Sunday, February 2, 2014

Corporate resolutions and majorities in a LLC

Voting is the main right of a member of a LLC. It allows the company to develop and reach its goals. It represents the democratic idea of "one person, one vote", but instead of people, here we have member units. 

Voting rights are necessarily escorted by two other rights: information and the right to attend the meetings. The information right provides the member knowledge about a certain situation, and motivates the direction of his vote, whereas the right to attend a meeting makes voting possible, even with a proxy.

 However, there is one more important thing than voting: how we count votes.



 According to Spanish Law, LLCs (called SL) have the following system:
 In opposition to Public Limited Companies, it is not mentioned any initial attendance quorum or specified minimum for LLCs. Corporate resolutions are approved with the valid votes of a third of the authorized share capital, so the Law implies that, at least, the same quorum is necessary to hold the meeting.

  This percentage can be raised by LLCs in their Articles of Association, but with the express prohibition of unanimity, and this is when problems arise.

Given a certain LLC, where each partner owns a 25% of the share capital and the Articles of Association read that corporate resolutions must be approved with, at least, a 76% of the share capital. In this situation, even though unanimity has not been established, it is necessary that all partners agree (de facto unanimity); otherwise, the corporate resolutions will not be approved, which could eventually become a cause of dissolution of the company, if the situation has paralyzed the corporate bodies. This is an unwanted situation for everyone, especially for the partners, considering that a whole functioning company is more valuable than a separate 25% of it.

  In my opinion, the most pragmatic thing would be to state the standard quorum for most of the resolutions, and rise it specifically for some key resolutions, (in case of a merger, e.g.), but it is clear that due to the huge variety of LLCs, the most appropriate measure will depend on the particular case.

 Also, include in the Articles of Association an arbitration clause. This is not very common yet, but I am sure it will gain ground.

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