Quorum

What it means

Quorum has two meanings in company decision-making. The first is the minimum share of votes that must be present for a general meeting or other body to decide validly. The second is the majority needed to pass a particular resolution.

In an s. r. o. the Commercial Code makes the general meeting quorate if shareholders holding at least half of all votes are present, and decisions are taken by a simple majority of those present. Fundamental decisions, such as amending the articles of association, increasing or reducing share capital or dissolving the company, require a two-thirds majority of all votes.

The articles can set a stricter quorum, for example requiring unanimity for selected decisions, which protects minority shareholders. Votes are usually counted by the size of the contribution, typically one vote per euro contributed, unless the articles say otherwise.

How it works in practice

Before each general meeting it is wise to check how many votes will be present and what majority the planned items need. Without a quorum the meeting cannot decide and a substitute meeting must be called. In companies with several shareholders this can even delay approval of the financial statements.

Resolutions and voting results are recorded in the minutes. For changes entered in the commercial register, the court checks that the quorum was respected. Amending the articles additionally requires a notarial deed.

If shareholders find it hard to meet, decisions can be taken in writing outside a meeting, if the articles allow it. With a sole shareholder there is no quorum question: they decide alone by a sole shareholder resolution.

What to watch out for

The most common mistake is passing a resolution without the required quorum, for example amending the articles by a simple majority. Such a resolution is invalid and a shareholder can challenge it in court. The registry court will not register the change, and everything has to be repeated.

Watch for deadlock with two shareholders holding 50 : 50. Without agreement no decision can be taken, not even approval of the financial statements. The articles or a shareholders’ agreement should contain a deadlock mechanism, such as a casting vote or buy-out rules.