Changes To Corporations Act

Administration of the Act
Appraisal Rights
Other Minority Shareholders' Rights

The Chilean Corporations Act was amended in December 2000, particularly in relation to corporate decision-making processes and the rights of minority shareholders.

Administration of the Act

Board of directors
Boards of directors manage Chilean corporations. The members of the board of directors are elected at the ordinary general shareholders meeting. The board represents the corporation in all matters, except those dealt with by a shareholders meeting. Board members may be re-elected.

Staggered boards of directors are not allowed under the Corporations Act.

Related party transactions must be entered into within prevailing market conditions. They require the prior approval of the board of directors. The shareholders must be informed of the independent experts' report in case the board does not decide the matter due to the lack of final decision as to market conditions. The report must be available to shareholders for their comments for 20 working days. The board may only resolve the matter once this period has elapsed, unless shareholders holding at least 5% of the issued and outstanding shares request that the matter be decided in an extraordinary shareholders meeting by a two-thirds majority ruling.

Public corporations with a market value of around $40 million must have a board of directors comprising at least seven members. The board must appoint at least three of its members to form part of an auditing committee, the majority of which shall be elected without the vote of the controlling shareholder. However, this majority requirement is only required when minority shareholders are able to elect members of the board. When minority shareholders cannot elect one member of the board of directors, the board must still create the auditing committee, whose members in this case are not independent of the controller. Among the duties of the auditing committee is that of reviewing relevant party transactions.

Shareholders meetings
The decision-making process of a corporation rests at board level, except where a resolution passed at the shareholders meeting is required according to the Corporations Act or the corporation's bylaws.

Generally shareholders' voting rights are unlimited and can be exercised at will. However, Section 30 of the Corporations Act sets out a principle that may be used by minority shareholders when a decision taken at a shareholders meeting by majority shareholders is thought to have been passed by the shareholders with the illegitimate intention of damaging the corporation or the minority shareholders.

Shareholders meetings are either ordinary or extraordinary. Generally, the simple majority of all issued and outstanding shares attending the meeting decides matters. However, the unanimous vote of all issued and outstanding shares is required for distributing dividends for an amount below 30% of the corporations' annual net profits, provided there are no accumulated losses. If there are no net profits in a given year, the corporation may (but is not obliged to) elect to distribute dividends out of retained earnings.

The following matters can only be resolved at a shareholders meeting, by a two-thirds majority of all issued and outstanding shares of the corporation:

• conversion of the corporation into anther type of entity;

• spin-off, merger or liquidation of the corporation;

• amendment of the corporation's duration, if provided for in the bylaws;

• change of corporate domicile;

• reduction of equity capital (increase only requires a simple majority vote);

• approval of equity contributions in kind and the valuation of assets other than money;

• amendment of the powers of the shareholders meeting and limitation of the powers of the board of directors;

• reduction of the number of members of the board of directors;

• amendment or approval of any business plan that includes transfer of more than 50% of corporate assets/liabilities;

• transfer of 50% or more of the corporation's assets/liabilities;

• change to the manner in which the corporation's profits are distributed;

• creation of guaranties or liens guaranteeing certain obligations of third parties other than subsidiaries (in which case the board's decision will suffice);

• redemption of shares issued by the corporation, in certain circumstances;

• approval of related transactions (if requested by at least 5% of shareholders, as described above);

• decisions as to whether to make private a public corporation; and

• other matters set out in the bylaws.

A shareholder's majority of two-thirds must approve amendments to the bylaws for creating, amending or suppressing preferences.

Appraisal Rights

The Corporations Act provides that the approval of a shareholders' meeting for certain matters entitles dissenting shareholders to tender their shares to the corporation and be bought out. These matters are:

• the transformation of the corporation;

• the merger of the corporation;

• the transfer of 50% or more of its assets;

• the granting or creation of guaranties or liens with respect to third party obligations;

• the creation of preferences for a series of shares, or the increase or reduction of existing preferences (provided that only the dissenting shareholders of the relevant series shall be entitled);

• the curing of annulment arising from formal vices in the incorporation of the company or any amendment of the bylaws giving such right;

• the decision to make private a public corporation once certain requirements cease to be met; and

• any other matter mentioned in the bylaws.

In addition, any person acquiring at least two-thirds of a public corporation's shares with the right to vote must make a tender offer for the remaining shares within 30 days of the acquisition. The offer must be at a price not lower that which would apply for shareholders exercising appraisal rights. If the acquiror does not comply with this obligation, minority shareholders shall have appraisal rights.

Dissenting shareholders are those who vote against any of the above matters at the relevant shareholders meeting, or who did not attend the meeting and have indicated their disagreement by delivering a notice in writing to the corporation within 30 days of the relevant shareholders meeting.

In publicly traded corporations the value per share to be paid to the dissenting shareholders is the market value. For this purpose the Corporations Act distinguishes between shares that are significantly traded in stock exchanges and those that are not. For the former, the value per share shall be the average trading price of the shares in the two months preceding the day of the shareholder meeting at which the appraisal right arose. If the shares are not significantly traded, their market value is considered to be equal to their book value. According to the regulations of the Corporations Act, the book value is determined by dividing the paid-in capital of a company (plus its reserves and profits and minus losses) by the total number of its issued and outstanding shares.

According to the Corporations Act it is optional for dissenting shareholders to exercise their appraisal rights.

Other Minority Shareholders' Rights

The Corporations Act provides that shareholders holding 10% or more of all issued and outstanding shares may request that the corporation summon an ordinary or extraordinary shareholders meeting in order to resolve matters raised by them.

The shareholders meeting shall be held within 30 days of the request being made. Additionally, shareholders holding 5% or more of all issued and outstanding shares may request the summoning of an extraordinary shareholders meeting to decide upon related party transactions if (i) such shareholders opine that a transaction is not within prevailing market conditions or (ii) the opinion of independent experts differs substantially.

The Corporations Act provides that the annual report of a public corporation must include an accurate and truthful summary of the comments and proposals made with respect to the conduct of the corporation's businesses by shareholders holding at least 10% of the corporations' shares, if the shareholders so wish.

Additionally, any information delivered by the board to its shareholders in connection with the summoning to any shareholder meeting, proxy solicitations or explanation of board's decisions shall include the relevant comments and proposals made by shareholders holding at least 10% of the corporations' shares.

Finally, minority shareholders are also protected by provisions requiring mandatory tender offers (eg, when a transaction allows a person to acquire control of a public corporation) and establishing that in a tender offer the same price shall be paid to all shareholders of the same series. If a corporation has different series of shares and one series has more influence over the control of the corporation, then when making a tender offer the controlling series offeror shall also make a tender offer for the other series. The amount must be the same percentage sought for the controlling series.

For further information on this topic please contact Matías de Marchena or Rodrigo Ochagavía at Claro y Cia by telephone (+56 2367 3000) or by fax (+56 2206 0658) or by e-mail ([email protected] or [email protected]).