Whena company is incorporated, so-called "control" shares are often included in the share capital structure. These shares enable the holder to have greater control over the company's affairs than other shareholders. Here's a summary of how this type of share works.
In general, control shares are not entitled to dividends. In most cases, the only rights conferred on the holders of these shares are the right to vote at any shareholders' meeting, and the right to receive, in the event of dissolution or liquidation of the company, a refund of the amount paid on the shares held, without any additional participation. Each control share confers one vote at shareholder meetings, but the articles of association may provide that each share confers several voting rights, for example 10 votes per share; in such a case the shares will be multi-voting.
In some cases, the articles of association will provide for control shares to be redeemed automatically by the company upon the occurrence of certain events, such as the death or bankruptcy of the shareholder. This ensures that control of the company is not conferred on a third party, in this case the estate of the deceased holder or the trustee in bankruptcy, as the case may be. Redemption is generally made for the amount paid on the shares.
It may be advisable to provide in the company's articles of incorporation for two distinct classes of control shares: one class without automatic redemption and the other with automatic redemption. This allows greater flexibility in the corporate structure that the various stakeholders wish to put in place.
The number of control shares to be issued depends on the extent of control you wish to confer on the subscriber of these shares. To pass an "ordinary resolution" at a shareholders' meeting, a majority of votes is required, i.e. 50% + 1. This gives you control over the composition of the Board of Directors. Then, if a shareholder holds at least two-thirds of the votes (66.66%), he or she alone has the power to pass a "special resolution". A special resolution is required for certain decisions deemed important by the legislator, notably to authorize an amendment to the Articles of Association, or to approve a merger agreement.
It is important for any holder of controlling shares who wishes to retain control over the company to be vigilant when signing a shareholders' agreement, to avoid his or her control being nullified. Indeed, the ability to elect and dismiss the company's directors may be paralyzed if, by agreement, shareholders commit in advance their vote for the election of the Board of Directors. In such a case, the shareholder with more than 50% of the voting rights will be bound by the agreement, and his controlling shares will be of no use in the election of directors.
If it is desired that the controlling shareholder should have greater control over the company's affairs, a unanimous shareholder agreement can be an interesting tool. Powers can be withdrawn from the authority of the Board of Directors and assumed by the shareholders themselves, who will vote according to the number of voting rights held. The controlling shareholder will then have control over the powers specifically withdrawn from the Board of Directors. This could be, for example, the power to declare dividends, or to appoint the company's officers .