Shareholders’ Right of Withdrawal: A protection mechanism for minority shareholders

The shareholders’ right of withdrawal constitutes a key mechanism for protecting minority shareholders against decisions adopted by the majority that may substantially alter the conditions of their investment.

Strictly speaking, it allows a shareholder to withdraw from the company and obtain reimbursement for the value of their shares when they disagree with certain significant corporate resolutions.

What are the grounds for exercising this right?
Article 200 of the Peruvian General Companies Law (Ley General de Sociedades or LGS in Spanish) establishes the following grounds that trigger the right of withdrawal:

  1. Change of corporate object
Article 11 of the LGS sets out that the corporate object limits the Company’s activities to lawful businesses or transactions that contribute to achieving its objectives. In other words, it sets out the line of business in which the company will operate, which also determines the risk to be assumed by investors.
Accordingly, shareholders have a legitimate expectation that their contributions will be allocated to the line of business they understood and accepted, whether at the time of incorporation or upon acquiring their shares thereafter.
However, for a shareholder to exercise the right of withdrawal, the change must involve a substantial alteration of the corporate structure, causing the risk initially assumed by the shareholder to change. Minor (non-substantial) changes do not give rise to said right.
  1. Transfer of domicile abroad
If the Company decides to transfer its domicile abroad, shareholders have the right to withdraw, as their ability to exercise political or oversight rights may be restricted; i.e., shareholders will be at a disadvantage with respect to their original investment expectations.
Moreover, as this is a circumstance not contemplated at the time of investment, shareholders may be exposed to a situation of vulnerability or risk in proportion to their contribution.
  1. Creation or modification of restrictions on the transfer of shares
A shareholder may exercise their right of withdrawal in either of these 2 scenarios:
  1. Restrictions or prohibitions on the transfer of shares are introduced or increased, or
  2. Existing restrictions are eliminated or reduced.
Either scenario impairs the shareholder’s ability to dispose of their shares (i.e., their investment).
  1. Other cases established by law or the bylaws
Throughout the LGS, additional causes can be identified, for example:
  1. In an incorporation by public offering, if the incorporation plan is modified;
  2. In a valuation of non-cash contributions, if the value of contributed assets is verified to be twenty percent or more below the value initially assigned to said contributions;
  3. In closely-held corporations, when the regime governing share transfer restrictions or preemptive rights is modified;
  4. In cases such as business transformations, mergers, spin-offs, etc.;
  5. Other cases expressly set out in the LGS.

How can this right be exercised?
  • The Company must publish the resolution giving rise to the right of withdrawal once, within ten (10) days of its adoption, unless the law sets forth other publication requirements. Failure to comply with this deadline does not affect the shareholder’s right.
  • Following publication, the shareholders exercising their right of withdrawal must send a notarial letter to the Company within ten (10) days of the publication of the notice.
Any agreement that excludes the right of withdrawal or makes its exercise more burdensome is considered null and void.

Who may exercise this right?
  • Shareholders who recorded their opposition to the resolution in the minutes of the shareholders’ meeting;
  • Shareholders who did not attend the meeting;
  • Shareholders who were unlawfully prevented from voting;
  • Holders of non-voting shares.

The right of withdrawal not only protects shareholders but also promotes more responsible decision-making by the majority, thereby strengthening corporate governance and investor confidence within the company.

At BDO SERVICIOS LEGALES Y LABORALES S.A.C., we can assist you with your legal inquiries regarding shareholders’ rights and the legal implications for your company. For further information, please contact us via email at servicioslegales@bdo.com.pe.


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