The shareholders' meeting approval is a legal requirement that can derail an M&A transaction if not managed correctly. We analyse the required majorities, minority shareholder protections, and the formal aspects the buyer will verify.
There is a moment in every M&A transaction that seems like a formality but can become the biggest obstacle of the entire process: the shareholders’ meeting approval.
When buyers and sellers have spent months negotiating the price, the structure, the representations and warranties, they assume the meeting will approve what has already been agreed. And most of the time it does. But when it does not — when a dissenting shareholder votes against, when quorum is lacking, when the notice has a formal defect — the deal falters.
The meeting’s intervention depends on the transaction structure.
In a share deal, it is the individual shareholders who sell their shares. The shareholders’ meeting as a body does not directly intervene. What does intervene is the transfer regime — pre-emption rights, statutory restrictions, shareholders’ agreement — but these are resolved among the shareholders, not at a meeting.
When what is being sold is the business — the assets, contracts, employees — as a company transaction (not a shareholder transaction), the directors need meeting authorisation if the operation involves the transfer of essential assets.
The Companies Act (Article 160.f) defines as essential any asset that exceeds 25% of the value of assets on the last approved balance sheet. The sale of the entire business obviously exceeds this threshold.
Mergers, demergers, and contributions of business lines always require meeting approval with enhanced majorities. In the context of a restructuring, this approval is an unavoidable step.
The law requires the affirmative vote of more than half the total share capital — not of the votes present, but of the total capital — to approve the transfer of essential assets. This means that if a shareholder with 51% votes in favour, the resolution is approved even if the rest vote against or do not attend.
The articles of association may increase this majority (requiring, for example, two-thirds or three-quarters of the capital) but may not reduce it. It is essential to review the articles before the transaction to know the applicable majorities.
For mergers, demergers, and changes of legal form, the statutory majority is two-thirds of the share capital.
The regime is more favourable for passing resolutions. At the first call, attendance (or representation) of 50% of the capital is needed, along with the affirmative vote of the absolute majority of the capital present. At the second call, attendance of 25% suffices, along with a two-thirds majority of the capital present when the first-call 50% quorum was not reached.
This difference means that, in an SA with dispersed or absent shareholders, it is easier to reach the required majorities than in an SL.
The minority shareholder has rights that cannot be ignored, even if the majority approves the transaction.
Every shareholder has the right to receive sufficient information about the proposed transaction before the meeting. In the case of a sale of essential assets, this includes the terms of the transaction, the buyer’s identity, the price, and the payment conditions. Failure to provide information can be grounds for challenging the resolution.
A shareholder who voted against, who did not attend the meeting, or who was deprived of their voting right may challenge the resolution if they consider it contrary to the law, the articles of association, the meeting regulations, or detrimental to the corporate interest in favour of one or more shareholders.
The challenge period is one year for resolutions contrary to the articles and one year for detrimental resolutions, counted from the date of adoption or, if the resolution is registrable, from its publication in the BORME. For resolutions contrary to public policy, the action does not expire.
In certain cases (transformation of the company, relocation of the registered office abroad, modification of the transfer regime), shareholders who did not vote in favour have the right to withdraw from the company and to have their stake acquired by the company at fair value.
Formal defects in the meeting notice are the most common cause of challenges to corporate resolutions. The requirements are:
Deadline. Fifteen days’ notice between the notice and the meeting. For a listed SA, the deadline is one month.
Medium. The notice must be issued through the means specified in the articles. If the articles do not specify, through the company’s website or, if it has none, through the BORME and a major newspaper in the province of the registered office.
Content. It must include the items on the agenda, the date, time, and place of the meeting. If the meeting will approve a sale of essential assets, the agenda must specifically mention this — a generic reference to “other business” is insufficient.
Universal meeting. If all shareholders are present (in person or represented) and unanimously agree to hold the meeting, no prior notice is required. This is the usual route in family businesses where all shareholders are aligned on the transaction.
In due diligence, the buyer will scrupulously verify all corporate aspects:
Minutes books. Does the company have up-to-date minutes books? Have meetings been held regularly? Are resolutions properly documented?
Shareholder register. Is share ownership correctly recorded? Are there any unformalised transfers?
Annual accounts. Have they been prepared, approved, and filed? Failure to file accounts triggers a registry block — the company cannot register any act — and is a red flag for the buyer.
Transfer regime. Do the articles permit the transfer? Have pre-emption rights been respected? Are there shareholders’ agreements affecting the transfer?
Prior resolutions. Are there meeting resolutions that could be challenged? Are there pending corporate disputes?
Review the articles well in advance. Do not wait until you have a buyer to discover that the articles require unanimity to approve a sale.
Update corporate documentation. Up-to-date minutes books, filed accounts, updated shareholder register. Every formal defect is a negotiation point the buyer will use to reduce the price or demand additional warranties.
Manage the minority shareholder proactively. If there is a shareholder who may complicate the meeting, speak with them before the negotiation with the buyer. It is easier to resolve an internal conflict before there is a buyer waiting than during the transaction.
Consider a universal meeting. If all shareholders are aligned, the universal meeting eliminates formal notice risks and simplifies the process.
Consult a corporate law specialist. The rules on majorities, notices, and challenges are technical and evolving. A formal error can invalidate a resolution adopted with the unanimous support of the shareholders.
At Blue Mountain, we have learned that the corporate phase of an M&A transaction is systematically underestimated. What appears to be a formality can become weeks of delay or, worse still, the loss of the deal. If you are planning a sale, make sure the corporate house is in order before opening the door to the buyer. Let’s talk.
By Blue Mountain Capital
By Blue Mountain Capital
By Blue Mountain Capital
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