Minority shareholder rights in Argentina: the need for prevention and dispute resolutions methods

When partnering to do business, it should always be considered the rights the Argentine General Companies Law Number 19,550 (Ley General de Sociedades Nº 19,550 or LGS for its Spanish acronym) grant to minority shareholders or partners – many of them with no minimum shareholding requirement -, such as:

1. Partners may examine the company´s books and papers and require the reports which they consider relevant. Unless otherwise stated in the by-laws, this right may not be exercised in companies with appointed statutory auditing bodies (e.g. syndics) (LGS, Article Number 55);

2. Being the case of companies with internal auditing bodies foreseen by the by-laws, shareholders representing not less than two percent of the capital may:

            a. Request the syndics at any time information on the subjects falling within the syndics´ competence (LGS, Article Number 294, Section 6); and

          b. Denounce to the syndics what they consider may affect the course of business. They syndics must investigate the issues, mention them in a verbal report to the shareholders meeting and make the comments and proposals which may be relevant. Further, the syndics may immediately call a shareholders meeting to resolve in this respect when the situation under investigation does not receive from the Board of Directors the treatment which they consider adequate and they judge it necessary to act with urgency (LGS, Article Number 294, Section 11);

3. A corporation´s shareholder representing at least five percent of the stock capital (provided the by-laws not establish a lesser holding) may request the board – or the Syndic – summons a shareholders´ meetings, indicating the subjects to be dealt with. The meeting shall be called to be held within the following forty days. If the board or the syndic were to omit to convene the meeting, the affected shareholder might request it be done by the companies´ controlling authority or judicially (LGS, Article Number 236);

4. To exercise cumulative voting rights to try to secure representation in the board of directors of a corporation, up to one-third of the positions to be elected (LGS, Article Number 263);

5. Shareholders of a corporation may judicially challenge any shareholders´ resolution carried in infringement of the law or the articles of association or the by-laws, as long as they have not voted for the relevant decision or they have been absent from the meeting. The petition must be filed within three months of the closing of the meeting. Additionally, they may request a preventive stay of the resolution, providing serious grounds exist and no harm were to be done to third parties, posting sufficient prior guarantee to cover the damages which such a measure might cause the company (LGS, Articles Number 251 and 252);

6. The rights of first refusal and accrual of their holdings when faced with capital increases (LGS, Article Number 194);

7. Shareholders have the right of separation from the company when the shareholders´ meeting passes certain structural modifications, such as transformation of the company into other type and extension of its term of duration (except in companies which offer their shares to the public or quote their shares), transfer of the company´s domicile abroad, significant change of the company´s purpose, increases of capital within the competence of the extraordinary general meeting and which imply disbursement on the part of the partner, etc. (LGS, Articles Number 244 and 245);

8. Shareholders of a corporation representing no less than five percent of the capital stock may oppose to the extinction of the board´s liability decided by the shareholders´ meeting (LGS, Article Number 275) and individually sue for compensation (LGS, Article Number 279);

9. When the shareholders meeting must pass resolutions affecting the rights of a class of shares, the agreement or ratification of these classes is required, and is to be given at a specially convened meeting (LGS, Article Number 250);

10. Any partner may judicially request the company´s intervention as a cautionary measure when the administrator or administrators of the company carry out acts or incur in omissions which place it in grave danger (LGS, Articles Number 113 and 114).

Further to the above-explained rights and when it is the case of public companies, the Capital Markets Law Nº 26,831 establishes additional rights granted to minority shareholders.

When conflict arises, minority partner´s rights may be abusively used to hinder or paralyze business and exert pressure to negotiate a buyout. Therefore, it is essential to devise, either in the by-laws or in private shareholders or partners´ agreements, the appropriate mechanisms or dispute resolutions methods to prevent or minimize disputes without affecting or compromising the future of the company.

For additional information on these or any other issues related to doing business in Argentina, please, sign up for our Legal Blog or contact us at any time.

Mario Eduardo Castro Sammartino

Our publications exclusively express the author´s opinion and do not purport to be legal counsel on any case. Should you need it, you must consult with your trusted lawyer or may contact us at your convenience. If you liked the article, please, share it.

 

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