Shareholder Conflicts in Close Corporations between Theory and Practice: Evidence from Italian Private Limited Liability
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Shareholder Conflicts in Close Corporations between Theory and Practice: Evidence from Italian Private Limited Liability Companies Peter Agstner1
© T.M.C. Asser Press 2019
Abstract Shareholder conflicts are said to be the Achilles heel of close corporations. They materialize in different ways and shapes, mostly in the form of majority oppression, minority abuse or shareholder deadlocks. Different cognitive biases and heuristics, as shown by the behavioural law and economics movement currently so much in vogue, contribute to their emergence (such as over-optimism, strategic behaviour, availability and representativeness heuristics, information asymmetry). In international corporate law practice, depending on the concrete governance goal to be achieved, entrepreneurs employ various contractual safeguards to effectively prevent and resolve the above shareholder conflicts. The most common are restrictions on the transfer of shares (e.g., the right of first refusal, consent clauses), special prerogatives for minority shareholders (e.g., veto rights over management decisions, supermajorities for fundamental corporate actions) and expulsion clauses, while more experienced players also recur to drag-along or tag-along arrangements, as well as to shoot-out procedures. The present article builds upon this framework in order to conduct probably the first thoroughly comparative law in action research on a representative data set of Italian private limited liability companies (srl) incorporated in South Tyrol and Milan. The empirical findings, with some unexpected variations between the two places of incorporation, suggest that with reference to conventional safeguards (the right of first refusal, consent clauses, etc.) a more or less significant degree of contractual sophistication can be observed, while innovative clauses such as tag-along or drag-along provisions are generally lacking. The explanation likely lies in the fact that legal advisers path-dependently imitate standardized corporate charter terms widely acknowledged and tested among the legal community rather than investing considerable efforts in the drafting of optimal customized arrangements. The social and economic costs correlated to sub-optimal and status quobiased contractual design might not be taken into due consideration. This article also provides useful policy suggestions for the legislator and practitioners for the drafting of the best-fitting corporate charter.
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P. Agstner
Keywords Close corporations · Corporate governance · Shareholder conflicts · Opportunism by majority or minority shareholders · Transfer restrictions · Organizational social capital · Shareholder deadlocks · Contractual design · Behavioural law and economics · Empirical evidence
1 Introduction Close corporations have properly been compared with a ‘spiral staircase, hard to describe but recognizable when you see one’.1 Legislators, judges and scholars all around the world use this termin
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