1.1.3 Majority shareholder and minority shareholder

Often-used concepts relating to control within the company are those of the majority shareholder and the minority shareholder. A majority shareholder can be defined as a shareholder who has controlling voting power in the general meeting. A minority shareholder can be defined as a shareholder who lacks controlling voting power in the general meeting, while at the same time one or more co-shareholders control the general meeting.

Even in the absence of a single majority shareholder, a minority shareholder can be present. Take, for instance, the situation in which shares and voting rights attached to the shares are divided equally between four shareholders holding a stake of 25% each. In this situation, three shareholders can cooperate in order to create a majority. The fourth shareholder is then the minority shareholder. It is worth mentioning that it is not necessary to hold more than 50% of the share capital to be a majority shareholder. A majority shareholder may hold less than 50% of the share capital, but may still have controlling voting power due to shares carrying disproportionate voting rights or special control rights.

In addition, Dutch statute prescribes higher thresholds for certain resolutions to be adopted by the general meeting. For instance, a resolution for conversion of the BV into an association (vereniging) requires a majority of more than 90% of the votes cast in the general meeting.1 The higher the threshold, the more control is divided among the shareholders. However, the more control is divided, the more difficult it may be to adopt a resolution. In general, majority tule leads to an efficient decision-making process, simply because not all parties have to be persuaded to vote in favour of a resolution.

In the situation of a joint venture involving two shareholders each holding 50% of the shares and with an equal division of voting rights, there is no shareholder who can cast a decisive vote. Because neither of the shareholders is in control, there is neither a majority shareholder nor a minority shareholder. In this specific situation, a deadlock may occur between the shareholders. This deadlock may paralyze the decision-making process within the company. Taking into consideration that it is usually hard to point out who caused the deadlock or who can be blamed for it, a difficult question is what kind of exit right could provide a desirable solution in this specific situation. As this study focuses on exit rights of minority shareholders, I will not elaborate on this subject in-depth, but I recommend it for further study.2