Challenges to the Board Meetings due to deficiencies in the notice
The General Meetings of Shareholders must necessarily gather and comply with a series of obligations that are determined by the Bylaws and by the Capital Companies Law in order to be valid and the decisions adopted can have the due legal effects.
In this article we deal with the cases of defective calls of the General Meeting and the different solutions that these situations would have.
Can a Board be challenged on the grounds of a deficient incorporation?
As established in Article 204 of the Capital Companies Act, resolutions adopted by the General Meeting of Shareholders may be challenged when they are contrary to the Law, are manifestly opposed to the Bylaws, are contrary to the rules of the Shareholders’ Meeting or are detrimental to the interests of the Company.
The Shareholders’ Meetings have a series of minimum requirements to be met in order for them to be validly incorporated and for the resolutions adopted to be valid. In this order of ideas, it will be important to respect the forms established for the call to be valid and also the minimum quorum of the Shareholders attending must be met in order to be able to adopt resolutions that bind the Company.
Regarding the quorum, for example, in limited liability companies, only the necessary number of shareholders must be present in order to adopt valid resolutions. On the other hand, in the case of Corporations, at the first call, it will be necessary for the shareholders representing at least 25% of the capital stock to be present.
Also, depending on the resolutions to be adopted, it is possible that there may be reinforced matters that will require a special reinforced quorum.
How should a Board Meeting be incorporated?
First of all, it is important that the General Meeting is called in accordance with the legal and statutory requirements established for this purpose.
In this regard, in the case of Limited Liability Companies, the General Board Meeting may be called by means of an announcement published in the Official Bulletin of the Mercantile Registry and on the Company’s corporate website. It shall also be possible to send the notice with the agenda to the registered offices of the Shareholders, so that the receipt of the notice by all the shareholders may be recorded and guaranteed. In any case, the provisions of the Bylaws shall be complied with.
Assumption of the celebration of the Universal Shareholders’ Meetings
In practice, it is usual for decisions to be adopted at Universal Shareholders’ Meetings, i.e., without prior notice, but with 100% of the shareholder capital in attendance, the shareholders decide to hold a General Meeting to adopt the necessary decisions on the different matters on the agenda.
For the incorporation of the Universal Shareholders’ Meeting to be valid, the shareholders representing all the capital stock must be present at the same place simultaneously, and they must unanimously accept the holding of the Meeting as well as the agenda.
Which corporate resolutions can be impugned?
In general terms and as mentioned above, corporate resolutions that are contrary to the Law, the Bylaws or the regulations of the Company’s shareholders’ meeting may be challenged. Resolutions that harm the corporate interest can also be challenged.
As can be understood, it is not always easy to delimit the scope of the provisions of the Capital Companies Law, being especially relevant the different jurisprudential interpretations on these matters.
For this reason, it is very important to pay attention to the different general criteria established for the valid challenge of corporate resolutions.
In the first place, the action to challenge corporate resolutions expires within one year. The day from which the expiration period begins to run is the day on which the Shareholders’ Meeting was held to adopt the resolution in question. In the case of registered resolutions, the day starts to run from the moment that an opposition to the registration can be made.
Furthermore, it is important to know that the resolutions are enforceable from the moment they are adopted, i.e., unless a valid resolution is obtained annulling the adopted resolution, it will be fully enforceable and will deploy the effects it has.
It is also important to mention that it is only possible to annul an agreement if the interested party had previously done everything possible to avoid the adoption of the agreement in question. This is known as the principle of subsidiarity. Therefore, if a Shareholder has voted in favor of a certain resolution, in order for it to be challengeable by the Shareholder in question, it will be necessary for the latter to have voted against it at the corresponding meeting.
Who can impugn a corporate agreement?
In principle, the Law distinguishes three different parties who are entitled to challenge corporate resolutions. In the first place, the Company’s administrative body is recognized as having standing. Shareholders who were shareholders prior to the adoption of the resolution in question may also challenge corporate resolutions, as well as those who hold more than 1% of the share capital.
Finally, it is also possible for third parties who allege a legitimate interest to challenge the corporate resolutions.
Is it necessary to repeat the meeting?
The effects of the challenge of corporate resolutions will depend on the time at which the resolution in question is challenged and on the specific resolution.
In any case, it is usual that the Meeting itself appreciates the defect in the Meeting held, being able to proceed to the correction of the Meeting making the changes to be able to solve any existing defect that may endanger the Shareholders’ Meeting held.
In Letslaw we are experts in providing secretarial services for companies, preparing the necessary minutes and certifications of the agreements of the Shareholders’ Meetings. Our professionals have more than 10 years of experience advising in this type of operations.
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