What a veto right means in practice
In practice, a veto right means that a decision cannot be carried out if the holder of the veto right opposes it. The right normally applies only to specific matters set out in an agreement or the articles of association.
A veto right does not give general control over the company, but it serves as protection against decisions that could change the conditions for the ownership or the value of the investment.
Decisions often covered by a veto right
Veto rights are usually tied to decisions considered to be of major strategic or financial importance.
- Changes to the articles of association
- New share issues and other changes to the share capital
- Sale of the company or of major assets
- Changes to the ownership structure or share classes
- Material agreements that affect the company's direction
When these decisions require consent, the risk of one party unilaterally pushing through changes that harm other owners is reduced.
When a veto right becomes especially relevant
Worth bearing in mind
A veto right becomes especially relevant in companies with several owners where power is unevenly distributed. It is often used to ensure that important decisions cannot be made unilaterally by the majority without the consent of key owners.
This is common in unlisted companies, joint ventures and investor structures where certain matters are considered so crucial that they require broad agreement.
Frequently asked questions
Is a veto right provided by law?
No, a veto right is normally contractual and set out in a shareholders' agreement or the articles of association.
Who can have a veto right in a company?
Veto rights are often given to founders, principal owners or investors with a particular need for protection.
Can a veto right be used on any matter?
No, it only applies to the decisions expressly covered by the right.
Does a veto right affect the company's decision-making process?
Yes, it can make the decision-making process more balanced but also slower.
Are veto rights common in unlisted companies?
Yes, especially in companies with several owners and a clear balance of power.