a constitutive nature (1227/2011 Multimembered Court of First Instance of Athens).
In any case, as expressly provided, the shares of the SA may be intangible, as long as the conditions of the law are met (art. 34 in fine Law 4548/2018).
The Value of the Share
Shares carry value, which is a reflection of the value of the corporate assets. The value has a different content in each case (1227/2011 Multimembered Court of First Instance of Athens, with further reference to Nisyraio, Law of the SA, edited by E. Perakis, first volume, pp. 438-439):
(a) Nominal Value: This is the value written on the security (no. 35). It indicates the portion of the share capital represented by the share (: the quotient of the share capital divided by the total number of shares).
The nominal value of each share cannot fall below €0.04 nor exceed €100 (art. 35 §1). Its exact amount is determined, freely within the specific limits, in the statute. Alternatively: in the decisions of the competent corporate bodies – in case of an increase in the share capital.
The nominal value of each share must be the same for all shares. It is possible, exceptionally, that shares belonging to a specific series or class have a different nominal value from the rest.
(b) Actual (Intrinsic) Value: It is obtained by dividing the real value of the property of the SA by the number of its shares. More precisely: the sum of the valuation of all the assets and liabilities of the SA (at their actual value at a given time) divided by the total number of its shares.
(c) Market (or Current) Value: This is the price of the share in the market: it is formed based on the conditions of supply and demand, but also by other factors, such as: forecasts of profits or losses, the prospects for the success of corporate operations, the ability of the management bodies and the course of the company.
(d) Stock Market Value: It refers to companies whose shares are listed on an organized market. It is the value of the specific shares, as formed in the stock market at a given time.
(e) Book Value: It results from the division of the accounting net worth of the SA by the total number of shares.
The Principle of Equality & Equal Treatment of Shareholders
The principle of the equality of the rights of the shareholders as well as the equal treatment of those (the shareholders) who are in the same position, is established by law (art. 36). Specifically:
Principle of equality
The rights of the shareholders, deriving from the share, are compulsorily proportional to the percentage of the capital it represents. Equality, that is, is provided as proportional and not numerical. However, in case of several classes of shares, the principle of equality concerns all the shares of the same class.
In addition: each share provides voting rights. It is therefore not possible to place limitations on this right – unless the law provides otherwise. The preferred shares are expressly excempt, according to art. 36 §1, (art. 38 n. 4548/2018), which provide property rights, but not, necessarily, the right to vote.
The law further provides for and makes permissible other inequalities (e.g. direct appointment of a member of the Board of Directors by a shareholder).
Principle Of Equal Treatment
The equal treatment of all shareholders, who are in the same position, is legally guaranteed (art. 36 §2). Therefore, the SA is not entitled to grant or take away rights (just through its bodies) from specific shareholders. A typical example is the conversion of common shares to preferred shares. The choice of shares to be converted should be sufficiently justified. In any case: the criterion for respecting the equal treatment of shareholders is the corporate interest and the principle of proportionality.
Deviations from this principle may, however, be permitted. The consent of the affected person is a condition for the validity of the relevant decision. In some cases, in fact, unanimity of the shareholders is required.
Among the majority of securities that the SA is entitled to issue, shares hold an important position. They are recognized to come with a series of rights as well as specific obligations. The knowledge of both and, in particular, the exercise of the rights that derive from them is what gives them their value. However, the “journey” of understanding shares does not stop here! In our next article, we will proceed with their further investigation (incl.: nominal, intangible, issue price, obligation to issue equity securities). In this way, their importance and value will be better understood!
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (June 19th, 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.