Koumentakis

Tag: καταστατικό ανώνυμης εταιρείας

  • The Extraordinary Share Capital Increase

    The Extraordinary Share Capital Increase

    The increase of an SA’s share capital has already been the focus of a previous article. We had the opportunity, there, to point out the importance of the capital increase as a way/means of financing the SA; to also refer to the distinctions of the increase and, among others, to their regular or extraordinary nature. The regular capital increase is the one decided by the General Assembly with an increased quorum and majority. The extraordinary increase is the one decided either by the General Assembly (with a simple quorum and majority) or by the Board of Directors. Regarding the extraordinary increase, see right bellow:

     

    The changes brought about by Law 4548/2018

    The possibility of an extraordinary share capital increase was also provided for under the previous regime (Article 13 of Legislative Decree 2190/1920). As, however, it is pointed out in the Explanatory Report of Law 4548/2018 (on Article 24), the regulations previously in place were reformed. The three most important changes were the following:

    (a) The first differentiation concerns the quantitative limits for the increase of the share capital, by the Board of Directors and the General Assembly, which is set by the law: The relevant quantitative limits are increased.

    (b) The second differentiation concerns the abolition of the prohibition of an extraordinary increase, as long as there are significant amounts of reserves. [As pointed out in the Explanatory Report of Law 4548/2018, such a prohibition is not considered necessary for the protection of the share capital. In addition, a relevant prohibition is not even provided for by the Corporate Directive 2017/1132/EU (-with the regulations of which the law on SAs complies)].

    After all, the business opportunities that the SA can benefit from, through the flexibility provided by the extraordinary increase, are clearly essential even for strong SAs with potentially significant reserves.

    (c) The third differentiation concerns the unorthodox, older regulation that the extraordinary increase does not constitute an amendment to the articles of association. It is now expressly provided that the extraordinary increase of the share capital, regardless of the body that decides on it, constitutes an amendment to the articles of association. It is further clarified that it is not subject to administrative approval (Article 24 §4). The specific provision of the law clarifies the legal nature of the extraordinary increase. Since it is provided (and rightly so) that it constitutes an amendment to the statute, the body that decides should amend the relevant articles of the latter and draw up its new, codified, text. Afterwards, it will have to satisfy the necessary publicity formalities in the Business Registry, which are of a constitutive nature. These are obligations that the body that made the decision (General Assembly or Board of Directors) did not carry under the previous regime: the registration in the Business Registry was accepted to be of a declarative character.

    As for the rest, in terms of its legal nature, the extraordinary increase is the same as the ordinary.

     

    Extraordinary Increase By Decision of the Board of Directors

    In principle, the corporate body responsible for increasing the share capital is the General Assembly (Article 117 §1 para. a’ and §2 para. a). However, the General Assembly, compared to the Board of Directors, is characterized by less flexibility and speed, in terms of convening and taking a decision – especially in those cases where there is a wide or even significant dispersion in the share capital of the SA. In order to speed up the relevant procedures and deadlines, the Board of Directors is granted, under conditions, the power to increase the company’s capital. Thus, the BoD, as a more flexible (compared to the General Assembly) corporate body, can more quickly decide (as well as implement) an increase in the SA’s share capital. And this, taking advantage of favorable circumstances, covering pressing, time-consuming needs and/or choosing the optimal sale price of the shares.

    However, the possibility of an extraordinary increase in the share capital by the Board of Directors requires the fulfillment of specific conditions; depending on the provision of the relevant authority by the statute or the General Assembly of the company. Specifically:

    Authority Given By The Statute

    If the relevant possibility is provided by the articles of association, the Board of Directors has the right by its decision to increase the capital, partially or fully, by issuing new shares (Article 24 §1). This possibility is subject to time and quantitative limitations.

    Time limit: The duration of the (statutory) authorization to the Board cannot exceed five years from the establishment of the company. The relevant provision may exist in the SA’s initial (at the time of its establishment) statute or, alternatively, in a subsequent amendment thereof.

    Quantitative limit: The share capital increase decided by the Board of Directors cannot exceed three times the initial capital of the SA.

    Therefore, within the specific time and quantitative limitations, the Board of Directors can, legally, decide on one or more consecutive increases of the share capital, together with their relevant more specific conditions (e.g. sale price of the new shares). The relevant decision of the Board of Directors is taken by a majority of 2/3, at least, of all its members.

    Authority Given By The General Assembly

    The authority of the Board of Directors to increase the share capital can be provided, in addition to the articles of association, by the General Assembly of the SA (Article 24 §1, para. b). In this case the General Assembly decides with an increased quorum and majority (Article 130 §3). The relevant decision is submitted to the Business Registry.

    The time and quantitative limitations, referred to above, apply, with some variations, also in the case of the granting of authorization by the General Assembly.

    Time limit: In the case of the authorization of the Board of Directors by the General Assembly, its authority to decide the capital increase cannot exceed five years as well. The five-year period in question, however, starts from the granting of the authorization to the Board by the relevant decision of the General Assembly (and not from the establishment of the SA). Noteworthy, however, is the law’s provision that “…this authority of the board of directors can be renewed by decision of the General Assembly for a period of time that cannot exceed five years for each granted renewal.” (article 24 §1, para, c΄). The five-year time limit starts, in this case, from the time point of each renewal.

    Quantitative limit: The quantitative limitation remains similar to the case of the authority granted from the statute. With an important difference, however: the amount of the increase that the Board of Directors is entitled to decide cannot exceed three times the paid-in capital, which exists on the date the relevant authority was granted.

     

    Extraordinary Increase By Decision of the General Assembly

    The decision regarding a regular increase of the share capital is taken, as we have already pointed out, by the General Assembly, which decides with an increased quorum and majority.

    However, the General Assembly is able, also under conditions, to decide an extraordinary increase of the SA’s share capital. This possibility also aims, in this case, to facilitate the relevant procedure (Article 24 §2). A special difference of the extraordinary, in relation to the regular, increase is the fact that the General Assembly decides the increase with a simple quorum and majority (against regular increases).

    Also in the case of the extraordinary increase of the share capital by the General Assembly, the fulfillment of specific conditions is obligatory. First of them: the relevant statutory provision. There are, however, further time and quantitative limitations.

    Time limit: In the case of the extraordinary increase of the share capital by decision of the ordinary General Meeting, the time period for exercising the power to increase cannot exceed five years from the formation of the SA as well. However, no provision is made for the possibility of renewing the authority of the General Assembly.

    Quantitative limit: The increase of the share capital cannot exceed eight times the initial capital.

     

    Parallel competence of the General Assembly & Board of Directors; Prohibition of Disclosure of the Possibility of Extraordinary Increase

    The legislator adopts two more options regarding the extraordinary increase of the share capital.

    The first concerns the recognition of the parallel possibility of an extraordinary increase by both the Board and the General Assembly (Article 24 §5). In this (unusual-indeed) case, however, it is necessary to meet the, as the case may be, already mentioned conditions. Also: the individual time and quantitative limitations are examined separately for each case of increase.

    The second concerns the protection of third contracting parties (Article 24 §3) from the possible abuse of such an extraordinary increase. Specifically: it would not be unprecedented (quite the contrary) to mislead third parties or to have their expectations disappointed by the promotion of the power of the individual bodies of the SA to decide on an extraordinary increase of the share capital; a power that would possibly never be exercised by the corporate bodies, as the case may be.

    In order to avoid any negative consequences of the extraordinary increase, the legislator provides that it is prohibited for SAs, whose articles of association provide for the possibility of an extraordinary increase “…to state in any form, advertisement, publication or other document, as capital, the amount up to which the board of directors or the General Assembly is entitled… to issue new shares.” (article 24 §3).

     

    Extraordinary Vs Ordinary Share Capital Increase

    We have already seen that the General Assembly can decide on an extraordinary increase of the company’s share capital with a common (and not increased) quorum and majority. We have also seen that the Board of Directors can decide, very quickly, on an extraordinary increase with a majority of 2/3 of its members; in fact, without the need to convene a General Assembly.

    But what do the specific powers mean in prectice?

    The General Assembly, with reduced percentages, is entitled to increase the company’s share capital up to eight times the initial amount. In other words: a shareholder who directly or indirectly owns ½ of the share capital + one share has the right to decide to increase it – up to eight times the initial amount. What if they have the necessary funds while the other (co)shareholders do not? They have the power to significantly expand their own shareholding and dramatically reduce the shareholding of other shareholders – even below critical percentages.

    Under the condition of reaching the quorum of the General Assembly (1/2 or 1/5 of the total), a shareholder holding 13.34% of all shares is entitled, subject to conditions, to take a decision on an extraordinary increase up to eight times the initial of capital. In this case, as long as they have the necessary funds, a small minority shareholder can become a majority shareholder.

    On the other hand, the implementation of an extraordinary increase in the share capital by the Board of Directors may result in the rapid achievement of a specific business goal. As the convening of a General Assembly is not required, the relevant process can be accelerated at least during its convening deadlines – in the cases where we are not talking about a General Assembly where all shareholders are present. Such a fast process can prove to be valuable in cases where very quick actions are required – e.g. capitalizing on a significant business opportunity.

    Accordingly, however, a shareholder who (regardless of the number of shares the shareholder holds) has (or can convince or join) 3/5 of the members of the Board of Directors, can decide an extraordinary increase up to three times the share capital. And if, at the same time, they have the necessary funds to cover the increase, but the other shareholders do not, they can easily become, once and for all, a major shareholder or even a majority shareholder.

     

    Taking advantage of the (potential) opportunity for an extraordinary increase in share capital can prove to be a valuable tool for quickly achieving a specific business goal; for taking advantage of an important business opportunity. It is possible, however, at the same time, for it to prove to be a useful tool (or, as the case may be, dangerous – depending on the perspective) for the restructuring of shareholdings, the change of critical majorities and even the surrender of the reins of the company and its management itself.

    The introduction, therefore, of the specific discretion, the composition of the share capital and the Board of Directors itself require special attention and vigilance: they can prove to be decisive in the direction of the achievement of legitimate or illegitimate goals.

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (April 2nd, 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.

  • Shareholder Agreements: safeguarding minority shareholders

    Shareholder Agreements: safeguarding minority shareholders

    The articles of association of a company are the “law” that governs (in addition to the current institutional framework) its operation. The articles of association, however, are not always sufficient to regulate all related relations. Especially those that develop among the shareholders. The need for additional agreements then arises. Agreements that either move on the edge of the law or that would preferably not have the publicity that the law reserves for the statute and its regulations. We are talking, in this case, about extra-corporate agreements. But what is their value? How does law and case law treat such agreements?

    This topic seems (and is) huge. Let us try, however, a brief and substantive approach. In the light, in particular, of the SA.

     

    The capital and union nature of SA. Their manipulation.

    The societe anonyme belongs to the category of capital companies. As such, the success of its corporate purpose presupposes only the property contribution of the shareholders. Their personal contribution is not legally necessary. It is not even tolerable, unless it is allowed by the articles of association. Let us also take into account the “union-like organization” of the societe anonyme. In the context of this (the union-like organization), the operation of the SA does not depend on the will of each of the shareholders.

    The acquisition of the status of shareholder in a SA creates relations between them and it (: shareholder-SA). Not, basically, and among the shareholders.

    The shareholders of SA clearly aim at the characteristics and advantages of its capital nature. Possibly in of its “union-like” organization as well.

    However, there are many cases where shareholders (may also) have other aspirations. The manipulation, for example, of the purely capital and union nature of the SA. The introduction to the operation and organization of characteristics a partnership would have. The specific aspirations / needs are covered, in particular, through statutory clauses. Sometimes, when this is not possible (or when we do not want it to become, more broadly, known) such aspirations are satisfied through extra-corporate agreements.

    We most commonly find these agreements in family SAs. But it is not unheard of to also find such agreements in other types (as well as in multi-shareholder) SAs. for the service (permanent or temporary) of common, among the shareholders, aspirations.

     

    The concept of extra-corporate agreements

    Extra-corporate agreements, according to jurisprudence, are “independent, written or oral commitments of an obligatory nature, which oblige the contracted parties (and only them) to a certain behavior beyond the behavior towards the company required by the statutory provisions and the law”. (int .: 25/2012 Multimember Court of First Instance of Samos).

    The most common examples of such agreements are those that direct the shareholder’s rights to vote in the General Assembly and the Board of Directors. Under the pre-existing law we encountered, as a matter of fact, contractual restrictions on the transfer of shares. However, sufficient relevant powers are recognized in the context of the statutory regulations under the current law.

     

    The targets. The interests served

    Extra-corporate agreements are not entered into to promote the interests of the company. Their main goal is to serve the interests of the contracting shareholders. Mainly of the minority shareholders.

    The minority shareholders are therefore the ones who, as a rule, will require the conclusion of such agreements. As a prerequisite for their entry into the company and securing their investment. As a guarantee of the company’s operation based on specific, pre-agreed upon, rules. As a means of engaging the majority in a particular direction. As a tool for creating strong minorities – with rights extended to those recognized by law and the statute to minority shareholders. As a “statute charter” of the partners in order to create strong minorities or majorities and enjoy the related rights.

     

    The legal status of extra-corporate agreements

    Extra-corporate agreements are not covered by special legislation.

    They are not provided for and are not guaranteed by a special provision of law.

    However, the conclusion and regulation of such agreements is, in principle, permissible. It is left to the freedom of contracts (361 Civil Code). So, basically, their content can be formulated freely. The individual regulations that impose sanctions in case of their violation are also freely chosen.

     

    Individual distinctions and characteristics of extra-corporate agreements

    The content and individual characteristics of the shareholder agreements are determined by the will and the needs of the respective shareholders.

    Individual characteristics that give a different content to these agreements each time may be:

    (a) The time of their conclusion: The extra-corporate agreements can be concluded during the establishment of the company. Possibly, however, also at a later time – during the company’s operation.

    (b) Duration: shareholder agreements can be concluded for a definite or indefinite period.

    (c) Their incorporation (or not) in the articles of association: Such an agreement may be incorporated in the articles of association of the company. Then, of course, it loses the nature of the extra-corporate agreement. We are talking, in this case, about a statutory agreement. Such an (internal) agreement may specify a provision of the law governing SAs (Law 4548/2018).

    However, the content of the shareholder agreement may not be tolerated either by law or by statute. In this case, (by conversion-182 Civil Code) its validity as a binding agreement of the parties is possible.

    (d) Regarding the creation of obligations for only one or all of the contracted parties: The extra-corporate shareholder agreements are divided into unilateral and multilateral.

    Unilateral agreements are those that give rise to obligations to the detriment of one or more parties. In the case, for example, of an agreement for the exercise of voting rights in a specific direction. Unilateral extra-corporate agreements can take on different legal characterizations. Especially that of the order (713 Civil Code).

    Multilateral agreements are those, through which all parties undertake obligations to each other. Their usual legal form is that of a civil company (741 Civil Code).

    (e) In terms of their content: Extra-corporate agreements, depending on their content, are divided into contracts that generate rights and obligations for the parties and guarantee contracts. In the latter, their content is the guarantee of the demonstration of certain behavior.

    Ensuring compliance with the extra-corporate agreements

    Violation of an extra-corporate agreement creates a claim for damages against the offender.

    It is not uncommon to conclude, in addition – in order to ensure its application-, a penalty clause, which activates in case a party violates its obligations. The court, however, is ultimately the one that will decide whether or not such a clause is activated. Also, its possible reduction to the “appropriate measure” (article 409 of the Civil Code).

    Compliance with an extra-corporate agreement can be sought through other, additional, measures. By delivery to a third party, for example, of the shares whose voting rights are blocked or, through their contribution to another company.

    The validity and binding nature of extra-corporate agreements

    Extra-corporate agreements are obligatory in nature. They are therefore governed by civil law.

    Regarding the relationship between them and the statutory provisions, two distinct views have been expressed in theory.

    The theory of separation

    The prevailing theory is the separation between the articles of association and the respective extra-corporate agreement. According to this theory, extra-corporate agreements, due to their different legal nature, go hand in hand with the statutory regulations.

    The statutory regulations, according to the same theory, are those that prevail over the extra-corporate agreements. The former are governed solely by corporate law, the latter by civil law.

    The theory of unity

    However, the theory of unity of the articles of association and the extra-corporate agreement entered by all shareholders, has also been supported.

    It is argued, on this basis, that the extra-corporate agreement takes on an interpretative role of the provisions of the articles of association – in terms of the organization, operation and management of the company. Therefore, its validity extends, in addition to the contracted parties, to the legal entity of the company. Extra-corporate agreements, in this case, take on the nature of a statutory contract.

     

    The consequences (& claims) of the breach of an extra-corporate agreement

    The obligatory nature of the non-corporate agreements, as mentioned above, is important. The respective extra-corporate agreement of the shareholders, “… is valid between the parties to the contract, has no consequences of company law nature and is not binding…” for those who have not entered into it (Supreme Court 1121/2006).

    The claims, therefore, raised in cases of their violation concern the payment of compensation. Such compensation covers the positive loss and, in addition, any lost profits. And the forfeiture, of course, of a penalty clause – if such has been agreed. Which, not infrequently, is chosen as a solution, as it is always extremely difficult to determine the due and payable compensation.

    In cases where the protection of the rights of the minority is sought through the extra-corporate agreements, the minority shareholder does not have the right, in case of violation, to seek their execution. This is because: “… there is no possibility for the minority shareholder to claim from their counterparty in an extra-company agreement a majority shareholder the fulfillment by the latter of what was agreed between them and in particular to claim their conviction in a declaration of will in accordance with the content of the agreement “(569/2007 Multimember Court of First Instance of Athens). This is exactly where the risk of a bona fide party to a non-corporate agreement runs. That is, the risk of the agreement to be deliberately violated in bad faith, without it being possible to enforce it through a court decision.

    However, it is accepted that, despite the prevalence of the theory of separation, a decision of the GA of shareholders taken in violation of an extra-corporate agreement may be found invalid. Specifically, the invalidity of a decision of the General Assembly due to (an abusive) breach of an extra-corporate agreement (Supreme Court 1121/2006) has been ruled by jurisprudence.

     

    The validity (and invalidity) of extra-corporate agreements

    Extra-corporate agreements, as mentioned above, are (in principle) permissible. They are legally based on the freedom of contracts (361 of the Civil Code). Their content is left to the will of the parties.

    Of course, extra-corporate agreements are checked for their validity, just like any contract. In other words, the grounds for cancellation due to fraud, error and threat also apply. Of course, so do the common reasons for invalidity. It does not acceptable, for example, for them to oppose accepted principles of morality.

    At the same time, however, the extra-corporate agreements are valid, as long as they do not violate provisions of the articles of association, company law or other public policy.

    It has been ruled by case law, for example, that “… the replacement of the board of directors by an extra-corporate agreement is not legal” (1631/2006 Supreme Court).

     

    Especially: the issue of unanimity

    One of the issues that, not infrequently, concerns minority shareholders is the (possibility or not) to claim unanimity. It has been ruled that “… the obligation arising from the above agreement unanimously in making decisions on issues of competence and operation of both the General Assembly as well as the Board, contradicts with the concept of the accepted principles of morality as formulated in articles 178 and 179 of the Civil Code, for the reason that an obligation to take all decisions unanimously by the shareholders, even included in a long-term contract, the validity of which extends to perpetual, covering the life of the company, without the possibility of termination and under the threat of an extremely high penalty clause in case of its violation, excessively restricts the free exercise of corporate rights by the shareholders ”. (25/2012 Multimember Court of First Instance of Samos).

     

    The law and the statute of an SA are not always possible to cover the complex relationships that develop between its shareholders. To ensure the always desired balances between them. To successfully manage problems that may arise in the future. To ease (present or future) concerns.

    Extra-corporate agreements are those that seek to provide solutions. But their bindingness seems (and is) legally limited. The effort to strengthen them may, in the end, be to the detriment of the one whose rights it seeks to secure.

    Their provisions are always proving to be crucial.

    Their wording as well.

    stavros-koumentakis

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 23, 2020).

     

    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.

  • The Articles of Association of the Société Anonyme…

    The Articles of Association of the Société Anonyme…

    The Articles of Association of the Société Anonyme…(…the scope, the content, the options of the new Act and the compulsory adjustments)

     

    I. By way of introduction

    The Articles of Association of the Société Anonyme are (known to be) its most important document. The Articles of Association record (and regulate) very important, identifying elements of its existence and operation. The name, the purpose, the duration, the capital, the shares, the company’s bodies, the rights of the shareholders, its financial statements, its dissolution and liquidation etc. are some of them.

    Often, the founders of the Société Anonyme resorted to prefixed by the notaries texts, as it was always the privilege of those who had written them. As a rule, no lawyer expressed any view. Until the non-excellent relations between the shareholders occasionally emerged to the surface.

    In the course of time, however, things began to change: Entrepreneurs were often faced with problems which they found that could have been avoided if they had made provisions in their Articles of Association. Further: Business managers understood, over time, the value of counseling. Thus, more and more people go to their legal advisors to draft (and / or reformate) their company’s Articles of Association.

     

    II. The scope of the Articles of Association and of the statutory provisions

    Since the fees of notaries depend (among others) on the extent of their contracts, we have been addicted to notarial acts – Articles of Association of Société Anonymes which are (to a large extent) a copy of the relevant law. However, the senior (former) Law 2190/1920 had dozens of interventions in his hundred-year history. What happened every time the law was changed? There was a need for a modification of the Articles of Association (in accordance with the law) and, of course, new fees for the professionals involved. There are, unfortunately, still Articles of Association that have nothing to do with the current institutional framework. Containing completely obsolete provisions.

    One would have expected that this would mean that the Articles of Association would end up being brief. That they would end up containing what was absolutely necessary and, as for the rest, they would refer to the law (there was also a legislative provision in law 2190/1920 which was applicable until 31.12.2018). On the contrary: The Articles of Association are, almost indefinitely, large, even when we proposed (sometimes with pressure) to the founders the short version: That text, which contains only the minimum of what the law requires without copying all of its provisions. The choice of founders was, basically, the full version: A text that copies the law’s regulations and does not “take up” only the essential ones. The causes are varied: Basically, however, the need to refer to the Articles of Association for the issues they were interested in, and not to the law or even to their legal advisor.

     

    III. The new law (4548/2018) for société anonymes with reference to the Articles of Association: Notarial deed vs private document (agreement).

    The new law on société anonymes is innovating on various issues. One of the most interesting (and business-friendly) options is that a private document, not a notarial act, is sufficient for the establishment of a société anonyme. It is sufficient provided, on the one hand, that there shall not be transferred to it assets any element for the transfer of which a notarial deed is required (e.g. immovable property) and, on the other hand, that standard Articles of Association be adapted. In the latter case, the establishment of the Société Anonymes is completed in a Single Entry Point services. (essentially the General Commercial Registry (GEMI) where its seat is located).

     

    IV. The essential elements of the Articles of Association

    The provision of art. 5 § 1 L. 4548/2018 provides for the minimum provisions that must be contained into the articles of association of the société anonyme. These must at least include: (a) the name and purpose; (b) the seat; (c) the duration, if not indefinite; (d) the amount and method of payment of the share capital; (e) the type of shares, the number, the nominal value and the issuance; (f) the number of shares in each class, if there are more classes of shares; (g) the conditions and procedure for converting shares to the bearer into registered; (h) the convocation, establishment, operation and responsibilities of the Board of Directors; (i) the convocation, establishment, operation and responsibilities of the General Assemblies; (i) the auditors; (k) shareholder rights; (l) the annual financial statements and the appropriation of profits; (m) the dissolution of the company and the liquidation of its assets; (n) the amount of subscribed capital that is payable at the time of incorporation.

    Nevertheless: The Articles of Association of the company are not required (Article 5 § 1 of Law 4548/2018) to contain even those of the abovementioned provisions which merely repeat the provisions of the law (unless allowed derogations from its content are entered into force).

    Under the above, the Articles of Association of a Société Anonyme could be limited to the following provisions:

    (a) the company name and purpose;

    (b) the seat;

    (c) the amount and the method of payment of the share capital;

    (d) the type of shares, the number, the nominal value and the issuance;

    (e) the number (or minimum-maximum number) of the members of the Board of Directors;

    (f) the amount of the share capital payable at the time of its incorporation.

    In other words: Where the Articles of Association of the Société Anonyme contain the above six (6) provisions they are a complete Statute. But are we (lawyers and businessmen) ready to go through such Articles of Association, even when we are talking about a single-member Société Anonyme(where there are no conflicting interests)?

     

    V. The options that the new law offers

    The new law provides businesses with a variety of options to regulate critical issues relating to their operation as Société Anonymes.

    It takes advantage of technology as well as modern, international, tools of the law of Société Anonymes.

    Some of them:

    The elements of the company name of Société Anonymes and their duration.

    The way to cover their share capital, contributions in kind, the possibility of partial coverage and payment, the types of its share capital increase.

    The options of reduction and amortization (!) of the share capital.

    The types of titles and their sub-themes and attributes (shares, bonds, warrants, extraordinary and common founders’ shares). In particular: the types of shares [common and preference (with many kinds of utilizable and functional privileges), redeemable, reserved (with also interesting potential commitments – including drag and tag along right), the option right.

    The minority’s right to request the redemption of its shares by the majority and the right of the majority to request the redemption of the minority shares.

    The management of the issues of the acquisition of treasury shares. Issues related to the election, operation, composition of the Board of Directors (or even to the option of having a single Consultant-Manager!). Managing conflicts of interest.

    The management of remuneration-relating issues of the Board of Directors and of the Managing Directors.

    Issues relating to the invitation (even by email!) and convening the General Assembly’s meeting (even remotely!), voting (even by e-mail or postal vote!), taking decisions without a meeting.

    Minority rights and how to manage them.

    The right to audit.

    The shareholders’ associations. The distribution of profits. The minimum dividend. The provisional dividend. The dissolution, liquidation and revival of the company.

    The topics vary. The opportunities are many. The choices may be tedious but, in any case, critical for businesses and entrepreneurs.

     

    VI. The need of adaptation of the Articles of Association of ALL Sociétés Anonymes

    The provision of art. 183 § 1 L. 4548/2018 can not be challenged: The Articles of Association of the existing sociétés anonymes must be adapted to the provisions of the new law as soon as possible.

    It is clear that detailed information is required from (the proper) legal advisors, jointly assessing the data and the possibilities of the new law and (in particular) adapting to the needs of each business entity and activity.

    Therefore, be alert!

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    Υ.Γ. Part of this article has been published in MAKEDONIA Newspaper (January 6th, 2019)

    articles of association

  • Partial payment of the SA’s capital

    Partial payment of the SA’s capital

    1. Preamble

    Five days from now, it will be 81 years since the day the Edwardsville Intelligencer (a local newspaper from Edwardsville, Illinois) came out, on 19.7.1938, under the title “Corrigan Flies By The Seat Of His Pants”.

    What had happened?

    One of the few (at the time) aviators, Douglas Corrigan, had submitted a transatlantic flight plan from Brooklyn to Dublin. The flight plan was, probably fairly, rejected, since the bold aviator seemed that he did not have the proper navigational instruments. Later, a (more reasonable, as it seems) flight plan from Brooklyn to California was approved. The journey started smoothly and ended after 29 hours in Dublin(!). The bold pilot never admitted that he ignored the rejection of his flight plan: He claimed failure of the navigational instruments of his airplane.

    The phrase “fly by the seat of your pants” has since then been used to describe an action fully realized by someone’s own means, initiative and perception, without any outside help: always attractive – often reckless!

    Is this also true for investments? For business plans?

    Each one of us, depending in its personality and business profile, has already given its answer.

    But how do SAs respond? Is there a framework favoring the slightly more “reckless” investor?

     

    2. Partial payment of the SA’s capital

    The provision allowing the partial payment of an SA’s capital is not new. But with the recent legislation regarding SAs (Act 4548/18), this provision was reintroduced, considerably stricter.

    What does a partial payment consist of and what comes with it?

    Partial payment of the share capital at the stage of a company’s incorporation (as well as at any time a company’s share capital increases), is the payment of only a part (and not its entirety) of the par value of a share (article 21 §1). The liable shareholder takes on (along with the “facilitation” provided) the obligation to pay the rest of the share’s value in a future time – depending on what is prescribed in the statute of the company.

    In case of issuing share titles that have not been fully paid, it is obligatory to write on their front side that they are partially paid as well as the terms under which their payment in full will take place (article 21 §7).

    Partial payment is not allowed in two cases: when contribution of a shareholder is made in kind and when we are referring to listed companies (article 21 §2).

     

    3. Why would we choose (or allow) partial payment of share capital?

    It is a fact that the bigger the capital base of a company, the stronger the company. But it is not always a given that the shareholders have the capability (or prioritize) to immediately pay their share of the capital at the time of incorporation of the company (or at the time of an increase of its share capital). It is possible, in the context of a smaller business venture, to be hoping for the participation in the business venture of a capable “partner”, associate or executive, to the traits of whom we are counting on for the venture to succeed. Another possibility is that there is a specific person who we want as part of the original shareholding scheme or who we want to join in at the company at a later stage (at an increase of the company’s share capital) but they do not have (not only the capability but also) the means to justify the wealth needed to cover their share of the capital (e.g. it could be one of the family’s children, in a family business).

    In all these cases (and not only them), partial payment of the share capital is the way to go.

    It is important to emphasize that the partially payed shares offer their beneficiaries the same rights as the fully paid ones (among these rights are voting and receiving dividends).

     

    4. Arrangements that must be made in case of apartial payment of share capital

    When partial payment of the initial share capital or of the capital increased is decided (in the context of statutory provisions), the following are obligatory (article 21 §3):

    (a) The deadline for the payment in full (of the outstanding amount) of the share’s par value cannot be set for more than 5 years.

    (b) At least one quarter (1/4) of each share’s par value must be paid immediately (e.g. if a share’s par value is 10€, then the minimum amount that must be paid is 2,5€). In case the shares are issued above par, the amount that equals to the sum above the par value is paid in full at the time of the payment of the first installment for the shares (e.g. if the par value of a share is 10€ and the price they are issued at is 20€, the extra 10€ must be paid along with the first installment that has (probably) been agreed on beforehand, for the payment of the outstanding amount of the par value).

    (c) The fully paid off part of the share capital cannot be, in any case, smaller than 25.000€.

    (d) In cases when shares, not yet fully paid off, are transferred, the transferor is responsible for the consideration of the shares still owed to the company for two years following the registration of the transfer of the shares to the Shareholders Book.

     

    5. Is it mandatory to pay the (partially payed) shares’ par value in full in one installment?

    It can be provided in the company’s statute that the payment in full of the outstanding amount owed for the par value of the partially payed off shares will take place either at once or in more installments.

    In cases when partial payments (traches) are made for the outstanding amount, these payments are “evenly spread” to all shares that have been obtained by the same person (article 21 §4). This means that the shareholder-debtor cannot just fully pay off some of their (partially payed for) shares.

     

    6. What is the “cost” of not paying what is owed for the partially payed for shares?

    If the liable shareholder fails to make any of the instalments for the payment of the remaining amount due for the shares, they will face (strict) -but necessary for the company- repercussions (article 21 §§5 & 6). In such a case, the company’s BoD will set a one-month deadline to the liable shareholder to fully pay off what they owe for the shares. At the same time, the BoD is required to let them know what the repercussions will be if the one-month deadline passes and the liable shareholder has not fully payed off the sum owed for the shares they hold.

    What will the repercussions be? In case the deadline passes with no results, the company will cancel the partially payed for shares and it will keep all sums already payed by the liable shareholder (instalments, a possible above par value sum). At the same time, the company will issue as many new a shares as the ones it cancelled and it will offer them to the other shareholders (:preferential right). In case the existing shareholders do not exercise their right, the company then offers the shares to the public.

    If the cancelled shares are restricted, or if offering the shares issued as a replacement to the public is (at part or in total) not fruitful, the company is obligated to decrease its capital (at its first general assembly) by the sum of the nominal value of the shares not sold.

    It must be stressed that the shareholder who has not paid a sum for their shares within the deadlines set is still, in any case, liable for the sum they owe, as well as for the legal interest, which is piling on until the invalidation of the shares. Further penalties or other claims of the company against the person liable may be provided for the company’s statute or in the decision for the increase of the capital.

     

    7. In conclusion

    A possible partial payment of the share capital is a “rift” on the admission that the person participating in a company’s incorporation (or in a company’s capital increase) pays for their shares in full. The aforementioned provisions allow shareholders to decide on paying only for a fraction of the par value of some (or all) of their shares. It is a given, though, that if the obligations taken on by the liable shareholders are not met, there are serious repercussions: they will not only lose their shares, but also the sum they have already paid for the shares’. It is also possible, as mentioned above, that more sanctions or other claims by the company may be in place in case of such a violation.

    Douglas Corrigan (aka «Wrong Way Corrigan») managed to successfully conclude, in 1938, on his own – without the proper navigational instruments the (transatlantic and amazing for its time) flight from Brooklyn to Berlin. The result not only vindicated him, but also gave him the opportunity to play himself in the 1938 movie: «The Flying Irishman».

    That was because he managed to finish his journey. What if he had not?Much like that, if the shareholder relies on luck, good conditions and future proceeds to pay off what they owe for their (not fully payed-for) shares:If they manage to come through, as an outstanding achievement.If not? As a disaster.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July, 14th, 2019).

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