Key Considerations for Every LLC: When It Is Obligatory For A Meeting of Shareholders To Be Convened?
Managing a Limited Liability Company (LLC) involves a range of rights and obligations that are essential to its proper and lawful operation. One of the most important aspects of corporate governance is decision-making, which is primarily carried out through the Shareholders' Meeting. This meeting constitutes the company's supreme governing body, where the shareholders exercise their rights and adopt the key decisions that shape the future of the business.
Although the company's Articles of Association may provide for a significant degree of flexibility, the Company Law prescribes specific circumstances in which convening a Shareholders' Meeting is not optional but a legal obligation. Understanding these rules is essential for both managers and shareholders in order to ensure the legality of corporate decisions and to avoid potential disputes or the invalidity of resolutions adopted by the company. Below, we examine the situations in which the law requires a Shareholders' Meeting to be convened.
Annual Shareholders Meeting
The most common and fundamental instance in which a Shareholders' Meeting must be convened is the annual meeting. Pursuant to the Company Law, a Shareholders' Meeting must be held at least once every year.
Although the law does not prescribe a specific deadline within the calendar year for LLCs (unlike the rules applicable to joint-stock companies), both business practice and the relevant statutory provisions make it clear that the meeting should take place following the end of the financial year. This requirement stems from the powers vested in the Shareholders' Meeting under the Company Law.
In particular, the Shareholders' Meeting is responsible for:
approving the annual accounts and annual financial statements;
adopting the company's annual management report; and
deciding on the distribution of profits and the coverage of losses.
As these documents are prepared after the close of the financial year, it is both logical and legally required for the manager to convene a Shareholders' Meeting to review and approve them. This process forms the cornerstone of transparency and accountability towards the owners of the company's capital—the shareholders.
When The Interests of the Company Require It
The Company Law also establishes a broader and more flexible obligation by providing that a Shareholders' Meeting must be convened whenever the interests of the company so require.
This obligation is primarily imposed on the manager, who is expected to exercise the duty of care of a prudent and diligent businessperson when assessing whether a particular situation requires a decision by the company's highest governing body. Examples of such situations include:
the need to approve a significant investment or the disposal of company assets;
the conclusion of agreements whose value exceeds one-fifth of the company's registered share capital, where prior approval of the Shareholders' Meeting is required;
the approval of agreements concluded between the company and one of its shareholders, the manager, or their close relatives;
strategic business decisions, such as expanding the company's business activities or entering a new market; and
the occurrence of significant financial difficulties or losses that may jeopardise the company's financial stability.
A manager's failure to convene a Shareholders' Meeting in such circumstances may constitute grounds for liability for damages.
At the Request of Minority Shareholders
The Company Law provides minority shareholders with an important mechanism to initiate corporate decision-making and request accountability from the company's management. Under the Company Law, a Shareholders' Meeting must be convened without undue delay if one or more shareholders whose combined contributions represent at least one-tenth (10%) of the registered share capital submit a written request stating the reasons for convening the meeting.
The procedure is clearly prescribed:
The shareholders submit a written request to the manager, setting out the reasons for convening the Shareholders' Meeting.
The manager is required to convene the meeting within 15 days of receiving the request.
If the manager fails to do so, the shareholders who submitted the request are entitled to convene the meeting themselves and determine its agenda.
In addition, the Company Law provides for an expedited procedure for majority shareholders. Where shareholders holding at least 51% of the registered share capital request that a Shareholders' Meeting be convened and the manager fails to do so within 24 hours, those shareholders may apply to the competent court for an order convening the meeting.
When a Company is Left Without a Manager
A company cannot operate without a management body. For this reason, the Company Law provides for an expedited procedure to ensure the appointment of a new manager.
Pursuant to the Company Law, where the company is left without a manager or the number of managers falls below the number prescribed by the Articles of Association, a Shareholders' Meeting must be convened. If one or more managers remain in office, they are required to convene a Shareholders' Meeting within 30 days for the appointment of a new manager. If the company is left without any manager and the shareholders fail to appoint a new one within 30 days, the Supervisory Board (if one has been established) is required to convene the meeting. Where no Supervisory Board exists, any person with a legal interest, such as a shareholder or a creditor, may apply to the competent court to convene a Shareholders' Meeting. In such circumstances, the court may also appoint an interim manager to carry out urgent and indispensable business activities until a new manager is appointed.
Procedure and consequences of Non-Compliance
It is important to note that a Shareholders' Meeting must be convened in accordance with the procedure prescribed by the Company Law. The law requires that each shareholder receive a written notice of the meeting at least 30 days before the scheduled date, clearly specifying the agenda.
Failure to comply with the statutory requirements for convening a Shareholders' Meeting, or convening the meeting in breach of the prescribed procedure, may have significant legal consequences. Under the Company Law, a resolution adopted at a meeting that has not been duly convened may be declared null and void upon a claim brought by an affected shareholder. Such a finding may call into question the validity of subsequent legal transactions and corporate actions based on that resolution.
*
Conclusion
Convening a Shareholders' Meeting is far more than a mere administrative formality it is one of the fundamental pillars of corporate governance in a limited liability company. It is a statutory obligation designed to ensure that shareholders participate in key corporate decisions, exercise oversight over the company's operations, and protect their investments.
Managers should be fully aware of the situations in which the law requires a Shareholders' Meeting to be convened, ranging from the annual approval of the company's financial statements, to extraordinary circumstances affecting the company's interests, and initiatives brought forward by the shareholders themselves.
Compliance with these requirements under the Company Law is the most effective way to prevent internal corporate disputes and to safeguard the company's legal certainty, stability, and sound corporate governance.
Note: This article is intended for informational purposes only and should not be considered legal advice. Legal issues can be complex and each situation may have specific circumstances that require individual analysis. For this reason, we recommend consulting a qualified attorney who can provide tailored legal guidance for your particular case.