The European Court of Justice in Luxembourg has ruled against the decades-old "Volkswagen law" and cleared the path for a takeover of the German company
by Porsche.
The German government is expected to change the law following a ruling this morning by the European Union's highest court that it is illegal.
The 1960 law privatising Volkswagen limits a shareholder's voting rights to 20 per cent, regardless of the number of shares held, and it requires a majority of 80 per cent for "important decisions."
It also gives Lower Saxony, the state in which Volkswagen is based, a controlling minority stake in the automaker.
The European Commission argues that the law goes against EU rules that guarantee the right to do business anywhere in the 27-nation bloc, and that "golden shares" allowing governments to protect companies have no place in the shared European market.
"We regret that the court did not recognise our good arguments about protecting Germany as a business location," a spokesman for the German Justice Ministry said this morning.
"We will start the legislative procedure immediately in order to make the changes."