EVEA against mandatory dividends

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PHOTO: KRISTJAN TEEDEMA / PM/SCANPIX BALTICS /Scanpix

The Estonian Small and Medium Business Association (EVEA) finds that mandatory dividends and withdrawal compensation would negatively impact business environment.

EVEA finds, in a statement sent to the Riigikogu Legal Affairs Committee and factions on Friday, that both mandatory dividends and withdrawal compensation would have a highly negative effect on the entire economy and not just individual companies.

On June 14, the Riigikogu entered into proceedings proposed amendments to the Commercial Code that would give small shareholders right to access more information, demand payment of dividends under certain circumstances or withdraw from a venture and be paid compensation for their holding.

EVEA believes shareholders should have access to information necessary for making decisions that are in their capacity to make. If that is not currently the case, concretization of the law could be considered. That said, balance between the interests of shareholders and those of the company needs to be maintained. In addition to the right to information of partners and shareholders, the necessity of protecting business secrets needs to be observed. The possibility of competitors buying their way into companies to obtain information needs to be ruled out.

EVEA is categorically against mandatory dividends. The obligation to pay out profits in all cases where at least 75 percent of stakeholders do not vote against it would see decisions whether to distribute profit or invest and the sustainability of the venture fall to between one quarter and one half of owners. This would not be in keeping with general management principles or the interests of the company. Crucial matters should be decided by the majority of a company’s partners and shareholders. Profits should remain in the company if an agreement concerning distribution cannot be reached.

EVEA also feels that companies should not be obligated to compensate partners and shareholders who wish to withdraw. Acquiring a holding in a company is a conscious business risk. A stakeholder should not be able to simply withdraw and demand compensation upon materialization of that risk. The company should not be held liable for that risk or differences of opinion between partners/shareholders. Any obligation to pay withdrawal compensation would seriously harm a company’s capitalization and capacity.

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