Scholarly record

CORPORATE GOVERNANCE ISSUES IN CLOSELY HELD COMPANIES – CONFLICTING INTERESTS BETWEEN SHAREHOLDERS AND MANAGERS WITH EMPHASIS ON CROATIAN LAW AND PRACTICE

E. Culinovic-Herc, M.B. Filipovic

Abstract

Closely held companies are a common form of conducting business not only in Croatia, but at the level of comparative law as well. Since in these companies shareholders are closely connected, they actively participate at all company levels as owners, managers and employees. As in partnerships, interpersonal connection lies at the heart of their relations. Owing to its features, closely-held companies face specific issues with regard to corporate governance, such as the potential conflict of interest between the shareholders, which might lead to the dissolution of the company. This paper focuses on the conflicts of interest arising from the relationship between the shareholders and the management, especially when a shareholder also acts as manager of the company. The key question is thus: Are the shareholders in a position to control the management, if the company is managed by the shareholder–manager? Possible abuse of the manager’s position emerges when the shareholder - acting as manager - is a major shareholder of the company, in which event the remaining shareholders do not have enough voting power to influence the management of the company and pass vital business decisions. The authors investigate both Croatian law and relevant case law in order to answer how to revoke shareholders–managers from their management position, specifically when the shareholder–manager is also the majority shareholder of the company. With this in mind the authors point to possible tools for resolving conflicts between shareholders and managers of closely-held companies.

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