ON THE ISSUE OF THE CONCEPT OF MINORITY SHAREHOLDER

A shareholder is a key figure in process of creating a joint stock company, but today Russian legislation does not contain a definition of the of a shareholder, and the Russian doctrine also does not bring certainty in this matter. The definition of this concept can be derived only indirectly by using the formulated rights and obligations of shareholders, “scattered” in the text of the law. In order to increase the effectiveness of legal regulation in this regard, it seems reasonable to include in the Federal Law «On Joint-Stock Companies» No. 208 dated December 26, 1995 (hereinafter referred to as the Federal Law «On Joint-Stock Companies») [7] a special chapter on shareholders and their rights, having developed an appropriate definition.

As for the definition of a minority shareholder this concept, unlike the generic one, is not mentioned in the legislation at all. Sometimes it can be found in court decisions. At the same time this term is actively used in practice, it has quite specific meaning. This question has been the subject of research of many modern authors, for example, Boyko T.S. [4], Lanskaya I.A., Solomonov E.V., etc.

The Resolution of the Constitutional Court of the Russian Federation of April 10, 2003 No. 5-P mentions that minority (minor) shareholders are a weakness party in the corporate relations system [9]. Resolution of the Constitutional Court of the Russian Federation No. 3-P dated February 24, 2004 states that «in the course of a joint stock company’s business interests of large shareholders and minority shareholders may clash, therefore one of the main tasks of the legislation on joint-stock companies is to ensure balance of their legitimate interests ...» [10]. The need of protecting the rights of the minority shareholders is also mentioned in the Resolution of the Constitutional Court of the Russian Federation of March 17, 2005 No. 61-O [8]. Thus, the Russian courts proceed from the fact that the minority shareholders represent a weak side in the system of corporate relations and special protection is required.

The term of minority shareholder comes from the English word «minor», which means «secondary», «insignificant». Referring to the foreign sources it is possible to identify similarities in the definitions of minority shareholders. Thus, the British scientist Paul Davis considers minority shareholders as shareholders who are unable to make independent decisions due to their lack of a sufficient number of shares [2]. In American sources a minority shareholder is understood as the owner of such a small number of shares of a company that he is deprived of the opportunity to control the management of the company or elect directors [1].

In corporate practice the definition of a maximum percentage of participation in the capital of a company is often used to determine a minority shareholder, and this percentage of interest is dissimilar in different countries. For example, in 2007 in the Republic of Kazakhstan shareholders were legally divided into large and minority (which own less than 10% of the company's voting shares).

An analysis of domestic judicial practice allows to conclude that minority shareholders are considered as «small shareholders» or «owners of non-controlling package of shares». At the same time, it should be noted that the «small package of shares» is not necessarily «non-controlling», which is far from being noted from all Russian civilists. However, it has key importance in the study of the concept of a minority shareholder. In general, the following features should be considered when determining the status of a minority shareholder:

1. The concept of minority shareholder is closely related to the concept of a «minority package of shares», the latter being contrasted with the concept of a «controlling package of shares», which is not entirely reasonable, since the definition of a controlling package of shares is not available in official sources.

2. Status of minority shareholder depends on the specific type of shares held by him, since, as a general rule, a preferred share is not voting, but the law provides for some exceptions to this rule.

3. It is essential that the participants in the joint-stock company can be represented by the state as the Russian Federation, a constituent entity of the Russian Federation or a municipality, especially with a special right - the «golden share». As a result, in such situation a state’s execution of the control and supervisory function affecting the real status of shareholders.

4. It is necessary to take into account the number of “sleeping shareholders”, who for any reason do not show an active interest in the activities of the supreme governing body and therefore systematically not present at general meetings of shareholders. Also, there are holders of shares on accounts of unidentified persons, as well as shares of deceased which have not been submitted yet with the relevant requirements. The analysis carried out by domestic authors shows that in joint-stock companies abovementioned figure varies from 1 to 17 % of the issued shares. It follows that the controlling stake, that can be considered as one which contains 50 % of the shares of the company and more, may not be the controlling stake in reality.

5. The actual affiliation of co-owners of a joint stock company is also important in determining the status of a minority shareholder, since several small blocks of ordinary shares may be owned by various entities who formally do not constitute one group of individuals, but in reality are controlled by one structure, which has negative consequences for the minority shareholders.

6. The real situation can be radically changed by the presence of an association of formal minority shareholders, the sum of whose shares is guaranteed, with all other factors being equal, the right of managing of the legal entity.

Thus, we can conclude that the characteristic of a shareholder as a minority can be determined as situational. It does not depend on the absolute value of the stake and the formal state of affairs, but on the actual distribution of forces in the joint-stock company. Adequacy of votes for making decisions at a general meeting of shareholders may depend, inter alia, on the actual composition of shareholders, the state and municipalities participation in a joint stock company managing, the presence of actual affiliation relations between shareholders and third parties, shareholder agreements, etc. [6] That is why a great number of scientists tend to believe that for this reason that concept cannot be precisely formulated and, as a result, introduced into current legislation.

However, being guided by the provisions of Art. 6 of the Federal Law «On Joint Stock Companies», in which the legislator also used a rather «vague» definition, it is possible to formulate the concept of a minorty shareholder in a broad sense, defining it as a shareholder owning a stake of shares which is smaller than a controlling one, and not having a real opportunity to determine the joint stock company management.

References:

1. Black's Law Dictionary. 6th ed. / St. Paul, Minn. West Publishing Co, 1990. – P. 997.
2. Paul Davies. Introduction to Company Law / Oxford, 2010. – P. 216.
3. Babaev, A.B. Corporate and Obligatory Legal Relations with Shareholder Participation / А.Б. Babayev // Commodity-money relations, property, ownership. Collection of reports and theses of speeches at the scientific-practical conference, March 23 - 24, 2006 - Rostov-on-Don: SKAGS, 2006. - Part 2. - P. 42-52.
4. Boyko TS. Protecting the rights and interests of minority participants of a non-public society in the law of Russia, the USA and the UK: author's abstract of dis. for the degree of Candidate legal Sciences: 12.00.03 / Boyko Tatyana Stanislavovna. - M., 2017. - 34 p.
5. Budylin, S.L. The rights of minority shareholders in US corporate law on the example of the state of Delaware / S.L. Budylin // Journal of Russian Law. - 2008. - P. 114-122.
6. Dolinskaya V.V., Faleev V.V. Minority shareholders: status, rights and their implementation / resp. ed. V.V. Dolinskaya. - M .: Volters Kluver, 2010. - 141 p.
7. On joint-stock companies: Feder. Law of December 26, 1995 No. 208-FL (latest edition) // Collected Legislation of the Russian Federation. - № 1. - 1996. - January 1. - Art. one.
8. Determination of the Constitutional Court of the Russian Federation of March 17, 2005 in case No. 61-O [Electronic resource] // Access mode: // http://www.consultant.ru/document/cons_doc_LAW_53404/
9. Resolution of the Constitutional Court of the Russian Federation of April 10, 2003 on case No. 5-P [Electronic resource] // Access mode: // http://www.zaki.ru/pagesnew.php?id=8455
10. Resolution of the Constitutional Court of the Russian Federation of February 24, 2004 on case No. 3-P [Electronic resource] // Access mode: // http://www.consultant.ru/document/cons_doc_LAW_46768