Approval clauses: violation and consequences

da Pietro Acerbi | Giu 16, 2022 | Blog

Definition and rationale of approval clauses

Approval clauses make the entry of a new shareholder into the company conditional on the granting of approval (or placet) by a specific party; the latter, in the provision of the bylaws, can be either a collegial body (management body or supervisory body, for example) or a single-member body (e.g., an individual director), or even a third party.

Basically, if it is provided for in the bylaws if a shareholder wishes to transfer his or her shareholding to a third party, he or she will have to acquire the placet of the body delegated to express it.

The purpose of these clauses is to maintain control over the entry of new shareholders into the company, tending to favor parties who are functional to the company: in this way, the company’s development can continue without the entry of parties who have obstructive intentions or who may generate damage to the same company.

The shareholder who intends to dispose of his or her shareholding, in the case of the provision of an approval clause, must obviously inform the person who is to express approval about such a transfer, in particular usually indicating the transfer price, the method of payment, and, of course, in addition to the other requirements of the statutory approval clause, the particulars of the transferee.




Categories of pproval clauses

Pleasing clauses fall into two categories:

  1. Mere approval clauses: in this type of clause, the expression of approval is entirely discretionary on the part of the person who has to express it; there is no reference to any benchmarks that must formulate his or her decision;
  2. Non-mere approval clauses: in this type of clause there must be a verification, concerning the transferee, on the presence of certain predetermined requirements (e.g., possession of certain qualifications, non-subjection to bankruptcy/bankruptcy proceedings (and thus, in essence, also specifically certain indicators of asset soundness), etc.).

Ultimately, while in clauses (a) the expression of approval is free and not anchored to certain requirements, these must be provided for in clauses (b) (where, on the contrary, the discretion of the body issuing the placet is inevitably more limited).

In the bylaws, moreover, at the same time as the provision of an approval, corrective provisions must be made to allow the assigning shareholder who has not obtained a place to the assignment transaction the right of withdrawal.


Breach of approval clauses: what consequences?

Where a transfer of corporate shareholdings is implemented in violation of the approval clause, that is, it is carried out between the transferor and transferee despite the fact that the approval for such a transfer has not been granted, in the absence of a specific rule, various orientations on the subject have been widespread.

For a first thesis, the violation in question would result in the nullity of the transfer; this theory, however, has been subject to criticism, as has the one that would configure nullity. The most widely followed thesis at present is the one according to which a transfer of corporate shareholdings, made in violation of the statutory approval clause, would be ineffective: this entails, among other things, the inability of the transferee to exercise the rights connected with the acquisition of the shareholding, such as, above all, the right to vote and the right to profits.



In light of what has been summarized above, approval clauses are effective tools for “controlling” the entry of new shareholders by deferring the expression of approval to a particular body (or facultative entity) of the company.

Obviously, in order to assess the effective inclusion of an approval clause in a statute-or to determine the scope of the clause in the case of an impending or future sale of corporate shareholdings-it is necessary to make an assessment on a case-by-case basis, making specialized advice on the matter indispensable.



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