A golden share is a nominal share which is able to outvote all other shares in certain specified circumstances, often held by a government organization, in a government company undergoing the process of privatization and transformation into a stock-company.

  Purpose

This share gives the government organization the right of decisive vote, thus to veto all other shares, in a shareholders-meeting. Usually this will be implemented through clauses in a company's Articles of Association, and will be designed to prevent stakebuilding above a certain percentage ownership level, or to give a government veto powers over any major corporate action, such as the sale of a major asset or subsidiary or of the company as a whole.

This share is often retained only for some defined period of time to allow a newly privatised company to become accustomed to operating in a public environment, unless ownership of the organization concerned is deemed to be of ongoing importance to national interests, for example for reasons of international security.

  History

The term arose in the 1980s when the British government retained golden shares in companies it privatized, and later in many other European countries.

It was introduced in Russia (Zolotaya Aktsiya, "Золотая Акция" in Russian) by a law initiated by the President on November 16, 1992.

  Legal challenges

In 2003 the UK government's golden share in BAA, the UK airports authority, was ruled illegal by European courts, deemed contradictory to the principle of free circulation of capital within the European Union.^[1] But taking in account the implications of this decision—especially the transitional state in countries which are candidates to join the Union—it allowed provisions to use Golden Shares in strategically important areas.

Other golden shares ruled illegal include the Spanish government's golden shares in Telefonica, Repsol YPF, Endesa, Argentaria and Tabacalera.

The Golden Share structure of Volkswagen AG and the travails of the German Land (Federal State) of Niedersachsen (Lower Saxony) are discussed by Johannes Adolff, Turn of the Tide? The 'Golden Share' Judgments of the European Court of Justice and Liberalization of the European Capital Markets, available in the German Law Journal^[2] as well as Peer Zumbansen and Daniel Saam, The ECJ, Volkswagen and European Corporate Law: Reshaping the European Varieties of Capitalism, CLPE Research Paper 30/2007,^[3] (also published in 7 German Law Journal 1027 [2007]^[4])

The European Court of Justice also held that Portugal’s holding of golden shares in Energias de Portugal is contrary to European Union law since it presented an unjustified restriction on free movement of capital.^[5]

  References

  External links

• Information on Golden Shares at the Adam Smith Institute
• Golden Share at Investopedia.com