Shareholders who are regarded as minority shareholders have certain rights in Latvia which should be taken into account when planning a company takeover or taking possible anti-takeover measures within your company.
Minority shareholders rights
A minority of shareholders, who jointly represent not less than five (5) % of the equity capital or whose participation in the equity capital of the company is not less than 71 000 euros, may bring an action against the founders, members of the board of directors or council or the auditor, on the basis of a decision taken by a meeting of shareholders, which has been taken by a simple majority of votes of those present. It must be noted that the articles of association may not specify a larger majority for the bringing of an action. Such request by a minority of shareholders shall be submitted to that institution of the company which, in accordance with the Latvian Commercial Law, has the right to bring an action. If such institution does not bring the action to a court within one month, the minority of shareholders may bring an action to the court by themselves.
This power possessed by minority of shareholders should be taken into account for it can also be used in bad faith. Greenmail is a term that refers to the money which is paid by a target company to another company (also called corporate raider) that has for example acquired majority of the target company's stock. In this particular scenario the greenmail payment would be made in an effort to stop the unfavorable actions made by new minority shareholders. It should be also noted that rules of notification don´t apply unless a person acquires either directly or indirectly a holding in a stock company in an amount which ensures at least 5% of the voting stocks.
Minority shareholders as court ordered representatives of the company
Furthermore in cases where an action is requested by a minority of shareholders, a court shall allow the persons selected by them as representatives of the company for the adjudication of the matter, if there is an important reason for this. An important reason could be i.e. a situation where the relevant institution mentioned before, despite the request by the minority of shareholders, does not bring an action to a court, but instead minority of shareholders bring the action in a court by themselves.
Even though a meeting of shareholders may release members of the board of directors or council from liability or take a decision to enter into an amicable settlement, this does not restrict the right of minority of shareholders to bring an action in accordance with what has been previously mentioned. This and the fact that the articles of association may not restrict the rights of minority of shareholders for the bringing of an action, can generate difficulties in installing shark repellents for corporate raids such as these which are meant to bring bad publicity for the company.
Liabilities arising from unjustified actions
However in respect of losses which a company incurs due to an unjustified action, those shareholders who voted for the bringing of the action or the minority of shareholders in the actions of which has been determined maliciousness or gross carelessness shall be solidarity liable.
Please do not hesitate to contact us if you have any questions about minority shareholders rights in Latvia or you want to protect your company from possible corporate raids.