How to Prove That Coordinated Voting by a Group of Shareholders is an Agreement?

Written by: Stjepan Lović, attorney

The Companies Act (ZTD) has undergone its fifth amendment in the last three years. The latest amendment came into effect on December 5, 2024, to implement into the legal system Directive (EU) 2022/2381 of the European Parliament and Council of November 23, 2022, on improving gender balance among directors of listed companies and related measures. However, as has been the case each time, the legislator also took this opportunity to introduce new provisions into the Act. Thus, Article 293.a was added, introducing novelties regarding shareholder agreements in companies whose shares are traded on a regulated market.

What is the content of the agreement

Although in Croatian legislation, a contract among shareholders is not regulated as a separate contract, the ZTD stipulates that it is an agreement aimed at strengthening the shareholder structure and/or achieving sustainable management in the company. Such agreements are considered to be agreements on binding votes from shares belonging to a shareholder or a company dependent on it, or from shares held by someone on behalf of a shareholder or a company dependent on it; agreements on restrictions on the freedom to dispose of shares belonging to a shareholder, a company dependent on it, or shares held by someone on behalf of a shareholder or a company dependent on it; agreements that shareholders will jointly, directly or indirectly, exert a dominant influence in the company, or an agreement based on which shareholders can exert such a dominant influence in the company. In simplified terms, it is an agreement between two or more shareholders that regulates the manner of exercising rights from shares belonging to each shareholder, which relate, for example, to the manner of voting at the assembly, proposing the agenda, proposing and voting for members of the supervisory board, use of profits, and all other issues that shareholders can influence by participating and voting at the assembly.

It can also be oral

The ZTD obliges shareholders to promptly notify the company in writing about the conclusion of such an agreement, stating the fundamental purpose of the agreement and how it is achieved. Promptly would mean in a very short period from its conclusion, and the notice is sent to the management of the company. Upon receiving this notice, the company is obliged to submit an application to the registration court for the entry of the information that such an agreement has been concluded, who its contracting parties are, what the fundamental purpose of the concluded agreement is, and how it is achieved. Shareholders are also obliged to inform the company about the termination or amendment of the agreement, in which case the company is obliged to submit an application to the registration court for the entry of the information that it has ceased or been amended.

If shareholders act contrary to this legal obligation, their rights from the shares are suspended until they notify the company about the agreement. Given that it is stipulated that the shareholder agreement is not attached to the application to the registration court, the emphasis is on its written form. However, such agreements are by their nature partnership agreements, and no mandatory written form is prescribed for their validity. Therefore, many doubts may arise that theory and practice will have to quickly address.

Voting prohibition?

Namely, shareholders can agree on all obligations that would be the subject of a written contract either in oral form or such an agreement can also be concluded tacitly. The best example of this is the coordinated action of shareholders at the company assembly when they vote for mutual proposals. Is this sufficient evidence of the existence of a shareholder agreement? If the answer to this question is affirmative, then shareholders would not have the right to participate and vote at the assembly until they notify the company about their coordinated action.

If shareholders were denied the right to vote at the assembly for this reason, they would be entitled to challenge the decisions made at the general assembly. In that case, the company would be obliged to prove the existence of an agreement among them, which would be lengthy and uncertain. The question also arises whether such coordinated action of shareholders can be considered a notification to the company. Would the company then be obliged to notify the registration court about this and what would be the content of that notification/application? These questions alone point to legal uncertainty regarding the rights of shareholders, but also of the company itself, as the company could suffer damage resulting from the proceedings to challenge the assembly’s decision. But also to the possibility of abuse of this provision to the detriment of shareholders’ rights.

Although these rules regarding shareholder agreements do not apply to agreements concerning shares that do not exceed one-twentieth of the company’s share capital (Article 293.a, paragraph 4), one should be very cautious regarding the denial of shareholders’ rights to vote at the general assembly.