In many cases, majority shareholders do not give much importance to the presence of minority shareholders in the commercial company, as they believe that, by holding the majority of the share capital, they have complete control over the company’s decisions and the management of its operations.
However, attention must always be paid to the rights of minority shareholders in a commercial company as established by law, since the presence of minority shareholders requires establishing a balance between their rights and the interests of the company, in order to prevent conflicts and avoid situations of abuse of rights by minority shareholders that could compromise both the company’s economic stability and the trust among shareholders.
The purpose of this article is to analyze certain situations in which a shareholder holding a minority shareholding in a commercial company may, through the exercise of rights legally granted to them, use those same rights abusively, to the detriment of the company and the regular conduct of its economic activity.
Nonetheless, it is not possible to address the issue of abuse of minority rights without first framing the scope of the rights that these minority shareholders hold.
In this context, before proceeding to the analysis of the abuse of certain minority rights, a brief consideration will be made, for better contextualization, of the regime of the majorities required for decision-making in commercial companies, as well as of the rights legally granted to minority shareholders.
DECISION-MAKING IN COMMERCIAL COMPANIES.
As a general rule, shareholder resolutions adopted at the General Assembly are approved by an absolute majority of votes (majority of the share capital), without prejudice to the exceptions provided by law or in the company’s Articles of Association, which may require qualified majorities for certain matters.
This system enshrines the majority rule in the adoption of shareholder resolutions (decisions made by the shareholders), which plays an essential economic role in ensuring the company’s decision-making capacity and the continuity of its economic activity.
However, the enshrinement of this principle is balanced by legal mechanisms for the protection of minorities, which aim to ensure transparency, oversight of management, and protection against potential abuses of power by majority shareholders. It is precisely in this tension, between majority control and the safeguarding of minority shareholders’ rights, that, under certain circumstances, the phenomenon of abuse of minority shareholders’ rights may emerge.
MINORITY SHAREHOLDERS’ RIGHTS.
Commercial law establishes a set of rights granted to minority shareholders in commercial companies, which can be categorized into two distinct groups: on the one hand, corporate rights that depend on holding a minimum percentage of the share capital, and on the other hand, rights inherent to the very status of being a shareholder, the exercise of which is not conditioned on the percentage of shareholding.
Corporate minority rights are those whose exercise is conditioned upon holding a minimum shareholding in the share capital, such as: i) the right to prevent the company from waiving or settling claims for compensation (5% of the share capital); ii) the right to bring a derivative action against the directors, the Audit Committee, or attorneys, when the company itself does not take action (5% of the share capital); iii) the right to request, in writing, from the management, written information regarding the company’s management, particularly concerning any corporate transaction, provided that the Articles of Association allow this possibility (5% of the share capital); iv) the right to convene extraordinary General Assemblies and to request that new matters be included in the agenda of a General Assembly already convened or to be convened (5% of the share capital).
On the other hand, the following are rights inherent to the status of being a shareholder, regardless of the percentage of share capital they hold, including, among others: i) the right to participate in the company’s net profit for the fiscal year; ii) the right to receive information about the company’s affairs; iii) the right to attend General Assemblies; iv) the right to be appointed to corporate bodies; v) the right to challenge resolutions of the General Assemblies; vi) the right to request the suspension of corporate resolutions; vii) the right to request a judicial examination of the company to investigate serious irregularities.
Next, an analysis will be made of certain rights through which minority shareholders may obstruct the functioning of the company.
For example, the law establishes the right to information as a fundamental right inherent to the status of a shareholder, which cannot be removed or restricted by the company’s Articles of Association, except where expressly permitted by law. This right aims to ensure that every shareholder has full and clear access to relevant information, constituting an essential instrument for transparency, management oversight, and informed participation in the company’s affairs.
In particular, within the exercise of the right to information, shareholders are entitled, in particular, to: i) inspect the company’s books and all documents that must be made available to the shareholder prior to the General Assembly; ii) request from the director, the Audit Committee, or the Company Secretary, when they exist, any information relevant to the matters on the agenda of the General Assembly, before voting takes place, provided that such information is reasonably necessary for the shareholder to exercise their voting rights; iii) request copies of resolutions or entries in the company’s books, as well as other documents, without the need for authorization from management; and iv) request, in writing, from management, written information regarding the company’s management, particularly concerning any corporate transaction. In this last case, the law allows companies to establish in the Articles of Association the possibility of requiring the shareholder to hold a minimum percentage of share capital, which may not exceed 5% of the share capital.
Furthermore, the unjustified refusal to provide information gives the shareholder the right to appeal to the competent court, with a duly substantiated request, to order its provision. On the other hand, the provision of false, incomplete, or manifestly uninformative information gives the shareholder the right to request the court to carry out a judicial examination of the company.
Another example is the right of any shareholder to participate, intervene in discussions, and vote at the company’s General Assemblies, except in cases where the law or the Articles of Association establish specific conditions for the exercise of voting rights, such as the requirement to hold a minimum number of shares or fulfill other requirements.
As a general rule, even if the shareholder does not have voting rights, they retain the right to attend General Assemblies, provided they prove their status as a shareholder, as well as the right to participate in the discussion of the matters under consideration, unless there is a conflict of interest between the shareholder and the company regarding the resolution to be adopted.
Shareholders may also, for example, protest against resolutions adopted at General Assemblies that are in opposition to the provisions of the law or the company’s Articles of Association, or if the aforementioned meetings were irregularly convened or if the shareholder was improperly prevented from attending the General Assembly.
It is worth noting that, regarding voting rights, the law provides mechanisms to protect against their abusive exercise by the majority shareholder, by establishing that resolutions affected by a conflict of interest that cause harm to the company, as well as those of an abusive nature, may be annulled, particularly when shareholders in a dominant or majority position use their vote to pursue extra-corporate interests, whether their own or those of third parties, to the detriment of the company or the minority shareholders.
Moreover, if a shareholder has a well-founded suspicion of serious irregularities in the company’s affairs, they may, indicating the fact on which the suspicion and/or irregularity is based, request the court to carry out an examination of the company to investigate the matter.
ABUSE OF RIGHTS BY MINORITY SHAREHOLDERS.
As briefly noted above, in the context of the deliberative dynamics of commercial companies and the exercise of the rights described, situations may arise in which minority shareholders exercise their rights abusively. This occurs because, at times, the individual holding of shareholder rights allows them to be exercised based on the personal interests of the shareholder, without strict and direct adherence to the company’s interests.
Pursuant to Article 106, no. 1 of the Commercial Code, abuse by a minority occurs when the law or the Articles of Association require, for the approval of a certain resolution, unanimity or a qualified majority that makes the favorable vote of a minority shareholder indispensable, and the shareholder, taking advantage of this position, prevents the adoption of the resolution with the purpose of obtaining personal or third-party benefit, to the detriment of the company or the other shareholders.
This situation is therefore understood as conduct carried out by a shareholder who, acting against the requirements of the company’s interests, prevents the adoption of a particular resolution by either refusing to vote or voting against the proposal, thereby causing harm to the company and/or the other shareholders.
Paragraph 3 of the aforementioned article further provides that a minority shareholder who, in the situations described above, unjustifiably and unreasonably opposes the approval of a resolution essential to the regular functioning of the company, or who, by any means, blocks the adoption of such resolution with the intent of obtaining personal or third-party benefit to the detriment of the company or the other shareholders, shall be liable for the damages caused to the company or to them.
In this context, when a minority shareholder makes use of the means granted by law solely for the purpose of obstructing the adoption or implementation of corporate resolutions, this constitutes an abuse of rights. Such conduct is unlawful under the general regime established in the Civil Code, whose Article 334 provides that: “The exercise of a right is illegitimate when its holder manifestly exceeds the limits imposed by good faith, good morals, or the social or economic purpose of that right.”
For example, a shareholder who votes, as a minority, against a resolution essential to the company’s survival or otherwise prevents the implementation of such a resolution, without genuinely valid grounds, is manifestly exceeding the limits imposed by good faith and the economic or social purposes of that right, to the detriment of the company.
Regarding the right to information, situations of abuse are also frequent and can have significant economic impacts on the company. A minority shareholder, relying on the right provided in Article 102 of the Commercial Code, may repeatedly request information of limited relevance, raise trivial questions, or demand excessive details, thereby delaying the analysis and adoption of matters of greater importance to the pursuit of the company’s corporate purpose. Such conduct can generate costs, compromise management efficiency, and delay decisions that directly affect the company’s economic well-being.
The law allows shareholders harmed by the abuse of rights, whether by minority or majority shareholders, to seek judicial remedies to obtain compensation for the damages suffered. However, it is necessary to prove both the harm suffered and the causal link between the act committed and the damage caused.
Accordingly, when a minority shareholder acts knowingly, exceeding the limits imposed by good faith, good morals, and the economic and social purposes of their rights, they may be required to compensate the company for the damages they cause. This is particularly so because the conception of abuse of rights adopted in Article 334 of the Civil Code is markedly objective, requiring only that the individual manifestly exceeds the aforementioned limits (good faith, good morals, and the economic and social purpose of the right).
However, classifying conduct as abusive cannot be done hastily, as a careful analysis of each individual case is required. It must be verified that the shareholder’s actions are repeatedly based on irrelevant justifications and aimed at disrupting the normal functioning of the company.
In conclusion, it is important to emphasize that the exercise of rights by minority shareholders is not absolute. In exercising these rights, shareholders may not exceed the limits imposed by good faith, good morals, and the economic and social purposes of those rights, so as to harm the company or unjustifiably obstruct the adoption and implementation of corporate decisions. Conduct of this nature constitutes, simultaneously, an abuse of minority rights under Article 106 of the Commercial Code and a general abuse of rights under Article 334 of the Civil Code, which establishes that the exercise of a right is illegitimate when its holder manifestly exceeds its legal and social limits. Accordingly, it is concluded that minority rights are subject to the same limitations as all other social rights, arising from the prohibition of abuse of rights under the general principles established by the Civil Code.
Shareholders not only have rights but also assume duties toward the company and the other shareholders, and they must act with loyalty and good faith, respecting the company’s interest and the common interests. Thus, the balance between rights and duties is essential to prevent abuses and ensure the economic and legal stability of commercial companies.
Furthermore, it is equally important that the Articles of Association and agreements governing the relationships among shareholders are structured with care, clearly defining the powers, rights, and responsibilities of each shareholder. Proper internal regulation, combined with a strategic and careful selection of shareholders, contributes to reducing conflicts, preventing abusive practices, and creating a cooperative environment that strengthens corporate governance, promoting sustainable growth and the legal security of the commercial company.
