• Evaluation of Majority Voting Rights in a Public Limited Partnership - Limited-Partnership
  • September 14, 2013
  • Law Firm: GRP Rainer LLP - Office
  • If the partner of a Public Limited Partnership is granted a majority voting right for a resolution to amend the partnership agreement of the Public Limited Partnership, this may be inadmissible.

    GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Bremen, Dusseldorf, Essen, Frankfurt, Hamburg, Hanover, Munich, Nuremberg, Stuttgart and London - www.grprainer.com/en conclude: The District Court (LG) of Freiburg ruled (File No. 12 O 133/12) that such a majority right of the general partner granted in the partnership agreement for a resolution to amend the partnership agreement is ineffective. In that case, the partnership agreement contained a clause whereby the general partner of a Public Limited Partnership was to have a majority voting right. The shareholders filed an action against this clause in the partnership agreement, and the court ruled in their favour.

    The general partner in question was not participating in the company’s profit or loss but received a remuneration that did not depend on profit or loss. It is typical for a Public Limited Partnership that when it is established, the number of limited partners is not yet determined, and for that reason the investors cannot influence the partnership agreement of the Public Limited Partnership, but only participate financially in the company. For that reason, it is particularly important for investors that the partnership agreement, which is usually pre-formulated, does not include any regulations that put them at an unfair disadvantage. For that reason and for the protection of shareholders, regulations that unfairly put investors at a disadvantage are ineffective. As a rule, such regulations do not hold up under scrutiny of the contents - a possibility in the case of such agreements.

    The District Court of Freiburg regarded the majority voting rights clause in question as such an unfair disadvantage, and this could not be weakened by the general partner’s argument that it carried the full financial risk. Contrary to the general partner, the District Court of Freiburg regarded the clause as inappropriate even though it maintained that some special rights could be granted. The court ruled that special rights can generally be granted, but that the advantages must also be in proportion to the risks. That was not the case here.

    In corporate law in particular, legal laymen are often facing some questions. A lawyer can help to examine the legal situation and to enforce valid claims. Shareholders are protected by the principle of equal treatment, which renders regulations leading to unfair disadvantages ineffective. Those affected should not accept unfair treatment but seek legal advice and have their possibilities analysed.