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Joanna Jurasz

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The board of directors of a corporate entity is independent in its activities, but according to law it must obtain the shareholders' approval for certain transactions.  The articles of association may provide for a broader scope of such transactions. Some powers (e.g. appointing board directors) rest exclusively with the other governing bodies of the company. Does it mean that every shareholder will always have the right to vote in such cases? 

This article elaborates on this issue and describes cases where a shareholder is not allowed to vote on a resolution. It also discusses the consequences of violating the above rules exclusively in the context of a limited liability company, as this is the most preferred form of doing business in Poland.

Is the voting right an absolute right?

Voting on resolutions is one of the most important rights of every shareholder in a Polish limited liability company (hereinafter: “sp. z o.o.”). But this is not an absolute right. This is because according to the Polish Code of Commercial Companies a shareholder may not vote on resolutions on:

  • that shareholder's liability to the company;
  • releasing that shareholder from his debt to the company;
  • a dispute between that shareholder and the company.

The first group of resolutions on which the shareholder may not vote refers to any kind of liability the shareholder may have to the company. This may be liability in contract or in tort, or liability due to unjust enrichment.  Such resolutions include first of all resolutions on discharging shareholding board members from their duties or resolutions on a shareholder's liability for performing activities competitive with those of the company if the shareholder is bound by the non-competition clause (shareholders in an sp. z o.o. are not bound by any statutory non-competition obligation – such an obligation applies to board members, but the articles of association may include a non-competition clause for shareholders). They may also refer to a shareholder's liability for breaching other provisions of the articles of association, e.g.: 

  • in the articles of association the shareholder undertook to make recurring in-kind contributions, but he does not do it;
  • the shareholder does not make additional contributions in time despite adopting a relevant resolution, or 
  • the shareholder has not paid up his shares.

The second group of resolutions includes resolutions reducing or cancelling any kind of the shareholder's debt to the company. Such resolutions may be adopted following an amendment to the articles of association cancelling the shareholder's obligation to make payments to the company or to repay a loan received from the company. Another example is a resolution releasing the shareholder from the obligation to pay the company a fee for his rental of the company's premises. 

Importantly, a shareholder also may not vote on resolutions approving a novation or settlement agreement between the company and the shareholder.

The third and last group of resolutions on which the shareholder may not vote refers to all kinds of disputes between that shareholder and the company. Here, for example, shareholders may vote on the choice of an attorney  responsible for conducting such a dispute, on filing a claim against a shareholding board member or on settling the dispute in court. 

It should be remembered though that not every court procedure is about a dispute (some cases are considered and decided according to a non-contentious procedure where the parties' interests do not always diverge). 

When is a shareholder allowed to vote?

When is a shareholder allowed to vote?The aforementioned voting exclusions are exceptions. The above list of exclusions is exhaustive, so shareholders may vote on resolutions in every other case.  

If there are any doubts as to whether a shareholder may participate in the voting on one of the above-listed issues, we should first of all check if a voting shareholder is the same as the shareholder to whom the voting refers and should be thus excluded from the voting process.  If not, the shareholder is allowed to vote. 

Example

Parent sp. z o.o. has two shareholders: Subsidiary sp. z o.o. and John Director. The board members of Parent sp. z o.o. are John Director and Tom President. John Director is a board member of Subsidiary sp. z o.o.

At the ordinary meeting of shareholders of Parent sp. z o.o. the shareholders are to resolve on discharging John Director and Tom President from their duties. In this case, all shareholders are allowed to vote on the resolution discharging Tom President from his duties (as a board member) because none of the voting shareholders is the person referred to in the resolution. As for the voting on discharging John Director from his duties, only John Director will be excluded from the voting. Subsidiary sp. z o.o. is allowed to vote even though it is represented by John Director as its board member. This is because the shareholder (Subsidiary sp. z o.o.) is not the person to be voted on (John Director).

According to law, a shareholder is not excluded from voting on a resolution regarding his remuneration (e.g. a resolution on the remuneration of a shareholding board member). Likewise, nothing prevents a shareholder either from voting on his dismissal from or appointment as the board member, or on the appointment of an attorney to sign a contract with that shareholder as a board member (contracts between the company and its board members should be signed via an attorney elected by the shareholders).

If a company has only one shareholder, the shareholder may vote on all resolutions regardless of the above-mentioned statutory restrictions – those restrictions do not apply here because otherwise the shareholder would not be able to pass resolutions on the matters covered by the aforementioned list. 

The exclusion from voting on a resolution does not mean, either, that a shareholder may not take the floor and express his opinion on that resolution.

The said exclusion from voting means that a shareholder may not vote on any of the matters listed above, whether personally, or through a proxy or a statutory representative. Such an excluded shareholder also may not vote on behalf of another shareholder not excluded from voting.

The fact that a shareholder did not participate in voting should be noted in the minutes – it is sufficient to note there that the shareholder abstained from voting. In such a case, the resolution is adopted by the remaining shareholders. 

What are the consequences if a shareholder is excluded from voting or is not allowed to vote?

It is very important to correctly determine if a shareholder should or should not be excluded from voting. A vote cast by a shareholder not entitled to vote and voting on a resolution without participation of a shareholder entitled to vote will both have a negative consequence:

the resolution will be defective and can be thus appealed against in court. Depending on the case, one may thus apply for declaring the resolution null and void or for repealing the resolution. In this context, the role of the chairperson of the meeting of shareholders is particularly important for ensuring correct voting procedures.

If you want to discuss this topic in greater detail, please contact our experts in Rödl & Partner offices in Cracow, Gdansk, Gliwice, Poznan, Warsaw and Wroclaw.