Multiple-voting shares in Europe -A comparative law and economic analysis -

Whether the rule should be one share, one vote or multiple-voting shares (dual-class stock) is, in international legal and economic terms, highly controversial. The European Union’s 27 Member States as well as the United States all have very different rules. Lately the EU has attempted a harmonisation. On February 14, 2024, the European Council agreed on a Multiple Voting Rights Directive, for inclusion in the Listing Act, that permits multiple voting shares as a minimum harmonization. The European Parliament agreed on 24 April 2024. This is a step in the right direction but falls short in that it is limited to the SME growth market. The EU Member States are trending towards broader approval of multi-voting shares. Germany recently executed a complete turnaround in a law of 11 December 2023 that largely permits multi-voting shares, but only with limits and clear restrictions for listed companies to protect other shareholders. The article deals with the pros and cons of multiple voting shares from an economic and legal policy perspective and discusses the legal situation in the US and the 27 EU Member States. From a comparative law perspective, one finds very liberal countries such as the USA, the Scandinavian countries and the Netherlands; countries that are completely or highly restrictive, such as Austria; and countries, such as Germany, that broadly allow multiple voting structures for unlisted companies but impose clear restrictions for listed shares. An ample body of economic theory supplies arguments for and against multiple voting structures. Traditionally, the one-share, one-vote principle was considered preferable due to the risks for non-multiple voting shareholders (agency theory). More recent opinions, however, tend to see advantages for society and shareholders, stock exchanges, the economy and international competitiveness. For legislators, the comparative law, economic theory and empirical findings suggest that it makes sense to authorise multiple-voting structures, but only with limits and protections applicable to listed shares. A whole range of quite distinct regulatory options exist that legal scholars have yet to sufficiently examine, which is the focus of this article. Loyalty shares serve a different purpose, are subject to different requirements, and are therefore not an alternative to multiple-voting shares. Limitations on the voting weight multiple and on when multiple-voting rights can be exercised are essential; internationally, a multiple of 10 is common and enables a simple majority. Time-limits and restrictions on the transfer of multiple voting rights are also common. Under German law, resolutions on the appointment of auditors and special auditors are excluded from multiple voting; resolutions on pursuing or waiving actions for damages and perhaps on the remuneration system ought to have been; however, the selection of board members should not be excluded.