5.6 Legal Aspects of Equity Provided by Shareholders 177normally suffice. Where the statutes of the company require a larger majority, a
smaller minority will be able to block the decision. The requirement of a large
majority will, in practice, lead to management by consensus or, in the worst case,
make decision-making slower or more difficult.
Third, the company can encourage shareholders to regulate the principles of the
exercise of shareholders’ powers in a shareholders’ agreement.
Fourth, where the company is subject to the legal capital regime, the company
can regulate the amount of its fixed minimum legal capital and the reserves that
may not be distributed to shareholders in its statutes.
Fifth, the company can influence its share ownership structure by share issues
and the choice between rights issues (which will not dilute the ownership rights of
existing shareholders provided that all of them subscribe for new shares) and other
issuings of shares (which will dilute the ownership rights of existing
shareholders). For example, the company may finance a business acquisition by
issuing new shares to the seller.
Sixth, share buybacks and the redemption or withdrawal of shares can mean
that a shareholder will end up owning a larger part of the company’s shares, and
the shareholder may get better access to minority rights or a qualified majority if
certain thresholds are exceeded. On the other hand, the exceeding of a threshold
can also trigger obligations for a shareholder (such as consolidation or a duty to
make a bid for the remaining shares).
The company can issue new shares to other investors in order to ensure that the threshold
will not be exceeded. This will usually require a resolution by the general meeting and co-
operation by the shareholder whose ownership rights will be diluted.
Seventh, depending on the governing law, a majority shareholder may have a
“squeeze-out right” giving him the right to buy the remaining shares from minor-
ity shareholders. A “squeeze-out right” may be complemented by minority share-
holders’ “sell-out right” (section 10.3.2). Without minority shareholders, it will be
legally less complicated to manage the company’s capital.
This can be illustrated by the case of Boss AG and Permira, an English investment fund. In
2008, Permira owned almost 90% of shares in Boss AG. Although Permira was a very big
shareholder, it had to convince minority shareholders and the two boards of Boss AG to
distribute funds to shareholders. It could not force the company to do so.^183 Permira did not
have full control of Boss because of the existence of minority shareholders.
Shareholders’ enforcement rights are normally based on mandatory provisions of
law. Minority shareholders’ enforcement rights depend on the jurisdiction, but
usually they have few legal powers to enforce sanctions against defaulting board
members or managers.^184 The two main ways for the firm to manage shareholders’
(^183) Lembke J, Mode: Interesse an Geld, nicht an Farben und Design, FAZ, 13 May 2008
p 27.
(^184) See Mäntysaari P, op cit, Chapter 6.