We have reviewed the basics of a “Major Decision” under Mongolia law in our previous post. Permission to enter into a major transaction must first be obtained from the Board of Directors. If there is no Board of Directors, it shall be presented to the shareholders meeting and a decision shall be made.
Pursuant to the Company law “A resolution to conclude a major transaction must be adopted unanimously by the Board of Directors (in its absence, by a shareholders meeting).
What does it mean to make a decision unanimously? For instance, lets imagine that “A” LLC has five members of board. Does this mean that all members of the board, or 5 members, will agree to a major transaction? or If 1 out of 5 members of the Board of Directors did not attend the meeting and the 4 members who attended the meeting agreed, is it considered that they make a unanimous decision? The question is whether all board members, regardless of whether they are present at the board meeting, are willing to agree to a major transaction, or whether all members at the board meeting are in agreed to enter into the major transaction.
In this case, according to the Company Law, the Board of Directors' meeting shall be valid if the majority of its members are present. In addition, unless the company's charter specifically sets up a higher percentage, the board decision should be effective by an overwhelming majority of the members present at the board meeting. Therefore, as our Mongolian lawyers see it, if the company's charter does not state that the decision of the board is valid by the vote of all members, then it is understood that a major transactions will be permitted by decision of all members present at the board meeting (assuming a quorum is met). In other words, all members present at the meeting agreed unanimously to enter into the major transaction.
Each member of the Board of Directors shall have one vote with respect to each matter considered at any meeting of the Board. The company’s charter may prohibit some board members from voting on major transactions. In this case, the decision shall be made by a majority vote of the Board members with the right to vote. Decisions of the Board of Directors must be adopted by an overwhelming majority of votes of members who participate in the meeting, unless a larger number of votes is specified in the company charter.
If the Board of Directors fail to unanimously adopt the resolution to conclude a major transaction, then the major transaction shall be discussed by a shareholders meeting where it must be approved by a majority votes of shareholders who attend the meeting.
Shareholders who voted against a resolution to conclude a major transaction have the right to demand the company that to redeem their shares.
A company is obligated to inform the public about the major transactions and their price in their quarterly and annual reports.