Supreme Court: General Meeting Decisions Cannot Violate the Corporate Rights of Persons Who Were Not Participants at That Time

Decisions made by a company’s general meeting before the acquisition of corporate rights by new shareholders (i.e., before they are officially registered as participants in the company) cannot be recognized as violating their corporate rights.

At the same time, corporate rights arise from the moment of the acquirer’s state registration as a participant in the company, not from the moment of signing the transaction for the share transfer.

This conclusion was reached by the Judicial Chamber for Corporate Disputes, Corporate Rights, and Securities of the Commercial Cassation Court within the Supreme Court in a case concerning the invalidation of a general meeting decision, the recognition of a new charter version as invalid, and the annulment of the state registration of changes to the founding documents, as reported by the Supreme Court's press service.

Case Background:

In this case, the disputed general meeting of a private joint-stock company (TOV) took place on October 2, 2018. During the meeting, the composition of participants was changed due to the transfer of shares by the original participants through sale, including to the plaintiffs. All company participants attended the meeting and voted unanimously (100% of votes) on all agenda items. However, the state registration of the change in participants in the Unified State Register (EDR) took place on October 9, 2018.

The plaintiffs argued that at the time of the general meeting, they had not yet acquired rights to the purchased shares and could not participate in decision-making. As a result, they claimed that the contested decision was made without a quorum, making it invalid.

The Commercial Cassation Court of the Supreme Court stated that entering into a transaction for the transfer of shares does not automatically transfer corporate rights from the original owner to the acquirer. Corporate rights are only transferred when the share ownership is registered in the company’s charter, at which point the acquirer gains participant status and the right to exercise shareholder rights.