Guide to Shareholders’ Meetings: Limit Situations

What should I know before attending a Partners’ Meeting?

A Meeting is constituted as Universal by all the partners and subsequently one or several partners leave the Meeting. A Notary Public terminates the Meeting when he notices irregularities against the President’s criteria. A minority partner takes advantage of the absence of two majority partners to dismiss the administrators representing the majority partners. A Notary expels the partners from his Notary’s office, despite the fact that the Chairman of the Meeting does not declare it closed?

Do these cases ring any bells? These are borderline situations that you should be aware of before attending a shareholders’ meeting.

In this regard, so that you can be prepared for the next meeting, we have prepared the following “Guide to Members’ Meetings: Borderline Situations”.

What powers does the Chairman of a Shareholders’ Meeting have? How to oppose his decisions?

The Directorate General of Registries and Notaries (DGRN) has highlighted them in a large number of pronouncements. We highlight, among others, the Resolution of November 29, 2012, which draws up a list of powers of the Chairman:

• To make the declaration on the valid constitution of the Meeting. Consequently, a decision must have been previously adopted when there is a claim for recognition of membership.  Reservations or protests may be made against this declaration. (Article 102.1.3a of the Commercial Registry Regulations).
• The chairman is responsible for declaring the results of the voting. Also, statements may be made in response to this decision, which may be requested to be recorded in the minutes. (Article 102.1.4a of the aforementioned Regulations).

In short, all the powers of the Chairman are aimed at ensuring that the General Meeting has its normal development. In this sense, they are aimed at safeguarding the free exercise of the will of the shareholders in the sovereign body of the company. Therefore, during the entire process of the Meeting, the Chairman must exercise his powers with the utmost diligence.

It is worth remembering that the General Meeting is divided into three phases:

1. The constitution of the meeting: This is the moment when the list of attendees referred to in Article 192 of the Capital Companies Act (LSC) must be drawn up.
2. Debate: The chairman must maintain the order of the meeting and avoid any obstructionism, directing and establishing the order of the various interventions.
3. Voting: In which he/she must draw up a tally that will determine whether or not the agreement has been reached.

Si te ha interesado este artículo no dudes en leer:

The convening of meetings in acephalous companies

A corporation becomes acephalous when it is left without a functional administrative body. This situation can occur for multiple causes of very different origin. For example, with the death of the sole administrator of the company.

And if a Notary Public attends the Shareholders’ Meeting, who prevails: the President or the Notary?

To resolve this question, we will attend to the Resolution of the DGRN of February 18, 2014:

“With regard to the minutes of the General Meeting, it is up to the Chairman of the Meeting to manage the same, without it being up to the Notary Public other than to attest “to the resolutions adopted at the Meeting and to record the interventions of those present, whose record in the minutes has been requested, without making judgments on the goodness of the resolutions”.

Therefore, it is the Chairman of the Shareholders’ Meeting the sole responsible for conducting the meeting of the Shareholders’ Meeting. Thus, he is responsible for the meeting, both with regard to the proposals submitted to vote, the deliberation and the results of the votes themselves.

Likewise, the decision to extend, interrupt, continue or conclude the sessions of the Shareholders’ Meeting corresponds exclusively to the Chairman of the Shareholders’ Meeting.

The function of the Notary is exclusively that of attesting to the concurrent facts or circumstances.

What happens if the Chairman decides to suspend the Meeting and leave the meeting?

In this case, if a new Chairman is not expressly appointed, the Meeting is definitively concluded.

The Doctrine demands Article 195 of the Capital Companies Act (LSC) to be interpreted strictly, trying to avoid doubts as to whether there has been one or several sessions.  See the Resolution of the DGRN of March 4, 2000.

What happens if a member abandons a Meeting when it is constituted as a Universal Meeting, does it cease to have the character of Universal?

Even if a partner abandons a Meeting constituted as Universal, it is not transcendent for the validity and effectiveness of the same one. This is established in the Resolutions of the DGRN as well as in the Jurisprudence:

“Once the meeting has been validly constituted, it is not an obstacle for its correct celebration if any of the partners are absent as long as enough remain to be able to validly reach agreements. Therefore, if any of the members are absent from the meeting, the only thing that will happen is that no more items can be added to the agenda”.

In the same sense, the Judgment of the Provincial Court of Madrid (Section 28.a) of September 20, 2013 asks the same question: What happens if any of the partners leaves the meeting after having constituted the universal meeting and approved the agenda?

“The unanimity of the universal meeting is required to be constituted as such and to set the matters to be dealt with – agenda – [STS (Supreme Court Judgment, SCJ). October 30, 1985 and December 23, 1997], without it being necessary either for the adoption of the resolutions, or for their deliberation or debate”.

Therefore, even if a shareholder, after the meeting has been constituted as a universal meeting and the agenda has been set, is absent, it is not transcendent for the validity and effectiveness of the meeting. Otherwise, if this were not understood in this way, it would mean subordinating the effectiveness of the Meeting to the unilateral will of a shareholder who does not agree with the result.  In this same line of thinking, the Jurisprudence has considered irrelevant the refusal of the shareholder to sign the minutes (Supreme Court Judgment. July 16, 1994, December 29, 1999, March 18, 2002).

What happens if a partner and also the Notary, leave a Meeting when it has been constituted as Universal? Does it cease to have the character of Universal?

It is especially important to remember the following: The Shareholders’ Meetings are governed by the principle of unity. Therefore, if a partner leaves the Meeting, the Universal character prevails in his absence. And it prevails even without the Notary.

Notwithstanding the above, if the Meeting, by order of the Notary, is moved to a place other than the place where it was being held (the Notary’s office), and the session is not duly suspended, the same concludes at that moment, by application of the principle of unity.

Can a Notary Public conclude a Shareholders’ Meeting if he/she finds irregularities?

Once the Meeting has been constituted in the presence of the Notary Public, the only one who has the power to conclude it is the Chairman of the Meeting.

Although the Notary, in the exercise of his functions, must verify that the execution of the notarial act is in accordance with the legality.  Therefore, he has the generic duty to verify, in general terms, the legal basis of the act that is going to be made public.

Thus, if the Notary understands that there are discrepancies in the interpretations, he must refrain from making qualifications of legality. This is in accordance with Article 102.3 of the Mercantile Registry Regulations.

What happens if a Notary who attends a Meeting, appreciates the possible commission of a Crime?

If the Notary realizes that a crime may be being committed, he/she could refrain from continuing to act as Notary. In this regard, Article 102 of the Regulations of the Commercial Registry is very clear:

“The Notary may, at his discretion, avoid recording interventions that are either unrelated to the issues that are the object of the meeting and the agenda, or when he appreciates facts or circumstances that could become criminal.”

Is it possible to dismiss a director at a meeting constituted as a Universal Meeting but without this matter being on the agenda?

Yes, it is possible. Once the general meeting has been validly constituted, nothing prevents the removal of the director from being submitted to it. The LSC allows the removal of the Directors to be agreed at any time by the General Meeting.

Therefore, there is no reason to justify the non-application of this rule to universal meetings.

Does the mandatory absence of the directors prevent the Shareholders’ Meeting from being held?

No, the absence of the Administrators does not prevent the celebration of the Meeting. In this regard, the Sentence of the Provincial Court of Madrid of January 26, 2018 (Section 28) is unequivocal:

“The attendance of the administrators is a duty whose infringement does not prevent the holding of the meeting insofar as it does not constitute a requirement for the constitution of the meeting and much less when, as in this case, it is about partners who leave the meeting before starting the meeting due to disagreements with the other partner, which would be as much as leaving the holding of the meeting to their exclusive discretion”.

Therefore, the absence of the Administrators does not prevent the holding of the meeting. However, it should not be forgotten that they have the mandatory duty to attend.

Would it be possible to challenge a resolution in which the corporate action of liability of article 238 of the LSC is not adopted?

The Supreme Court has established that such a resolution cannot be challenged. Either if the resolution adopted is not to initiate the social action of liability, or if it cannot be inferred that any resolution was adopted on that point of the agenda.

In its Judgment of June 2, 2015, it states that the Law provides a specific mechanism for these situations:

“Rather than its challenge, the Law contemplates that minority shareholders holding 5% of the share capital may, in that case in which the meeting rejects the exercise of liability actions by the company, directly exercise the social action of liability, in a subsidiary manner and in the interest of the company.”

Is it possible to dismiss a director of a corporation by a simple majority?

Surprising as it may seem, it is possible. Article 223 LSC only requires a reinforced majority of 2/3 for Limited Companies, but not for Corporations.

The majority doctrine and jurisprudence do not admit the raising of the voting quorum in public limited companies.  Consequently, the adoption of this resolution requires only the ordinary voting majority.

In this sense, the STS of May 31, 1957, considered null and void the clause that required the favorable vote of 80% of the shareholders to agree on the removal of a director in a corporation.

And along the same lines, the Resolutions of the DGRN of June 19, 1992 literally state that:

“The corporation, of an eminently capitalist nature, in which the principle of removability of the Administrator prevails.  Therefore, the removal of the latter may be agreed upon at any time by the General Meeting (art. 131)”.

In other Resolutions, it is concluded that the free revocability of directors in the corporation is a matter of public order. Therefore, it does not admit a voting quorum above the minimum legal requirements.

If this article has been of interest, we also suggest you to read the following article published on our website: Are omnilateral parasocial agreements enforceable against the company?