2. International Standards
In spite of the fact that the legislation of many countries contains similar rules and regulates governing issues of corporate property, some serious differences of opinion still remain; it is, thus, that the present Commentary sets forth several points of view. Anglo-Saxon commentators are the greatest believers in the proposition that legal norms governing corporate property are not always necessary; occasionally, they can even be super fluous.7 Below are the arguments in favour of this statement: (a) The basis of a joint-stock company is the agreement between shareholders. In concluding this agreement with the company, the principle of freedom of choice should apply to the terms and conditions of such agreements, i.e., each shareholder is entitled to make its own proposals with respect to corporate property; (b) Such freedom of choice is restricted where it affects the interests of creditors. The latter are also entitled to provide guarantees for themselves in the agreement since the goals of company law do not encompass the protection of creditors' interests; it is bankruptcy legislation which is called upon to protect creditors; ___________________________________ 7 See Bernard S. Black, Reiner H. Kraakman and Anna S. Tarassova [sic], Guide to the Russian Federal Law On Joint Stock Companies (Kluwer Law International. The Hague, 1998); also published as: Бернард Блэк, Рейнир Крэкман, Анна Тарасова, Комментарий Федерального Закона Об Акционерных Обществах (Labirint Press, Moscow, 1999) and reproduced at <http://papers.ssrn.com/sol3/ papers.cfm?abstract_id=246670&http://papers. ssrn.com/sol3/papers. cfm?abstract_id=246670 >.
(c) Along with creditors, investors also need protection on securities markets. However, once again, this is not a goal of legislation governing joint-stock companies; such issues are regulated by normative acts on securities markets; (d) The number of insolvent companies in European countries suggests that special provisions for protecting corporate property are inadequate in dealing with the challenges which they are facing. In their turn, authors of European legislation (except for the UK) offer the following counter-arguments-thus, supporting the need for provisions regulating matters dealing with corporate property:8 _______________________________ 8 See Marcus Lutter (ed.), Legal Capital in Europe, European and Company FinancialLaw Review, Special Volume 1 (Berlin, Walter de Gruyter, 2006).
(a) The basis of a joint-stock company is not only on an agreement among shareholders because this organizational-legal form of legal persons presupposes alarge number of small investors. The contractual model is unacceptable for this form of a company, and legislative regulation makes it possible to reduce transaction costs-in any event, those for small investors; (b) The regulation of the issues related to corporate property requires specific provisions since they will also help to ensure enhanced guarantees for creditors. Unlike regulations governing relations between an insolvent debtor and a creditor that operate only when a company already has grounds to initiate bankruptcy proceedings (in a repressive manner), provisions aimed at protecting corporate property are designed to play a role at an earlier stage (in a preventive manner); (c) Normative rules ensuring protection of corporate property provide guarantees directly to shareholders-especially those whose share in the company's total capital is below 50%. This affords protection from resolutions which are forced upon minority shareholders by majority shareholders regarding the management of corporate property. At the same time, normative rules are also required to regulate securities markets. However, their effect is insufficient to perform this function in full. In this regard, attention should be paid to American law, the development of which-having in mind the jurisdiction in this field is at the federal level-is limited to legislation regulating securities markets; (d) Legal history shows that, in their early stages of development, all countries have had strict regulations governing issues of corporate property. Only as time passed and additional institutions and professional groups appeared on the stage did the legislation become less strict. Countries which are in their early stages of development find it extremely hard to skip certain phases of development. In the European Union, those who support stricter legal rules for the regulation of the issues connected with corporate property have embodied them in the principles of the 1976 Second EU Directive.9 More recently, this decision has been widely criticized, which brings the reasonableness of the above provisions into doubt. A survey conducted on behalf of the European Commission and published in 2008 examined whether or not there are might be alternatives to the provisions currently regulating issues connected with corporate property in EU Member States. The survey results suggest that the compliance costs resulting from the use of the European system to manage corporate capital are not much greater than those associated with legal regimes based on other systems.10 The survey's authors believe this is at least one good reason against making any significant changes in the existing regime. ___________________________________ 9 EU Second Council Directive 77/91/EEC of 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent, reproduced at <http:// eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31977l0091:EN:HTML>. 10 Feasibility Study on an Alternative to the Capital' Maintenance Regime Established by the Second Company Law Directive 77/91/EEC of 13 December 1976 and an Examination of the Impact on Profit Distribution of the New EU Accounting Regime (KPMG, January 2008) <http://ec.europa.eu/internal_market/ company/capital/index_en.htm>.
Thus, in drafting the present Model Law, account has been taken of the fact that there some issues remain contested as regards matters for which international standards have yet to be adopted. However, at least on some specific questions, legislators have managed to reach agreement; this relates to the obligation of shareholders with respect to making investments to a company's capital used to create the company's share capital (Art.38). The differences deal with the kind of property which may be invested. Where a company's capital is formed as a one-time investment, a mechanism need to be in place protecting it from the encroachments of shareholders, such as those resulting from an increase in the amount of dividends paid out (capital-preservation principle). As yet, there is no general opinion as to restricting dividend payouts to shareholders; this issue will be discussed later in the present Commentary. The fundamental difference between the systems, above all, is to be seen in the following. One major, contentious issue is the requirement for a minimum amount of capital for forming a joint-stock company. According to European law, from the moment of forming a joint-stock company, a statutory minimum amount of capital must be invested in the company; American law, on the other hand, has no such requirement.11 However, one needs to keep in mind that legal norms regulating activities on securities markets mandate a minimum amount of share capital prior to the distribution of shares of stock among the founders of the company. _____________________________________ 11 The US Model Business Corporation Act (MBCA) has been used in this project although in general corporate law is regulated in the US at the state level (and there is no federal legislation on joint-stock companies). The MBCA is reproduced at <http://apps.americanbar.org/buslaw/ committees/CL270000pub/nosearch/mbca/assembled/20051201000001.pdf>.
Legislators also fail to agree as to whether the amount of capital needs to be specified in the articles of association. According to European law, the amount of capital must be specified in articles of association; US law, on the other hand, once again knows no such requirement. There is also fundamental difference as to the issue of the authority which must be granted to a shareholders' meeting with respect to the management of a joint-stock company's capital. In European countries, the right to make such decisions is accorded by legislation to a general shareholders' meeting; in other countries, such rights are regulated by the articles of association. Opinions vary as to the consequences of reducing the value of the net assets (equity capital) of a joint-stock company. Under European law, the value of the capital depends on the amount of the 'authorized capital' specified in the articles of association; in other countries, the linkage of regulatory provisions to the relation between a random amount specified in articles of association and the value of the net assets (equity capital) is not yet considered to be wholly successful. At the same time, there also are some points of convergence. First of all, it should be noted that neither the laws of the US states or of EU Member States contain any strict provisions as to whether a share must have a par value. For a long time, a share had to have some par value. At the same time, along with the notion of par-value shares of stock, there is now also the concept of a no-par-value share. At the end of the day, it was decided that specific provisions should be established to provide guarantees to shareholders-in case of an issue of new shares of stock-and to creditors- in case of a reduction of the company's capital.
3. Applicable Law of the CIS Countries
Law-making processes in the CIS countries have been influenced by both concepts. Thus, there are some authors of civil codes who have supported the system based on European law; this is evidenced by the fact that the first part of the 1994 CIS Model Civil Code12 (Arts.124-127) contains provisions on an 'authorized fund'13 (ustavnyifond) that are partially reflected in the national civil codes developed on the basis of the Model Civil Code. Legal norms regulating issues connected with 'authorized capital' are contained in the 1996 CIS Model «OnJoint-Stock Companies».14 Another point of view is seen in several national laws «On Joint-Stock Companies» based, to a certain degree, on the Black/Tarassova Model Law.15 As regards provisions regulating the company's capital, these authors have tended to follow the Anglo-Saxon model. Since the draftspersons of the present Model Law «On Joint-Stock Companies» did not wish to neglect the rules and regulations of civil codes, they have taken into account the above-mentioned provisions although they have relaxed the requirements somewhat. An example is the framework for the minimum amount of stock capital; pursuant to these provisions, the minimum amount is so small that it loses its reason. Thus, the above-mentioned laws occasionally are referred to as 'hybrid' laws. In developing its 2003 law on joint-stock companies, Kazakhstan has adopted the Anglo-Saxon concept. This is evidenced for example by the fact that in Kazakh law-despite use of the term 'authorized capital'- there is no connection between the amount of capital specified in the articles of association and the net assets (equity capital) of a joint-stock company.16 The 1997 Moldovan law on joint-stock companies is based on European Union regulations. Here, the connection between the author ized capital-the figure specified in the articles of association-and the equity capital of a joint-stock company is much more evident. In the Russian legislation, one can observe a certain inconsistence in using one and the other concept.17 In part, this is a function of the discord between some provisions of the 1995 Russian Law «On Joint-Stock Companies» and additional normative acts governing specific issues related to the understanding of charter capital [ustavnyi kapital]. It should be furthermore noted that, at present, opinions continue to differ in Russia as to how further developments in this area should proceed. _____________________________________ 12 See 1994 CIS Model Civil Code (Part I) (29 October 1994), reproduced at <http://www.iacis. ru/html/?id=22&pag=29&nid=1>. 13 Using the notion of 'authorized fund' is not a best practice since it is associated with the regulation of state-owned enterprises. Therefore, it has been replaced by the term 'authorized capital'. 14 See Art.4 of the CIS Model Law «Ob aktsionernykh obshchestvakh» (17 February 1996), reproduced at <http://www.iacis.ru/html/?id=22&pag=33&nid=1>. 15 See Black, Kraakman and Tarassova, note 7 supra. 16 See Arts.10 and 11 of the 2003 Kazakh Law «Ob aktsionernykh obshchestvakh», (13 May 2003), (as amended), reproduced at <http://www.pavlodar.com/zakon/?dok=02807&ogl=all> and (in English) at <http://www.ebrd.com/downloads/legal/securities/kazakhjs.pdf>. 17 See Art.25 of the 1995 RF Law «Ob aktsionernykh obshchestvakh», (as amended), Sobranie Zakonodatel’stva RF(1996) No.1 item 1.
Thus, for example, the authors of the 2005 Russian Concept for the Modernization of Corporate Legislation have proposed that the term 'authorized capital' (ustavnyi kapital)18 while the draftspersons of the 2009 Russian Concept for Legislation on Legal Persons have recommended that more attention be paid to guarantees and to enhancing the concept of legal persons.19 Normative provisions of other CIS countries-the last of which to be adopted was the 2008 Ukrainian Law «On Joint-Stock Companies»20 - are quite similar to the legal provisions in effect in the Russian Federation since these countries have not yet elaborated an initial policy document. In light of the above, the conclusion can be drawn that no common standard has been developed in the national legislation of the CIS countries. ___________________________________________ 18 See Clause 30 of the 2005 «Kontseptsiia razvitiia koporativnogo zakonodatel'stva na period do 2008 goda», Zakon (2006) No. 9, 9-36, prepared by the RF Ministry of Economic Development; reproduced at <http://komitet2-5.km.duma.gov.ru/site.xp/051053051.html>. 19 See Clause 55 of the 2009 Draft «Kontseptsiia razvitiia zakonodatel'stva o iuridicheskykh litsakh», prepared by the Council for Codification and Improvement of Civil Law under the President of the Russian Federation and published in the spring of 2009 for public discussion; reproduced at <http://www.privlaw.ru/vs_info2.html>. 20 2008 Law of Ukraine «Ob aktsionernykh obshchestvakh», as amended, Vidomosti Verkhovnoi Radi Ukraini (2008) Nos.50-51 item 384, reproduced at <http://zakon.rada.gov.ua/cgi-bin/laws/ main.cgi?nreg=514-17>.
4. Provisions of the present Model Law
Below, the reader is offered a more detailed view of the concepts and basic provisions of the present Model Law. 4.1. Various Options Available As we have highlighted above, there are no clear standards which have been developed-either in the international arena or in the national legislation of the CIS countries. Thus, one can observe that here both the Anglo-Saxon and European concepts have been utilized since the authors of the present Model Law have decided not to use any of the models as a basis; rather, have they offer national legislators the opportunity to make their own choice. Therefore, two options have been proposed: A and B. Option A of the present Model Law is based on the regime in force in the EU Member States, specifically the 1976 Second Directive. The point of convergence between these provisions is the concept of authorized capital, which refers to a figure specified in the articles of association of a joint-stock company (Art.12, Clause 4, and Art.52). This concept needs to be distinguished from that of cash assets of a joint-stock company specified on the balance sheet in line-item 'assets' and 'net assets' of a joint-stock company. (Art.53).21 The concept of authorized capital is based on the notion that the figure specified in the articles of association represents the lower limit of the value of a joint-stock company's net assets. Legislative provisions should clearly establish that where a joint-stock company is formed, the net-asset-value should not be less than the amount of authorized capital and that this value should not be reduced during the company's lifetime. Where such a reduction does occur, the bodies of a joint-stock company are required to ensure protection of the rights and interests of creditors. This means that it is unnecessary to specify the 'authorized capital'; rather, legal rules and regulation rules should provide for a link between the value of the net assets (equity capital) and the authorized capital. Option B of the present Model Law is based on the model currently used in Kazakhstan. The key idea here is that the total amount of a company's property is determined only as of the formation date of the joint-stock company. Therefore, the legislators have abandoned the concept of authorized capital and, instead, have used the concept of 'starting capital' (startovoi kapital). This was done in spite of the fact that-upon formation of a joint-stock company-its shareholders assume the obligation to provide this amount as an investment. From this moment on, any changes in the amount of the net-asset-value of a joint-stock company only are reflected on its balance sheet and no longer depend on the value specified in the articles of association. Therefore, in this context, the provisions regulating the process of compiling financial reporting statements, as well as the contents and the form thereof, are particularly important. These reports, in turn, must contain a line-item for subscribed capital (in line with European terminology) by which the value of investments made by shareholders is specified.22 _________________________________________ 21 The term 'net assets' is used because it is widespread in CIS countries. European law uses the term 'own capital' ['Eigenkapital’ = equity capital] that is not the direct equivalent of net assets. Pursuant to the provisions of European law, the term 'own capital' refers to the liabilities item on the balance sheet of a joint-stock company. It includes subscribed capital, additional paid-in capital, and various reserve funds, as per the EU «Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54 (3) (g) of the Treaty on the annual accounts of certain types of companies», reproduced at <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX: 31978L0660:EN:NOT>. 22 In option B, the 'subscribed capital' line-item on the balance sheet is used to perform the same function as that performed by 'authorized capital' in option A.
Actually, the difference between these two options is smaller than first might be expected. Both concepts are very similar: first of all, in establishing that the articles of association of a joint-stock company must set the amount to be invested upon formation. Formally, the concepts differ in the approach to the matter of whether the issuance of new shares of stock, i.e., an increase in capital or the cancellation of shares of stock, results in appropriate amendments to the articles of association. The provision mandating that appropriate amendments be made to the articles of association is available in option A only. Thus, in option A, a resolution to change the capital is within the prerogatives of the general shareholders' meeting; under option B, this power is not reserved only to the general meeting. This is evidenced by the example of authorized shares of stock, i.e., the important thing here is not the shares of stock already in existence but, rather, the authority of management bodies to issue shares of stock in the future (Art.52 (3), Option B). Option A does not employ the concept of authorized shares of stock, and the general shareholders' meeting delegates the requisite authority to the management bodies (Art.58, Option B). Thus, exceptions have been made in Option A from the principle of the competence of the general shareholders' meeting, while in option B the competence of the board of directors may be established in writing (Art.54, Option B). The options differ significantly, however, as to the issue of which governmental agency has authority to perform regulatory functions. Option B grants the exclusive right to the governmental authority supervising securities markets. In Option A, in addition to a securities markets authority, a regulatory function is also performed by the body maintaining the state register of legal persons. The problem inherent in Option A is how to determine the scope of authority of each governmental agency. The practical experience of western countries demonstrates, however, that this challenge can be resolved. The advantage of this concept is that dividing the authority of governmental agencies into regulating securities markets and regulating the lawfulness of acts of legal persons promotes a system of clear subordination similar to that used for supervising the activities of limited liability companies. 4.2. Transparency of Property Relations When making a decision in favour of a certain option, one also needs to consider that the historical context of the concept of authorized capital is similar to the principle of transparency. The articles of association establish the amount of authorized capital which is publicly available information (Art.8). In this fashion, the transparency requirement is met. The fact that the transparency of property relations is currently ensured by another method, in part, by maintaining balance sheets, is confirmation of the proposition that it is unnecessary to fix the amount of capital in any other documents than the articles of association. However, in view of the above, we are facing an issue of whether a concept offers sufficient guarantees where it is based only on the provision of information to shareholders and investors in the form of reports. Given that the rules for maintaining balance sheets often can change, the answer will be a negative one. Therefore, additional guarantees should be provided to shareholders and creditors. To do this, special provisions need to be developed to regulate the raising of capital, and the amount thereof should be specified in a separate document. Within the framework of the present Model Law, an attempt has been made to develop rules and regulations that would-in addition to the observance of the transpar ency requirement-provide for the protection of corporate property, thus providing guarantees to shareholders, investors and creditors. 4.3. Authorized Capital, Par Value of Shares of Stock and No-Par-Value Shares of Stock All CIS countries, except for Kazakhstan, have regulations establishing that a company's authorized capital consists of the par value of a company's shares of stock purchased by shareholders.23 Some of those laws contain a provision that the par value of all the issued shares of stock must be equal.24 Such provisions raise a number of issues, the key one of which is whether shares of stock should have any par value whatsoever. In Kazakhstan, the par value25 of shares of stock matters only when the initial capital of a company is formed by its founders at the stage of setting the company, while in Moldova the law-making authorities provide differ ent options from which to choose.26 In other CIS countries, law-making authorities require that the par value be established, which has recently been the subject of extensive debate in Russia.27 ______________________________________________ 23 For example, Art.25 (1) of the 1995 RF Law «Ob aktsionernykh obshchestvakh», op.cit. note 17; and Art.40 of the 1997 Moldovan Law «Ob aktsionernykh obshchestvakh», as amended, Moni-torulOficial(12 June 1997) No.38-39, Part I, item 332, reproduced at <http://www.law-moldova. com/law_moldova_rus.html >. 24 For example, Art .25(1) of the 1995 RFLaw»Ob aktsionernykh obshchestvakh», ibid.; and Art.12 of the 1997 Moldovan Law Joint-Stock Companies, ibid. 25 See Art.12 of the 2003 Kazakh Law «Ob aktsionernykh obshchestvakh», op.cit. note 16. 26 See. Art.12(6) of the Model Law. 27 See Clause 16, «Kontseptsiia», op.cit. note 18; and Andrei Anatolievich Glushchetskii, «Nominal'naia stoimost' aktsii islishnii rekvizit emissionnoi tsennoi bumagi ili vostrebovanii pravovoi institut?», Zakon (2010) No.5, 119.
In this respect, the present Model Law provides an opportunity to choose between par-value shares of stock and no-par-value shares of stock (Art.26). The experience of western countries demonstrates that both concepts can be applied in practice despite the fact that, for a long time, the concept of par-value shares of stock in all countries has predominated and the practice has only been abandoned some three decades ago. Therefore, it is extremely important to determine the consequences which may result from the adoption or cancellation of par-value shares of stock. The main problem is the scope of rights granted to shareholders. Consider the 'one share - one vote' principle which has arisen in the law of those states that have chosen to do without par value. No-par-value shares of stock provide equal rights. However, in the past, a different principle was followed virtually everywhere: the rights of shareholders depended on the par value of their shares of stock (equity stake [dolia]) in the total capital of a joint-stock company. The present Model Law also contains a provision that makes a voting right dependent on the par value of shares of stock (Art.88, Para. 3). Thus, the model whereby the amount a shareholder contributed to the authorized capital of a joint-stock company determines the scope of rights granted to such shareholder is as reasonable as is the concept of the formal equality of shares of stock according to the 'one share - one vote' principle.28 Some CIS countries have made an attempt to combine both principles within a provision mandating that all the shares of stock must have equal par value. While this is possible, in this case, the par value would again perform only a part of its functions, i.e., it may be economically feasible to issue shares of stock with different par values. The key argument in favour of a par-value share is its importance in protecting the rights and interests of shareholders. Where the legislation contains the appropriate provisions, such protection may promote the situation whereby par value will determine the minimum amount of an equity stake (participatory unit [pai]) and the scope of rights obtained during the acquisition of shares of stock. In this connection, special attention should be paid to Article 63 of the present Model Law Option A, prohibiting the issuance of shares of stock the value of which is below par value. This provision is warranted because par value is set for each share, and this par value is of special importance.29 At the same time, this Article also regulates the issuance of no-par-value shares of stock. In such a case, the price must not be lower than the nominal equity stake (participatory unit) in the amount by which the capital is being increased.30 Thus, even shares of stock with no-par-value are subject to a lower limit calculated from a mathematical perspective. __________________________________________ 28 In this respect, we may face an objection, based on the fact that the market value of shares is often higher than their par value, which is quite right. However, in this situation it makes no difference since the market value only matters for a joint-stock company as of the date of a share issue; but, at that very moment, any par value may be set for the shares. 29 Art.26, para. 2 of the Model Law. 30 Art.63 para. 2 of the Model Law.
4.4. Minimum Basic Capital (Minimum Authorized Capital) Upon Formation of a Joint-Stock Company A much debated issue is the notion of the minimum amount of authorized capital that the shareholders must invest when forming a joint-stock company. The initial view which prevailed was that the minimum amount of basic capital must not be so large as to become an obstacle in the formation of a new company. As a result, many CIS countries established extremely low minimum amounts of basic capital.31 However, more and more support is being gained by the proposition that a legal form such as the joint-stock company has not been established solely to promote the creation of small businesses. This is rather one of the goals of the legislation on limited liability companies. Ajoint-stock company is a legal form that is intended for the long-term capital markets. This viewpoint has been used as the basis for the requirements that a company must have a significant amount of minimum starting capital in order to obtain a license for certain types of activity (e.g., banking, insurance, the securities markets). Therefore, a higher minimum amount of basic capital needs to be invested in forming a joint-stock company. A similar provision is in force in Kazakhstan, where the minimum amount of basic capital (in US dollar terms) is approximately USD 300,000.32The present Model Law does not establish any minimum amount of authorized capital of a joint-stock company owing to differences in the legislation of different CIS countries. Russian sources recommend following the European model.33 ________________________________________ 31 Art.26 of the 1995 RF Law «Ob aktsionernykh obshchestvakh», op.cit. note 17; and Art.14, Clause 1 of the 2008 Law of Ukraine «Ob aktsionernykh obshchestvakh», op.cit. note 20. 32 See Art.10 of the 2003 Kazakh Law «Ob aktsionernykh obshchestvakh», op.cit. note 16. The minimum amount of a company's authorized capital is equal to 50,000 times the monthly specified rate set by the Kazakh Law. 33 See Andrei Anatolievich Glushchetskii, «Ustavnyi capital khoziaistvennogo obshchestva: Te-oreticheskie spory i prakticheskie aspekty», Khoziaistvo ipravo (2010) No.5 (prilozhenie), 45.
4.5 Shareholders' Rights during Dividend Payout, Issue/Cancellation of Shares of Stock Shareholders' rights with respect to management of a company's capital are a key issue that is considered not only in the present Model Law. Pursuant to the Model Law, a resolution to pay out dividends is adopted by a general shareholders' meeting (Art.46, Para.3). But in any case, a shareholders' meeting is not entitled to pay out more than the amount which has been established by the board of directors or the supervisory board. As regards this issue, the Model Law is based on the experience of national legislation. Attention should be paid to Article 51 of the Model Law dedicated to the problem referred to in many countries as 'squeezing out of shareholders'. If a shareholders' meeting decides not to pay out dividends despite the fact that the joint-stock company has generated profits, such a resolution (to a certain degree) may be appealed in court. A shareholders' meeting may also be convened in order to adopt a resolution to issue additional shares of stock (increase authorized capital) and to cancel shares of stock (reduce authorized capital).34 In this case, the two options contain totally different provisions. Thus, the starting point is that of the authorized shares of stock, mentioned in both options A35 andB.36 In Option A, the concept of authorized shares of stock is presented as follows: a shareholders' meeting may delegate to the board of directors or the management the right to adopt a resolution on increasing the capital by issuing additional shares of stock within the limits of the declared capital of the company. Thus, the shareholders' meeting reserves the right to set certain conditions. In addition, such authority is provided for a limited period. Pursuant to Option B, the board of directors may be accorded an unlimited right to adopt a resolution to issue additional shares of stock. Apart from the authority of a general shareholders' meeting, a determination needs to be made of the minimum number of votes required for a general shareholders' meeting to adopt valid resolutions. Generally, the rule of a qualified majority is used (2/3 or 3/4 of all votes). The present Model Law does not contain any general norms regulating such issues (Art.87); however, it proposes rules and regulations concerning some particular issues.37 Furthermore, those provisions have special importance pursuant to which the norms regulating these issues are established by a shareholders' meeting.38 Thus, shareholders rights are not limited by the general right to vote; shareholders are authorized to adopt their own resolutions. A key shareholder right is that of purchasing shares of stock in the event of a new issue or capital increase in an amount proportionate to their interest in the company's total capital. The present Model Law also contains such norms.39 In this respect, one innovation of the Model Law is that by which it provides for the possibility to deprive shareholders of this right by a resolution adopted by a qualified majority of votes. From a financial point of view, this will be helpful to attract strategic investors. Thus, management bodies have a duty to motivate their acts, as described in the appropriate regulation. Since the right has been defined in more concrete terms, shareholders now have the possibility of exercising it in a specified fashion.40 This possibility is necessary so that even shareholders who lack the funds to purchase the proposed shares of stock themselves would be in a position to utilize the right accorded to them in their own interests. There is no specific answer in the present Model Law to the question concerning the legal consequences which may arise from violations of shareholder rights. The legislative tools applicable in such cases are set forth in the regulations on maintaining registers, pursuant to which registration is granted provided that the obligation to accord a pre-emptive right to purchase shares of stock has been fulfilled. In the event that the shareholders' right to pre-emptive purchase is violated, the shareholders may only demand indemnification of expenses and losses from the company's management body. _________________________________________ 34 See Art .55, para. 2, Art.64, para. 2 of the Model law option A, Art .54, 61, para. 4 of the Model Law option B. 35 See Art.58 of the Model Law option A. 36 See Art.52, para. 3, Art.54 of the Model Law option B. 37 See Art.56, para. 1, Art.57, para. 1, Art.62, para. 1, Art.64, para. 4 of the Model Law option A, and Art.60, para. 1, Art.61, para. 4 of the Model Law option B.
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