Closing date of an M&A transaction and the right to participate in the general meeting of a non-public joint-stock company | In Principle

The Commercial Companies Code regulates in detail the rules for shareholders’ participation in the general meeting of a joint-stock company. The resulting legal conditions should be taken into account when planning the timeframe for M&A transactions to adequately secure the rights of the buyer of shares, and in particular, the possibility for the buyer to participate in the general meeting of a non-public joint-stock company after the closing of the transaction.

These regulations provide that in case of registered shares, the holders of registered shares have the right to participate in a general meeting of a private company if they were entered in the share register at least one week prior to the general meeting. It is worth stressing that under the Commercial Companies Code, only a person who is entered in the share register is considered a company shareholder.

This means that mere acquisition of registered shares in a joint-stock company and acquisition of the status of a shareholder does not imply the right to participate in the general meeting, i.e. the possibility of exercising the voting rights attached to the acquired shares. Therefore, after the transfer of registered shares, a temporary situation may occur when the buyer, even after being entered in the share register, acquires a substantive capacity to participate in the general meeting as a shareholder, but cannot participate in the general meeting due to lack of formal capacity.

A similar situation occurs with transactions involving bearer shares, where the moment of transfer of ownership of the shares, and consequently the moment of acquiring shareholder status, is the moment of delivering the shares to the buyer. Simultaneously, the bearer shares give the right to participate in a general meeting of a non-public joint-stock company if the share documents are submitted to the company at least one week prior to the date of the meeting and are not collected before its completion, with an option to submit them to a notary public, a bank or an investment company instead. Therefore, it follows that in case of a transaction of transfer of bearer shares, the buyer’s substantive capacity to participate in the general meeting as a shareholder and the formal capacity to participate in a particular general meeting may also not coincide, if the transaction is closed after the registration deadline to participate in the meeting.

In cases described above, the seller of shares will be, as a rule, the entity formally entitled to participate in the general meeting of shareholders. This is because before the new shareholder (the buyer of registered shares) is entered in the share register, the existing shareholder—the seller of registered shares—will still be entered in the share register. On the other hand, in case of bearer shares, it is highly probable that the registration of bearer shares in order to participate in a general meeting will be carried out by their current owner—the seller in an M&A transaction.

In such situations, there are practical ways of safeguarding the interests of the buyer of shares, other than setting the closing date for the transaction, so that the buyer of shares in a private company can obtain the substantive capacity to participate in the general meeting. The simplest solution is to regulate in the transaction agreement the post-closing obligations of the seller and oblige the seller to participate in the general meeting and vote on the sold shares in accordance with the buyer’s instructions. Another way is for the seller formally entitled to participate in the general meeting to grant a proxy to the buyer to exercise the voting rights attached to the shares covered by the transaction (although the doctrine and practice recognise that there may be a different interpretation of the regulations for single-person joint-stock companies). As a result, the buyer of shares will be able to influence how the voting rights attached to the shares that are the subject of the transaction are exercised.

Piotr Wcisło, attorney-at-law, M&A and Corporate practice, Wardyński & Partners