Dividend policy and the possibilities of minority shareholders
By the partnership agreement, two or more persons undertake to put goods, industry or any of these things in common, in order to make a profit. This obtaining of a distributable profit, or if profit is desired, is a natural element of such a contract. In the case of capital companies (Public Limited Company and Limited Company, essentially), the Capital Companies Law regulates this element in key precepts: Article 93 a) and 273.1.
The former establishes the right of the “shareholder to participate in the distribution of corporate earnings”; the latter establishes the competence of the meeting to decide in each financial year on “the application of profits”. It follows from these that the rule in company law is that the right to a dividend only arises when it is specified with the agreement of the general meeting to approve the general accounts and the distribution of profits. At this point, it is easy to see that the legal premises are part of the recurring corporate conflict: that relating to the distribution of corporate profits.
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The other ingredient is the structure of capital. In this regard, in unlisted companies, when a stable majority is formed, those with a minority position are at the mercy of the majority of capital in matters such as dividend distribution. This raises the problem of systematic profit retention or hoarding, which can and does frustrate the profit expectations of those who, having made an investment in a company, hold a minority position in it.
What remedy does the minority partner have in the face of these situations of frustration of profit expectations?
Following the various legal reforms, we can certainly speak of the two provided for in Article 348 bis of the Law on Corporations, namely
- the separation of the company, with the right to obtain the fair value of its shares or holdings as the price of those acquired by the company or the reimbursement of those that are redeemed;
- exercise of the right to challenge corporate resolutions, with a certain line of jurisprudence allowing the conviction to issue a distribution agreement;
- the exercise of any liability actions that may correspond.
Finally, we must point out that this is a delicate matter, with a certain complexity and an enormous casuistry, in which there is both strategy and law. If you find yourself in one of these situations, do not hesitate to bring your case to us. At our law firm in Gijón we will be happy to help you.
