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12 February 2018
The concept of a 'golden share' dates back to the 1980s and is believed to have been created by the British government, which devised this protection instrument to:
Following their introduction in the United Kingdom, golden shares were widely used in the 1980s and 1990s by governments of other European countries and the Russian Federation as part of the privatisation process. In Russia, the term golden share was enshrined in law in 1992.
Cypriot company law is silent on the rights enshrined in golden shares. However, case law (primarily English case law) provides that golden shares represent a separate class of shares, which enable holders to exercise veto rights by having weighted voting rights on specific matters.
Golden shares do not always mean actual share participation, but they allow the holder of such an instrument to block unwanted key business decisions or corporate actions taken by the company, either by:
Since 2003, European courts have challenged a number of golden share applications by governments in the United Kingdom, Portugal, Italy, Spain and Germany, finding them contradictory to the EU principle of the free movement of capital. This has resulted in a noticeable reduction in the popularity of golden shares among EU governments.
However, for private businesses, golden shares can be more easily considered in the context of contractual relationships and free will agreements between shareholders or other counterparties. Here, golden shares can again be used to block certain corporate actions, such as:
In the financial sphere, golden shares can sometimes be requested by a lending financial institution for the duration of the lending period as an additional guarantee and control instrument over the borrower and its adherence to contract specifications.
As with any shareholders' agreement, a golden share application needs careful planning and consideration. An important means to have a golden share recognised as authoritative is to support the principle of exercising it in a company's best interest, which means that its application should be approved by a special resolution or agreement. Golden share restrictions must be:
In practical terms, golden shares in private companies are most commonly applied through:
Articles of association generally specify any variation of class rights and the procedure of such variation for an additional security so that a golden share arrangement is maintained. Golden share restrictions, the rights attached thereto and relations between the holders of a golden share and remaining shareholders can also be fixed by the relevant shareholders' agreement. In the case of a discrepancy between the rights provided in the articles of association and the shareholders' agreement, the articles of association prevail.
For further information on this topic please contact Stella Koukounis at Solsidus Law by telephone (+357 22 007700) or email (firstname.lastname@example.org). The Solsidus Law website can be accessed at www.solsiduslaw.com.
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