Business and Company Law, Appunti di Diritto Commerciale Internazionale

Scarica Business and Company Law e più Appunti in PDF di Diritto Commerciale Internazionale solo su Docsity! BUSINESS AND COMPANY LAW Prof. Corrado Malberti What is capital? The term capital in itself means nothing, it is “just” a number. The number of the capital indicates that at some point in time someone contributed that amount of money. It doesn’t mean that it’s still there. If you want to know if a company is financially solid you need to look at the accounts, not at the capital. The capital then is a security for creditors and a measure of shareholder rights. The third function of the capital is that of limiting the ability of companies to distribute dividends. What is a dividend? A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves). Assets vs. Liabilities Assets add value to your company and increase your company's equity, while liabilities decrease your company's value and equity. The more your assets outweigh your liabilities, the stronger the financial health of your business. But if you find yourself with more liabilities than assets, you may be on the cusp of going out of business. Examples of assets are:  Cash  Investments  Inventory  Office equipment  Machinery  Real estate  Company-owned vehicles Examples of liabilities are:  Bank debt  Mortgage debt  Money owed to suppliers (accounts payable)  Wages owed  Taxes owed  Assets and liabilities are needed to do financial reports (with balance sheets and so on) In this context, the capital is what you promise not to distribute to creditors until the company liquidation. EU Basics General Overview  European Coal and Steel Community (1951)  European Economic Community (1958)  European Atomic Energy Community (1958)  Single European Act (1986)  Maastricht Treaty – EU (1992)  Nice Treaty (2000)  Lisbon Treaty (2007) Lisbon treaty is the result of a compromise achieved. Before, there was a long discussion on the possibility of having the EU. The Lisbon treaty is made of 3 parts: CFREU (art.16  freedom to conduct business), TEU, TFEU (more functional to the purposes of the Business law class). Goals: 1  Establishing a common market (common  single  internal market)  Free movement of goods, persons, services, and capitals  4 fundamental freedoms: the goal of the free movement is always economic in nature. Companies are considered as persons (recent development).  Approximation of MSs’ law to facilitate the internal market Primary sources of law:  Treaties - Art. 49: right of establishment (ex art.43) - Art. 54: definition of Company (ex art.48)  a company is a European company if it is registered in a member state or seated in a member state. National companies of a MS enjoy EU freedoms. If a company is created in Trento and has its legal seat in Trento, while its offices are in Innsbruck (Austria), it is subject to Italian law, because its legal personality was firstly recognised in Italy (and then it could move to Austria). This is because it enjoys freedom of establishment. - Art. 50(2): coordination/equivalent safeguards (ex art.44(2))  legal basis of all directives concerning harmonization of company law. - Art. 114 (95): approximation (ex art.95) - Art. 352: other necessary actions (ex art.308) residual provision, if all MSs agree on something, they can approve it without having recourse to any other legal basis.  Conventions  Art. 293 of Treaty of the EEC (now repealed)  the problem was that of mutual recognition of legal entities, which was not granted at the very beginning. Secondary sources of law:  Regulations  direct applicability across the EU (no need of implementation), specific (relevant essentially for EU companies, EU cooperatives, EU Economic Interest Grouping)  Directives  addressed to the MSs, more general, aiming at harmonisation, it needs to be implemented by means of the national legislative instruments (transposition process), the most used means  Remember the Directive 1132/2017 containing almost all the former directives on company law  Recommendations (not at the heart of company law)  Decisions (addressed at individuals)  CJEU’s jurisprudence (mainly preliminary rulings)  Other sources (e.g. informal model legislation studies – European Model Company Act, soft law) Institutional framework:  Commission - Directorate General Justice (before Junker, it was the DG Internal Market that took care of company law – more economic than legal approach) - Directorate A: Civil Justice - Unit A3 Company Law  European Parliament (remember: no power to initiate legislation) - JURI Committee (Justice and Legal Affairs Committee – counterpart of DG JUST)  Council of the EU (most important legislator in company law, so-called core legislator, approves directives, sometimes it can also go and initiate law “on his own” - the European Council does not have much power in company law)  Member States  CJEU: criticised by US for decisions for example on Intel or Google, the judges are not people known or in any way chosen by the US (“the faceless court”). Moreover, the decisions are written by the so called “référendaires” (experts on EU law), who are there on a temporary basis: this possibly makes the system even less transparent or coherent. The system relies on the French model of the Advocate General. It is the first interpretation of the case at hand and most important/coherent, being the AG a single person; then the opinion goes to judges, who “cut and add” their opinions on the one of the AG, until the case is completely unintelligible (according to the professor). It’s important to look at the AG opinion essentially. The working languages: French, English, German – the continuous translation from one language to another makes the opinions even more confused sometimes. 2 organized by a single person)  Originally it wasn’t possible to have single-member companies (until 80s or 90s), because companies were considered to be contracts (French tradition - this idea is being gradually abandoned), which as a rule require the presence of at least two individuals. In the Anglo-American tradition it was possible to have single-member companies, and the idea was introduced for private limited liability companies at EU level by means of a directive (only company law directive NOT incorporated in Directive 1132). The idea of having these single-member companies is quite new, traditionally companies have at least 2 or more shareholders, which are historically natural persons. Only recently they can also be legal persons (e.g., Sherman act of the US concerning competition law was labelled as an anti-trust law because in 1890 in the US it wasn’t possible for companies to be shareholders of other companies. The only way to achieve a similar result was to create the trust where to put groups of companies together.)  a legal entity may be incorporated or unincorporated (normally public and private are incorporated  completely separated legal personality, while partnerships and sole proprietor are unincorporated  do not have a separate legal personality). *Incorporation by registration or by notarial instrument CLASSIFICATIONS  Limited v. unlimited liability (for owners) *Normally, personal companies have unlimited liability while shared companies (e.g. partnerships) have limited liability. The latter means the shareholders of such legal entities do not face liability for the obligations incurred in by the legal entity above the contribution/investment they have made. In the case of unlimited liability, the creditor may attack also the personal assets of the shareholders. *The distinction is not so sharp since there may be hybrid public limited liability companies with partners with limited liability and others with unlimited liability.  Private v. public  public limited liability company is the archetype of business company (e.g. S.p.A.), while private limited liability companies (e.g. S.R.L.) is the archetype for small businesses. The distinction in substance is that, beyond being the archetype of 2 different types of businesses, the public company has the potential to raise money on capital markets, since public companies issue shares, therefore creating a secondary market with thousands of shareholders (> shares largely owned by the public). On the contrary, this is quite difficult to do with the shares of a private company which is conceived not to become public. The fact however that the public company has the power to do so doesn’t mean it has necessarily to do that (it’s rare for public companies to be truly public in nature), which leads to the distinction between open and closed companies. Moreover, in private companies, differently from public ones, each shareholder matters: the identity of each shareholder is valued > e.g. pre-emption right. This kind of arrangement can exist as an optional measure in public companies to, but they have to be closed in nature. “The original idea behind the private company is that formation takes place by intuitu personae and that a rather flexible statute reflects its personal character, enabling its members to regulate the company’s internal affairs.” – European Corporate Law book Public and private limited liability companies are regulated, as we have said, by national law: in Italy and in the Netherlands for example, we find rules for both type of companies in the Civil Code. On the other hand, in the French tradition, companies are regulated in a code separated from the civil one: the Code de Commerce. Again, in Germany the rules are to be found in in different pieces of legislation called statutes. Some legislations are more detailed, some are less detailed. For example, Germany’s statute for its private company (GmbH) consists of fewer than 90 sections, while its statute for its public company (AG) has more than 400. Similar differences exist for the French private company (SARL) and public company (SA) statues. The UK, on the other hand, has a single statute for both, but many of its provisions do not apply to private companies. As we can see there are different approaches on the matter throughout Europe. 5  Open v. closed  open company is a public company really public: thousands of shareholders. Closed company  very limited number of shareholders (usually private company). After recent reforms taking place at European level trying to improve the recourse to the market also for small companies, also private companies can be either closed or open (from the Dutch market). If a company is closed, even if it’s public, it makes sense to limit the right to transfer shares. This limitation may come in two different ways: - The first, and most common, approach is that of having pre-emption rights; it consists in the right retained by shareholders to be offered other shares before they’re offered to third parties. - The second approach consist in clauses, in which the agreement of the other shareholders or the board of directors is required in order to transfer shares to third parties. These clauses are common in the German tradition.  Single owner  single-member company  Groups  may take different shapes (e.g., pyramidal-structured groups, with the mother company controlling other sub-companies, etc.) > generally there is no specific (national) law on groups, however in Germany this type of entity is regulated by the branch of Konzernrecht (regulate the relationship with sub-companies), in Italy there are only a couple of rules on the matter. *The distinction between public and private companies is essential in continental Europe only, while in common law it’s not so important: they just had a single type of legal entity: the limited liability one. Then the distinction became important because the EU directives make a distinction between the two quite relevant, so also common law countries had to introduce this distinction. “The word ‘company’ means as association of persons who combine for the purpose of a joint activity, commercial or otherwise…In continental legal systems, this the case, apart from legal forms such as associations. Each country, however, does allow certain specific forms under which joint economic activities may be carried out, and these are generally divided into partnerships and companies.” “The essential, but not universal, distinction between these two generic forms in that partnerships are based on individual agreements between the partners, whereas companies are organizations that exist independently of its members and depend on capital resources.” Both quotes are from the book. In continental Europe, we can find a fundamental distinction between two kind of companies: Share companies v. Personal companies The difference lies in the importance given to the person in respect to the contribution in capital. For example, in partnerships (personal companies) what’s important is the personal contribution, more than the capital contribution. On the other hand, in public limited liability companies (share companies), what is valued is the capital (money) put by the shareholder (e.g. big companies like Porsche). This is why in EU company law the concept of capital is so important: the capital is the measure of the rights in public and private limited liability companies. In the UK, there is a difference between partnerships and companies, however in continental Europe partnerships are merely a specific type of company. There is no harmonization in this field, however throughout Europe we can find legal entities that are quite similar between them, even though they’re recognised and regulated differently among States. CIVIL V. COMMERCIAL LAW  Civil law v. common law tradition  in civil law countries companies are governed by both civil codes rule and commercial codes rules. In some countries, e.g., Italy and the Netherlands, today there is a unification between the two. In common law countries there is no such distinction between civil and commercial law. The latter was traditionally the law of merchants in the Middle Ages carrying out their own businesses: they had their own set of legislation. 6 In continental Europe there was a strong influence of Roman law obviously, which didn’t make a distinction between civil and commercial law. Today in continental Europe, however, there is a distinction between civil and commercial companies, because there are legal entities that cannot be qualified as merchants > they do not carry out economic activities in the strict sense, therefore they are not important for business purposes but can be used as vehicles for possessing shares like the sociétés civiles (they usually carry out managerial purposes – such as managing buildings). LEGAL PERSONALITY *legal persons are actors in the juridical systems (today all natural persons are legal persons, in Roman law only certain people enjoyed legal personality) *today also some bigger entities, such as companies, can acquire legal personality  Full (fully separated - public/private limited liability companies), modified (partly) or non-existent (not separated) > indicates the degree of separation from the shareholders e.g. in Italy there’s a debate on partnerships: do they have legal personality? They have legal subjectivity (similar but not quite legal personality) TYPICAL TYPES OF “COMPANIES” *as for companies, there are specific business forms you have to use and they are limited:  General partnerships  Limited partnerships  Private companies  Public or stock companies  Hybrids (public limited liability companies with different types of shareholders  some with limited and some others with unlimited liability). PARTNERSHIP IN GENERAL [Civil v. commercial, general v. limited]  A “personal” relationship based on agreement  Typically, unlimited liability for general partners (they do not enjoy limited liability) > the unlimited liability however comes into play only when the creditor has already tried to recover the money due to him from the partnership itself (it is a secondary liability) > this makes it clear why there is a debate on the legal personality of the partnership itself: what element has more responsibility in the case of debts? The person or the partnership? To what extent are members of a partnership liable?  Partnership law provides default rules in absence of specific agreements (e.g., one person  one vote)  decision making mechanisms  ability to bind other partners: universal principle according to which each partner can make decisions. Special partnership forms Civil partnership  A continental tradition (Belgium, France, Luxembourg, Germany, and Spain – debate on Italy, no civil partnership, but practice reintroduced them)  Typically, no legal personality unless national law permits it  Civil code rather than commercial code applies General partnership forms General features  Equal voting rights > no clear distinctions between partners (shareholders) and directors 7  Also introduced as a reaction to CJEU decisions, allegedly, to improve competitiveness among MSs 1st Company Law Directive (Current Dir. 2017/1132/EU) It was firstly adopted in 1968 and since then it has been codified several times. Original Version: Dir. 68/151/EEC → Original version repealed → Replaced by dir. 2009/101/EC (now repealed) → Replaced by dir. 2017/1132/EU → Amended by dir. 2019/1151/EU (directive on digitalisation) The first Company Law Directive was structured around:  Scope, what is the scope of the directive, what companies are the addressees of the directive (each directive had a different scope). The First one had a broader scope. Three topics:  Disclosure (of documents in business registers – e.g. registro delle imprese - and national gazettes – old way), the creation of an efficient system of business register, so that market participants were informed about the essential characters of each company operating in EU.  Validity of company obligations , the power to represent the company (the power of legal representatives to act in the name and on behalf of the company). There was harmonization on the power to represent the company.  Nullity of companies , in many jurisdictions it was not much clear if companies really existed or if they were null and void. This problem was evident in France and in the countries that were closer to the French tradition (e.g. Belgium). If there is an irregularity in the creation of the company, what are the consequences? Is the company non-existing? Is it null and void? If it is, there will be a problem with third parties: are the contracts concluded with companies that are null/void valid? This set of rules tried to solve the issue by saving the validity of these obligations, granting the legal personality to companies even if they were null and void, and to keep these obligations for as much as it was possible for those companies that had entered into contact with these legal entities. We will talk mainly about disclosure. Today, the Directive is structured in a more comprehensive way, with various subsections: - Incorporation of the public liability company - Nullity of the limited liability company and validity of its obligations - General provisions - Online formation, online filing and disclosure - Registration and disclosure rules applicable to branches of companies from other MS - Disclosure rules applicable to branches of companies from third countries - Application and implementing arrangements The sections are further divided in other subsections where the European Commission introduced a new procedure for the online incorporation of legal entities. The big amendment (2019) was the introduction of a new section which required the MS to allow the online incorporation of the legal entity in all MS. This directive was due to end in the end of August. What is the scope of the First Company Law Directive? In directive 2017/1132 there are 3 Annexes: they are lists of legal entities in each jurisdiction (e.g. first Annex on public limited liability companies, second Annex on all limited liability companies, third Annex on private limited liability companies, which makes reference to more legal entities than the second Annex which comprises all limited liability company – because it’s more recent, adopted pursuant to directive 1151/2019. Article 7 – The coordination measures prescribed by this Section shall apply to the laws, regulations and administrative provisions of the Member States relating to the types of company listed in Annex II. > scope of the directive Article 10 10 In all MS whose laws do not provide for preventive, administrative or judicial control, at the time of formation of a company, the instrument of constitution, the company statutes and any amendments to those documents shall be drawn up and certified in due legal form.  To proceed with the creation of legal entity, you need to have a preventive administrative or judicial control, or you need to have a notarial control (the notary is a legal professional entrusted with the public duty, which has the capacity to do specific acts and they have an executory power). It is a specific procedure. This provision states that to create a company you need to have a preventive control (to avoid nullity): this can be carried out either by a judge (Germany) or by an administrative authority (Ireland and Spain) or a notary (Belgium, France, Netherlands, Italy). The directive is agnostic with regard to the entity that to exercise this control. In some MSs there is a two-step (integrated) control (Germany, Austria and Spain: judicial or administrative + notary). In the US this type of control does not exist, however, it might be reformed in the next years. In Estonia, incorporation of companies is the speediest in the world: there is no preventive control, the control happens only after, and not in all cases. *Incorporation is the legal process used to form a corporate entity or company. A corporation is the resulting legal entity that separates the firm's assets and income from its owners and investors. Company incorporation is one of the matters that creates most competition among states: they all strive for the first place for the country that makes the fastest one. If you don’t provide for preventive control, you need at least to have the instrument to be drawn up and certified in due legal form. This is not clear, in fact the original text of the directive says that you need to have an “authentic instrument”, which is the form of the notarial instrument. When the UK entered into the EU, they negotiated the translation of the directive so that reference was made just to the due legal form. In the EU, to have the privilege of legal personality you need to comply with the law and there must be some controls regarding the statutes, shareholders, etc. New requirements have been added with Directive 1151. Now, MSs are required to ensure that companies may be created by using fully online procedures. How can you reconcile the preventive control with the online procedure? There is a need to verify the identity of those in charge of the company/its incorporation. To do that, the EU authorities require that the company is incorporated by using electronic signatures, electronic certificates issued according to a regulation which attempts to harmonize the legal signature existing in all MSs, to make them equivalent. The problem with that regulation is that it harmonizes the electronic signatures on paper. Each MS has its own electronic signature, they are not recognized by the systems of the other MS, e.g., Italian authorities would not be able to verify the signature made by the Bulgarian authorities. Article 13b 1. MS shall ensure that the following electronic identification means can be used by applicants who are Union citizens in the online procedures referred to in this Chapter: a. an electronic identification means issued under an electronic identification scheme approved by their own MS b. an electronic identification means issued in another MS and recognized for the purpose of cross-border authentication in accordance with Article 6 of Regulation (EU) No 910/2014.  If you are incorporating a company in Italy, you need to use an Italian certificate or you may use one of the means of recognition that are considered in the legal framework issued by the EU Commission, the Reg 910/2014. Why is it not possible to create the company online without any control? The idea was to maintain the procedure that existed before the directive with the control of identity, the identification of the bylaws, the control of the legality of the transaction, without imposing on the MS the possibility to create a legal entity without any substantial control. Something that in reality was possible in some MS, e.g., in the UK, companies may be created without many formalities. In Germany, you need to have substantial controls, going before a public authority (notary), sign the 11 instrument, the notary checks the incorporation instrument. It is sent to a court, which checks again that everything is fine, and then the company acquires legal personality. The MS that added these controls did not want to give up them, because they said that they were important to maintain the security of their company law. To ensure that, a compromise was found so that it was possible to incorporate companies online, but by maintaining some level of certainty. The first aspect is that the documents must be signed by using these electronic signatures. The European authorities give you the goal and don’t give you the details on how the MS should achieve them. MS had to make sure that the online incorporation of companies could be made fully online, without the necessity for the applicant to appear before a court or a body. Article 13g MS shall ensure that the online formation of companies may be carried out fully online without the necessity for the applicants to appear in person before any authority or person or body mandated under national law to deal with any aspect of the online formation of companies, including drawing up the instrument of constitution of a company  This resulted in the creation of videoconferences for the creation of legal entities. Belgium is the first country is the first country to have transposed the Directive. To open a company online in Belgium, you organize the video chat with the notary, who will ask you the same info he would have asked before. In this way you create company without meeting in person, but by meeting online. The goal of the commission is to adopt a procedure which is entirely online, and it wants to be sure that you are not forced to appear in person. This is kind of contradiction, because once you open a business you are supposed to go in person and be present. Anyway, the Commission believes that this is a good idea to promote young entrepreneurs. Article 13g However, MS may decide not to provide for online formation procedures for types of companies other than those listed in Annex IIA.  This online procedure is mandated only for private limited liability companies, because MS can op-out from the necessity of providing this online incorporation procedure for public limited liability companies. Annex IIA is the list of private limited liability companies. Article 13g The rules referred to in paragraph 2 shall at least provide for the following: (a) the procedures to ensure that the applicants have the necessary legal capacity and have authority to represent the company; (b) the means to verify the identity of the applicants in accordance with Article 13b;  The Directive also provides some details on the type of control that should be carried out in the context of this incorporation procedure. Until 2019, there was not a specific indication on the content of the preventive control (Art 10). [Art 10] said that you needed to have the preventive control, but the content of this preventive control was not clear. In some MS, like the UK, the preventive control consisted on the control over the name of the company, they could use the word “queen”, or “crown”. Beyond that, there was not a substantial control on the bylaws of the company. In other MS, there was a control over the substance of each provision and if they did not comply with the law, you had to modify them. Also in France, you had control over the substance, but it was slightly different, because you did not have to appear before an authority. In Germany, the authority (notary) would also control the identity of the shareholders. While in France the procedure was possible entirely at distance, by sending the letter about the company, the authority had to verify the bylaws without seeing the person face to face. Some MS wanted to maintain the control on the identity of shareholders, they wanted to be able to check over the persons. This provision provides some kind of harmonization also on the content of the controls that should be carried put during the online incorporation procedure. Now, all MS will need to ensure that there are procedures in 12 > Also in the UK a kind of business registers exists but it’s not that reliable (registers of notification – the company decides what to send) v. in Italy, France, Spain, Germany and Austria etc business registers are much more reliable (registers of verification – info are verified). However, UK is moving toward the EU direction (more reliability). Article 14 (d) the appointment, termination of office and particulars of the persons who either as a body constituted pursuant to law or as members of any such body: (i) are authorized to represent the company in dealings with third parties and in legal proceedings; it shall be apparent from the disclosure whether the persons authorized to represent the company may do so alone or are required to act jointly; (ii) take part in the administration, supervision or control of the company;  You may find the list of the company representatives in the business register, allowing you to conclude a contract. Article 14 (e) at least once a year, the amount of the capital subscribed, where the instrument of constitution or the statutes mention an authorized capital, unless any increase in the capital subscribed necessitates an amendment of the statutes; (f) the accounting documents for each financial year which are required to be published  The idea of the share capital derives from the German tradition and from the 2nd Company Law Directive, which is applicable only to public limited liability companies but, to some extent there are some rules that apply also to private limited liability companies. The very idea of having a share capital is European. The share capital means that the shareholders contribute with an amount of money or some assets into the company and part of these assets are imputed to the share capital which is a measure of the respective right of the shareholders (the share capital is 100 euros, and it is owned 50/50, meaning that each shareholder has contributed at least 50 euros and the voting rights of each shareholder is 50). Also, the accounts should be published. This is really important and not all MS share this approach. At the beginning, it was believed that the accounts were secret. Recently, there was an amendment to the Directive on accounting which allowed the exclusion of the disclosure or at least the delay of these financial documents for micro entities, which was immediately implemented in Germany, because there, there is the idea that to some extent, the accounts are a private business, especially for small entities. This amendment to the accounting directive allowed to keep some secrets, at least for small business. > the idea of disclosure of accounting documents was initially refused by Germany, Austria and the Netherlands Article 14 (h) the winding-up of the company; (i) any declaration of nullity of the company by the courts; (j) the appointment of liquidators, particulars concerning them, and their respective powers …; (k) any termination of a liquidation and, in MS where striking off the register entails legal consequences, the fact of any such striking off. > disclosure helps people that need to get in contact with a company to understand how much said company is good and financially healthy > can we trust business registers? Are they reliable? It depends on MSs rules. Of course, all registers have as a goal reliability, however, what degree of reliability does a State want to/can a State provide? Less reliable: UK, Malta, Ireland, Cyprus Most reliable: Italy, Spain, France and especially Germany and Austria Of course, there is a EU wide principle on the matter, expressed in art.16(5). 15 [Article 16 1. In each MS, a file shall be opened in a central, commercial or companies register (‘the register’), for each of the companies registered therein.  MS shall ensure that companies have a European unique identifier (‘EUID’) … allowing them to be unequivocally identified in communications between registers through the system of interconnection of registers They introduced the EUID, so that you have a specific number for each company which is pointless because in each MS each company had already a number. This may create some problems, especially in cross-border corporations. Article 16 3. MS shall ensure that the disclosure of the documents and information referred to in Art 14 is effected by making them publicly available in the register. In addition, MS may also require that some or all of those documents and information are published in a national gazette designated for that purpose, or by equally effective means.  In the 60s, the MS had national gazettes. They were paper publications where the info of the company was disclosed. It was the way to make the info public. However, these gazette have lost their legal significance.] Article 16 (4) MS that require the publication of documents and information in a national gazette or on a central electronic platform shall take the necessary measures to avoid any discrepancy between what is disclosed in accordance with paragraph 3 and what is published in the gazette or on the platform.  In cases of any discrepancies under this Article, the documents and information made available in the register shall prevail.] Article 16 (5) The documents and information referred to in Article 14 may be relied on by the company as against third parties only after they have been disclosed in accordance with paragraph 3 of this Article, unless the company proves that the third parties had knowledge thereof. > using info in registers against third parties does not make much sense: if you, as a third party, are dealing with a business register that is not reliable, you get a fake impression of the company, and that impression can be invoked against you > this rule is not actually applied in all MSs, in fact it is not applied in Common Law countries (where we can find unreliable business registers of notification): in those countries, the contrary of art. 16(5) happens (third parties can invoke the unreliable info against companies) > in countries where registers are of verification this rule is much more useful (reliable registers), but the opposing right, as in the UK, can also take place: both rights can be enforced (positive and negative disclosure) > in this article of the directive, what is not considered, is the right of third parties to rely on business registers (not written anywhere even nowadays) > Germany considers its business registers as reliable as possible, however, what happens if there’s a mistake? Some German experts argue that the directive is right: only companies should have the right to invoke info against third parties (and not the contrary). However, not all states are as reliable as Germany in their registers, so both rights are needed. > before the abolition of the gazette, it was used as a counterevidence of registers’ information, so we could say that the German approach was not valid. Now that the gazette does not exist anymore the German approach is considerable as good. Article 18 16 1. Electronic copies of the documents and information referred to in Article 14 shall also be made publicly available through the system of interconnection of registers. MS may also make available documents and information referred to in Article 14 for types of companies other than those listed in Annex II. *Use of BRIS: The Business Registers Interconnection System (BRIS) infrastructure will facilitate the access to information on EU companies for the public and ensure that all EU business registers can communicate to each other electronically in a safe and secure way in relation to cross-border mergers and foreign branches. The ultimate aim is to enhance confidence in the single market through transparency and up-to-date information and reduce unnecessary burdens on companies > however, not all business registers are reliable, so it could be dangerous to exchange and interconnect such info. If you start communicating and sharing info between business registers that are subject to different preventive control during the filing of the document, you may have different business registers with info that is not verified. For this reason, this interconnection of business register is a good idea, but for it to work properly, you need to ensure that the info is verified by some authority and that the quality of info is comparable across the EU. This is in a plan of the Commission. Article 28 MSs shall provide for appropriate penalties at least in the case of: (a) failure to disclose accounting documents as required by Article 14(f); (b) omission from commercial documents or from any company website of the compulsory particulars provided in Art 26. > The point is that Germans did not want to disclose their accounts. They accepted to disclose their account, but in case there is a failure in the disclosure of a company of its accounts, they will provide a sanction of 50 Euros. This is a really low sanction. So, if you did not want to disclose your accounts you just needed to pay a fine of 50 euros. Even if there is a rule that imposes the disclosure, unless there is sanction the rule will have no effect. The sanction should be proportionate and able to achieve the effects of the provisions that you are trying to protect with the sanctions. The problem has been solved with the amendment in 2019, with the exception of micro-entities. Validity of Obligations Article 7 2. If, before a company being formed has acquired legal personality, action has been carried out in its name and the company does not assume the obligations arising from such action, the persons who acted shall, without limit, be jointly and severally liable therefor, unless otherwise agreed. Article 8 Completion of the formalities of disclosure of the particulars concerning the persons who, as an organ of the company, are authorised to represent it shall constitute a bar to any irregularity in their appointment being relied upon as against third parties unless the company proves that such third parties had knowledge thereof.  This is what happens if you appoint a legal representative and then you discover that there were irregularities in the appointment. Unless the third party knew that there were irregularities the appointment is considered valid and that person can sign contracts on behalf of the company. Article 9 1. Acts done by the organs of the company shall be binding upon it even if those acts are not within the objects of the company, unless such acts exceed the powers that the law confers or allows to be conferred on those organs.  This is a provision regarding who may represent the legal entity before it acquires legal personality. Essentially, never do that, because you will be personally liable that you undertake on behalf of the company that it is going to be created. What is an organ? They are corporate bodies. If I conclude an agreement whose object is not the one of the company, is the company bound or not? According to the French tradition the answer is no, the act is ultra vires. 17 5. Holders of shares in the capital shall remain obliged to pay up the capital agreed to be subscribed by them, but which has not been paid up, to the extent that commitments entered into with creditors so required.  Even if the company becomes null and void, it doesn’t mean the shareholders may get away with the payment of their contributions or the compliance with certain obligations they might have.] 11 th company law directive This directive deals with the disclosure related to the branches of companies in the EU. It is an example of secondary right of establishment. It says if you want to create a branch of your company in the EU, you need to disclose some information. Article 28 1. Member states shall ensure that the registration in a MS of a branch of a company that is governed by the law of another MS may be fully carried out online without the necessity for the applicants to appear in person before any authority or any person or body mandated under national law to deal with any aspect of the application for registration of branches. > due to directive of 2019 Article 29 1. Documents and particulars relating to a branch opened in a MS by a company which is governed by the law of another MS, shall be disclosed pursuant to the law of the MS of the branch, in accordance with art.16. Where disclosure What happens if there is a conflict between the register of the branch and the register of the company? In order to address this issue: 2. requirements in respect of the branch differ from those in respect of the company, the branch’s disclosure requirements shall take precedence with regard to transactions carried out with the branch 3. The documents and particulars referred to in art 30(1) shall be made publicly available through the system of interconnection of central, commercial and companies’ registers. Article 30  two types of disclosure 1. The compulsory disclosure provided for in art 1 shall cover the following documents and particulars only: a) the address of the branch b) the activities of the branch c) the register in which the company file mentioned in art 16 is kept, together with the registration number in that register d) the name and legal form of the company and the name of the branch if that is different from the name of the company e) the appointment, termination of office and particulars of the person appointed as legal representative of the company f) the winding-up of the company, the appointment of liquidators, particulars concerning them and their powers and the termination of liquidation g) the accounting documents in accordance with art 31 (quite useless because it’s really expensive to translate those documents) h) the closure of the branch.  these last rules were created in order to avoid branches of liquidated companies continued to exist in other Member States’ registers. 2. Other non-compulsory information: The MS in which the branch has been opened may provide for the disclosure, as referred to in art. 29, of: a) the signature of the persons referred to in points (e) and (f) of paragraph 1 of this Article; 20 (b) the instruments of constitution and the memorandum and articles of association if they are contained in a separate instrument, in accordance with points (a), (b) and (c) of Article 14, together with amendments to those documents; (c) an attestation from the register referred to in point (c) of paragraph 1 of this Article relating to the existence of the company; (d) an indication of the securities on the company's property situated in that Member State, provided such disclosure relates to the validity of those securities. > branch v. subsidiary: a subsidiary is a company in another MSs with its own legal personality, a branch is just an office with not legal personality (traditionally cheaper – now less and less common in Italy because of the translation of documents which is costly) The 11th company law directive is a maximum harmonisation directive, meaning it doesn’t leave MSs the discretion to introduce new/additional rules other than the ones already provided for by the directive itself. (The 1st directive for example is a minimum harmonisation directive) This was confirmed by the Inspire Art Case – ECJ C-167/01, 2003. Ruling 1  it is contrary for national legislation to impose on the branch of a company formed in accordance with the law of another MS disclosure obligations not provided for by that directive. 2 nd company law directive The second company law directive deals with the legal capital. Remember the three functions of the legal capital: *The legal capital is that amount of a company's equity that cannot legally be allowed to leave the business; it cannot be distributed through a dividend or any other means. 1. protection of creditors: not so true anymore - nowadays legal shared capital does not indicate the real situation of the company (e.g. losses and gains can happen - it merely indicates that at some point someone contributed with a certain amount of money in the company). It’s in the accounts where you can find the real situation of the company. Usually in the EU (although no harmonization on the matter): recapitalization (inject more contributions) and liquidation happen if the company is failing and having considerable losses. In Italy it happens when the loss is higher than 1/3 of the capital, in France and Spain this happens when the losses are at more than 50% of the capital. In some countries recapitalization and liquidation are not a duty if the company is failing (Germany and Luxembourg). In the countries with stricter rules on the matter, the legal capital still plays an important role for the protection of creditors. The need of recapitalization and liquidation happens when the net worth is at less than the 66% of the capital in Italy, and at less than 50% of the capital in France and Spain. *Net worth (or equity): difference between the assets and the real liability of the company > balance assets with losses. *E.g. a company with 1k euros of assets in cash, 100 euros of legal capital, 200 euros of liabilities: it means that it has 700 euros of reserves (1000 (assets) - 200 (liabilities) euros = 800 euros which is the net worth, then the net worth is divided in two items: share capital (100 euros) and reserves (800 - 100 of capital = 700 euros), which is the maximum amount of money we can distribute to the shareholders) *Reserves: funds set aside to pay future obligations. *The shareholders' equity, or net worth, of a company equals the total assets (what the company owns) minus the total liabilities (what the company owes). If your company does well, its profits increase, and its net worth increases too. *The legal capital never changes, and it is written in the bylaws. 21 2. limitation to the ability of companies to distribute dividends to the shareholders *e.g. the capital (in the case of the example: 100 euros) binds the company to have at least the amount of money provided in the capital itself before distributing dividends. 3. organize the rights of the shareholders within the company (e.g. voting rights: owning 50% of legal capital = owning 50% voting rights, however it depends on the State and the default principles provided in each jurisdiction) > German approach on distribution of dividends used by the directive – loss as consolidated losses of current year and past years v. Anglo-American approach – loss as only current year losses (considered lately) It mainly deals with capital contributions (assets) of public limited liability companies . Topics discussed in this directive are many. The scope of the 2nd company law directive is more limited than the 1st directive, because it is addressed only to public limited liability companies. It creates rules on: PRINCIPLE OF EQUAL TREATMENT (OF SHAREHOLDERS) Article 85 For the purposes of the implementation of this chapter, the laws of the MSs shall ensure equal treatment to all shareholders who are in the same position. It’s quite difficult to find two individuals who are exactly in the same position for the purposes of this principle, therefore the principle of equal treatment is more theoretical than practical. Community law does not include any general principle of law under which minority shareholders are protected by an obligation on the dominant shareholder, when acquiring or exercising control of a company. > this principle should be interpreted narrowly according to the Audiolux case > it has become a hollow principle due to the progressive differentiation of shareholders DISCLOSURE Harmonisation provided by the 2nd company law directive is diff from the 1st. In the latter the rules regard information and particulars which need to be published in the public register. While in the 2nd directive the rules regard more the harmonisation of the content of the statute (information which need to be included in the instrument of incorporation published in the business register). Article 3 – the statutes or the instrument of the incorporation of the company shall always give at least the following info: a) the type and name of the company b) the objects of the company c) when the company has no authorised capital, the amount of the subscribed capital d) when the company has an authorised capital, the amount thereof… *type of the company: to be chosen from the legal forms provided by the State *objects of the company: activities of the company agrees to undertake when incorporated, in some countries the object clause has to be quite specific and a change of object clause results in important consequences. In some other countries like the UK unrestricted object clause - you can carry out any activity (long discussion on whether it is possible under 2 CLD > it is possible). *disclosure of capital does not relate only to the legal capital: There are different aspects to the capital. When reference is made to capital in general, we are talking about the subscribed capital (legal-share capital), which is essentially the amount of money which cannot be distributed to the shareholders by the company at the moment of the liquidation. 22 single person. MSs should give time to the company to increase the number of shareholders. If the company is not able, the consequence is similar to nullity: it enters into liquidation, pays debts, sells assets and gets liquidated. Article 6 1. Where the laws of a Member State require a company to be formed by more than one member, the fact that all the shares are held by one person or that the number of members has fallen below the legal minimum after incorporation of the company shall not lead to the automatic dissolution of the company. 2. If in the cases referred to in paragraph 1, the laws of a Member State permit the company to be wound up by order of the court, the judge having jurisdiction must be able to give the company sufficient time to regularize its position. 3. Where such a winding up order is made the company shall enter into liquidation. > in reality, things are not always like this: in Italy, if all the shares are in the hands of a single member, then the single member has unlimited liability. Single member companies are regulated by 12 th company law directive, 2009/102/EC (never codified) Article 2 1. A [PrLL] company may have a sole member when it is formed and also when all its shares come to be held by a single person (single-member company). 2. Member States may, pending coordination of national laws relating to groups, lay down special provisions or sanctions for cases where: (a) a natural person is the sole member of several companies; (b) a single-member company or any other legal person is the sole member of a company. CAPITAL AND CONTRIBUTIONS (back to the 2nd company law directive) Minimum capital requirement Article 45 1.The laws of the Member States shall require that, in order for a company to be incorporated or obtain authorisation to commence business, a minimum capital shall be subscribed the amount of which shall be not less than EUR 25 000. 2. Every five years the European Parliament and the Council, acting on a proposal from the Commission in accordance with Article 50(1) and Article 50(2)(g) of the Treaty, shall examine and, if need be, revise the amount expressed in paragraph 1 in euro in the light of economic and monetary trends in the Union and of the tendency to allow only large and medium-sized undertakings to opt for the types of company listed in Annex I. > e.g. Italy 50.000€, Luxembourg 30.000 euros, however in some countries (Poland and Romania) the minimum requirement infringes the 2 CLD Article 46 Subscribed capital may be formed only of assets capable of economic assessment. ( economic assessment is the process of identifying, calculating and comparing the costs and benefits of a proposal in order to evaluate its merit, either absolutely or in comparison with alternatives. See: GAAPs and IFRS: the first are national standard and more conservative, the other are more lenient and international (some items are considered as assets by the IFRS and not considered as such by the GAAPs). Keep in mind, some elements and assets are intangible, such as the know-how or the goodwill, clientele). However, an undertaking to perform work or supply services may not form part of those assets. Article 47 25 Shares may not be issued at a price lower than their nominal value, or, where there is no nominal value, their accountable par. (e.g., used by Italy, Belgium, Luxembourg) Article 48 Shares issued for consideration shall be paid up at the time the company is incorporated or is authorised to commence business at not less than 25 % of their nominal value or, in the absence of a nominal value, their accountable par.  the accountable par is an instrument used by some states, such as Belgium, Luxembourg and Italy, in order to circumvent the previous rule: by saying you can also pay the shares for a value which is lower than the actual nominal value. In other states such as Germany the accountable par is a synonym of the nominal value so in the end, to use a system which issues a share with nominal value or without a nominal value but with an accountable part, doesn’t result in any great difference. However, where shares are issued for consideration other than in cash at the time the company is incorporated or is authorised to commence business, the consideration shall be transferred in full within five years of that time.  you need to pay the entire contribution immediately when you are contributing with assets other than in cash within a term of 5 years. Contributions other than in cash [Cash is the currency that has legal tender where the obligation is due.] > Contributions other than in cash are seen with suspicion, since the items put to contribute could have a different value five years from now. > Contribution in kind needs an evaluation by an expert (e.g. different currency, patents, exchange of football players). This is in order to avoid the creation of capital in a fictitious way. Article 49 1. A report on any consideration other than in cash shall be drawn up before the company is incorporated or is authorised to commence business, by one or more independent experts appointed or approved by an administrative or judicial authority. Such experts may be natural persons as well as legal persons and companies or firms under the laws of each Member State. 2. The experts' report referred to in paragraph 1 shall contain at least a description of each of the assets comprising the consideration as well as of the methods of valuation used and shall state whether the values arrived at by the application of those methods correspond at least to the number and nominal value or, where there is no nominal value, to the accountable par and, where appropriate, to the premium on the shares to be issued for them. > share premium (overprice): a kind of reserve (that can be distributed usually) that signifies that shareholders have overpaid the shares (more than the nominal value) where the company was created. Article 50 1. Member States may decide not to apply Article 49(1), (2) and (3) where, upon a decision of the administrative or management body, transferable securities as defined in point 44 of Article 4(1) of Directive 2014/65/EU of the European Parliament and of the Council or money-market instruments as defined in point 17 of Article 4(1) of that Directive are contributed as consideration other than in cash, and those securities or money-market instruments are valued at the weighted average price at which they have been traded on one or more regulated markets as defined in point 21 of Article 4(1) of that Directive during a sufficient period, to be determined by national law, preceding the effective date of the contribution of the respective consideration other than in cash. However, where that price has been affected by exceptional circumstances that would significantly change the value of the asset at the effective date of its contribution, including situations where the market for such transferable securities or money-market instruments has become illiquid, a revaluation shall be carried out on the initiative and under the responsibility of the administrative or management body. 26 For the purposes of such revaluation, Article 49(1), (2) and (3) shall apply. > sometimes expert evaluation is not needed, if the value can be derived in other ways (softer rules on capital, following the Anglo-American approach). Article 52 1. If, before the expiry of a time limit laid down by national law of at least two years from the time the company is incorporated or is authorised to commence business, the company acquires any asset belonging to a person or company or firm referred to in point (i) of Article 4 for a consideration of not less than one-tenth of the subscribed capital, the acquisition shall be examined and details of it published in the manner provided for in Article 49(1), (2) and (3), and it shall be submitted for the approval of a general meeting. Articles 50 and 51 shall apply mutatis mutandis. Member States may also require these provisions to be applied when the assets belong to a shareholder or to any other person. > In the past, there used to be a trick in order to avoid the expert evaluation: by making a contribution in cash to the company, the company buys some assets and overpays them in order to cover the contribution in kind and the asset. > So, while buying from the contributors, you need to follow the same procedures of the contribution in kind, to avoid circumvention of the evaluation rules. Article 53 Subject to the provisions relating to the reduction of subscribed capital, the shareholders may not be released from the obligation to pay up their contributions. > if the shareholders were released from the obligations, it would create a fictitious capital (e.g. share capital of 100, the shareholder pays the 25%, then is released from the obligation: the capital is still 100, however the assets amount to 25, already paid up) > this art is valid unless we follow the reduction on capital rules Article 54 Pending coordination of national laws at a subsequent date, Member States shall adopt the measures necessary to require provision of at least the same safeguards as are laid down in Articles 3 to 6 and Articles 45 to 53 in the event of the conversion of another type of company into a public limited liability company. > only PuLL are subject to stringent rules on capital formation, however also in conversions they are valid > in Italy if converting from PrLL to PuLL no need for expert evaluation, because traditionally PrLL were under the same rules on capital formation as PuLL (legality is dubious) DISTRIBUTIONS Enhanced balance sheet test: test to evaluate distributions > It is a test that allows distribution of dividends only if the balance sheet allows for it: you must have more assets than liabilities as in a normal balance sheet, then you have to cover the legal capital too > approach from the German tradition Solvency test: a test that tries to predict if the company would go in insolvency in a specific time frame after the distribution (usually the time frame is 12 months) > approach from the Common law tradition The German (EU) approach on distributions (consolidated loss count: you should pay your debts before distributing dividends) =/= Common Law approach (counting the losses only of the current year, allows for distribution of some profits of the current year) 27 five years and may be renewed one or more times by the general meeting, each time for a period not exceeding five years. One of the few cases in which an action is not directly decided by the general meeting. The power to modify the bylaws can be given to the board of directors only in this case. The directive deals more with the classical capital increase, however, also in the case of nominal capital increase this rule on delegations could be applied. What does the general meeting do during the delegation of its powers? There will be a concurrent power between the general meeting and the board of directors. Article 71  when a capital increase offered to a shareholder is not entirely subscribed (e.g., 90% of the shareholders decide to subscribe the capital increase): When an increase in capital is not fully subscribed, the capital will be increased by the amount of the subscriptions received only if the conditions of the issue so provide. E.g. The company wants to achieve a 100 euros of capital increase, however only 80 subscriptions came up. The capital increase does not become effective (default rule), unless otherwise provided. However: If you allow for partial subscription of the capital increase, another problem arises. When you offer shares to the shareholders, the offer takes effect on a specific time frame within which they shall decide whether to subscribe or not the capital increase. The later you, as a shareholder, accept (pay), the lower you pay. Therefore, shareholders have an incentive to subscribe as late as possible, unless you give them also the right to immediately become shareholders for the new shares subscribed, starting from the day after the subscription. It’s a progressive subscription of the capital increase because not only the company has the interest of having a partial subscription, but it also says that each time shareholders subscribe a part of the capital increase, they will be able to vote for these shares in the general meeting. By allowing this progressive subscription of the capital increase, the result achieved is that the company pushes shareholders to immediately subscribe the capital increase, or they will face the risk of being overtaken by other shareholders. Other rules on capital increases: The pre-emptive right conceived by the directive is applicable only once (one time), for the measure the shareholder already contributes to the company. What if some shareholders are not interested in buying other shares? Can the company offer them to the other shareholders (that are interested, and have already accepted)? The EU law does not consider this situation in the directive. It only provides for the rules on the proportionality of share offers (art. 72(1)). Some MSs provide for a second round of offers (of shares that were not subscribed) to the shareholders that are interested. Others do not have rules on the matter (depends on the general meeting or bylaws). The directive does not provide for a compulsory second round, it is up to the MSs What is sure, is that the pre-emptive right is mandatory in principle, however, not unavoidable. E.g. Delaware law does not provide for pre-emptive rights, NY provides for it as a default rule (companies could opt out of it). In the EU, the pre-emptive right cannot be excluded by the bylaws, HOWEVER, it can be excluded by the general meeting on a case-by-case valuation (depends on the circumstances: what are the cases that allow for the exclusion of the pre-emptive right? Next lesson.) Why does it make sense to exclude a pre-emption right? Sometimes the “old” shareholders cannot give the same contributions that a third party could offer. In that case, it is more convenient for the company to offer the shares to new shareholders. Article 72 (il prof lo spiega in disordine) Article 72(3) 30 3. The right of pre-emption must be exercised within a period which shall not be less than 14 days from the date of publication of the offer or from the date of dispatch of the letters to the shareholders. > 14 days are considered as a long time, especially in the stock market: to solve this problem, there are different rules depending on the MS (e.g. in Italy and Germany the general meeting of a company can decide for a capital increase, while excluding the pre-emption right, if the shares are offered at a specific price, usually market price - partial violation of the directive; in France and other MSs, the pre-emption right should be exercised in 5 or less days, which is a blatant violation of the directive) > this last rule is not applied consistently in all MSs: 14 days in a capital increase context are a geological era. In fact, some MSs decided to address the problem by openly violating this provision: this is the case of France where the pre-emption right for listed companies is 5 days. Another way to solve the issue is the strategy adopted by Italy and Germany which it is not clear whether is compatible with the directive or not: it establishes that if you decide a capital increase for a small amount, you can avoid the pre-emption right if you offer the shares on the market at the market price. This is an exception to the pre-emption right not mentioned in the directive. The rule of the 14 days is one of the most unmodifiable principles of the directive: if you decrease the amount of period for the pre-emption right, you are depriving the shareholders of the pre-emption right. Art. 71(1) Whenever the capital is increased by consideration in cash, the shares must be offered on a pre-emptive basis to shareholders in proportion to the capital represented by their shares. It means MSs can limit the pre-emption right only to capital increases that are paid in cash, not with consideration other than in cash (contribution in kind). > strangely, already art. 71(1) provides for an exclusion of the pre-emptive right, even though it is considered as a fundamental point (in principle, in practice not so much) > we will see: Henry Nold case (1996), first case for excluding the pre-emption right Other two cases in which the pre-emption right can be excluded, with regard to the classes of shares: Article 72(2) The laws of a MS: a) need not to apply paragraph 1 to shares which carry a limited right to participate in distributions within the meaning of article 56 and/or in the company’s assets in the event of liquidation; or > MSs don’t need to give the pre-emption right to the shares, if they carry a limited right in the distribution of dividends > remember the classes of shares: some have limited voting rights - some unlimited, some shares can participate in the distribution of dividends, some have limited rights in that respect: so limited distribution of dividends = limited pre-emption right Article 72(2) b) may permit where the subscribed capital of a company having several classes of shares carrying different right with regard to voting or participation in distributions within the meaning of Article 56 or in assets in the event of liquidation, is increased by issuing new shares in only one of these classes, the right of pre-emption of shareholders of the other classes to be exercised only after the exercise of that right by the shareholders of the class in which the new shares are being issued. > not a full limitation, more of a priority right that is given to a specific class to subscribe the shares of the same class > e.g. two classes of shares, one has multiple voting right, one does not: then a capital increase is issued, however only with ONE classes of shares of the two, the one with multiple voting rights. Should you offer the shares to all the shareholders? According to EU law, in general, the answer is yes: shares should be offered to all shareholders. This article says however that MSs can reserve/give preference to those shareholders that already own that class of 31 shares. Then, the normal pre-emption right kicks in and the other class of shareholders can subscribe the new shares, too. > in par. (2)(a) the pre-emption right can be completely excluded, in par (2)(b) it can be provided just a “right of preference” Article 72(4) The right of pre-emption may not be restricted or withdrawn by the statutes or instrument of incorporation. This may, however, be done by decision of the general meeting. The administrative or management body shall be required to present to such a meeting a written report indicating the reasons for restriction or withdrawal of the right of pre-emption, and justifying the proposed issue price. The general meeting shall act in accordance with the rules for a quorum and a majority laid down in Article 83. > the general meeting can decide to exclude the pre-emption right on a case-by-case basis, even when you have capital increases in cash. However, when doing that, there must be a written report indicating the reasons for this kind of decision and this report should justify why the shares are being offered at the given price to different persons from the shareholders. > why is this important? E.g. a company with 500 euros of assets in cash, 100 euros of capital and 400 euros of reserves. The nominal value of a share is 5 euros. Then the capital is increased by 100 euros, offering 100 shares to a shareholder (no pre-emption right!). The shareholder must pay no less than the nominal value of the shares offered (1 euro per share). After the transaction, the assets are 600 euros, the capital is 200 euros, the reserves amount to 400 euros. The value of each share now is of 3 euros. The other shareholders are not “happy” because the value of the shares is decreased from 5 euros to 3 euros. Where did the money go? In the pockets of the shareholder that bought the shares for the capital increase. In fact, he paid 100 euros to increase the capital from 100 to 200 euros (50% of the share capital). However, the 50% of the assets is 300 euros. The shareholder paid 100 euros for something that has the value of 300 euros. This has watered down the value of the participation of the other shareholders. The reporter in this case should report that the 100 shares are offered at 1 euro per share (100 euros) and that a share premium of 400 euros has to be paid (remember: the share premium is the reserve used in the capital increase). This clarification should be reported when excluding the pre-emption right, because the exclusion of the pre-emption right harms small shareholders. Why does the board offer the shares to that shareholder in particular (excluding the pre-emption right)? It could be the case that this shareholder is already the majority shareholder and also the director and could decide for the exclusion of the pre-emption right in order to acquire shares, so that the value of his shares increases. It’s an easy abuse of rights. That’s why par. (4) of article 72 exists. > why would a company (general meeting) want the exclusion of pre-emption rights? Because maybe they want to involve in the company a specific important shareholder (e.g. big entrepreneur, famous person with connections and deep pockets) which is not already among the old shareholders which enjoy the pre-emption right. Article 72(5) The laws of a Member State may provide that the statutes, the instrument of incorporation or the general meeting, acting in accordance with the rules for a quorum, a majority and publication set out in paragraph 4, may give the power to restrict or withdraw the right of pre-emption to the company body which is empowered to decide on an increase in subscribed capital within the limit of the authorised capital. That power may not be granted for a longer period than the power for which provision is made in Article 68(2). Henry Nold case 1996 The Second . . . Directive . . . in particular Article 29(1) and (4) thereof, does not preclude a Member State' s domestic law from granting a right of pre-emption to shareholders in the event of an increase in capital by consideration in kind and from subjecting the legality of a decision withdrawing that right of pre-emption to a substantive review of the kind laid down by the Bundesgerichtshof. 32 The laws of the Member States shall also stipulate at least that the reduction shall be void, or that no payment may be made for the benefit of the shareholders, until the creditors have obtained satisfaction or a court has decided that their application should not be acceded to. 3. This Article shall apply where the reduction in the subscribed capital is brought about by the total or partial waiving of the payment of the balance of the shareholders' contributions. > This paragraph highlights that the approach of southern Europe (like Italy) is more in accordance with the directive (depends on the speediness of the judgements of courts) > MSs should have rules which block the distribution of dividends/assets in case of capital reductions, until a court decides on the matter > will the transaction be blocked? depends on the speediness of the court: in Italy, due to the slow judicial system, the transaction will be blocked for sure for at least 5 years, in other countries it could be faster. > In the end, the block of the transaction is not so feasible (more feasible to obtain securities as a creditor) Reduction in case of losses: Art 76 (1) 1. Member States need not apply Article 75 to a reduction in the subscribed capital the purpose of which is to offset losses incurred or to include sums of money in a reserve provided that, following that operation, the amount of such reserve is not more than 10 % of the reduced subscribed capital. Except in the event of a reduction in the subscribed capital, that reserve may not be distributed to shareholders; it may be used only for offsetting losses incurred or for increasing the subscribed capital by the capitalisation of such reserve, in so far as the Member States permit such an operation. Art 77 The subscribed capital may not be reduced to an amount less than the minimum capital laid down in accordance with Article 45. However, Member States may permit such a reduction if they also provide that the decision to reduce the subscribed capital may take effect only when the subscribed capital is increased to an amount at least equal to the prescribed minimum. > Reduction in case of losses: not allowed to reduce the capital below the MLR provided in the MS (e.g. Italian 25000 euros) > In addition to that, it is possible to reduce it below the MLR, only if you increase it immediately after: Coup d’accordéon > Example of a company losing the entire capital: a company has assets at 100 euros, a capital of 100 euros and a loss of 100 euros. You reduce the capital according to the loss (capital at 0, loss at 0). So you make the Coup d’accordéon happen, you increase the capital again with the new contributions (e.g. 100 euros). You then have a brand-new company of a 100-euro capital that can carry out new transactions. How do you find new contributions? Recapitalize the company thanks to the selling of the assets that are not cash (assets in kind) and were recorded at a certain price but now have now a higher value (in this case it was registered in the accounts at 100 euros, it has a value of 500 euros now). The assets were undervalued from an accounting point of view. Possible if you use national accounting principles, because it is impossible to revaluate assets over time: you have to record once the asset you buy at that price you bought it for, and it remains like that forever until you sell it - historical value accounts. Thanks to this method you could even have more losses than assets, because the assets are undervalued from an accounting perspective. When you sell them at the current price, you will have more assets (cash now) than losses. 35 So, the coup d’accordéon makes sense if you have assets that can be revalued and also if the accounting system in the MSs allows for it (historical value accounts). The IFRS (international accounting standards) do not allow for this trick, because it uses the fair value systems, which allows for revaluation of assets over time. In the case of the fair value, if the asset was bought at a certain price (100 euros) and then revaluated until it reaches a much higher value (1 million euros), I’m not sure the asset will be bought at the new value (1 million euros). We only have the certainty that the asset was bought at a certain point in time at the first price (100 euros). In this respect, the historical value accounts are better: they provide for certainty, even though they provide for more limitations. The fair value accounts, on the other hand, are probably closer to the current reality (still, you only have the certainty when you sell it). In fact, in the 2008 crisis, one of the causes was a big bubble of revaluation (speculative bubble), because everyone was revaluating their assets, but nobody was really paying for the new valuations. Is there an obligation for MSs to impose to companies the duty to recapitalize? Serious losses: > when are we talking about serious losses? When the loss of the share capital amounts to: in Italy 1/3, in France more than 50% > there is not a rule at EU level on the need of recapitalization if the company suffers serious losses, only national However, we have one rule in the case of serious losses: Article 58 1.In the case of a serious loss of the subscribed capital, a general meeting of shareholders must be called within the period laid down by the laws of the Member States, to consider whether the company should be wound up or any other measures taken. 2. The amount of a loss deemed to be serious within the meaning of paragraph 1 may not be set by the laws of Member States at a figure higher than half the subscribed capital. > duty to call a general meeting in the case of serious losses (only duty at EU level) > norm drafted in the interest of shareholders, not creditors (the general meeting is made to inform the shareholders of their losses) In fact, many times, the companies go on after the meeting (no liquidation or recapitalisation - if allowed by legislation, like in Germany). This goes against the interest of the creditors, and it happens thanks to the revaluation of assets, as seen before (less protection of creditors - no change of bylaws of company - less disclosure). In France, Spain and Italy the norms provide for a reduction of the share capital or recapitalization in the case of serious losses, if it is not possible: liquidation (the bylaws must change - disclosure - protection of creditors). So, in France Italy and Spain the MCR plays a much more important role in the protection of creditors, and not just the protection of shareholders. [Remember: assets cannot be revaluated - it would be a breach of the principle of the historical value - , but they can be sold in these States.] In Italy, it is not entirely true: due to covid and loss sustained during the pandemic, this rule on serious losses (if sustained during the pandemic) was suspended for 5 years (only provision on general meeting, not recapitalization) > the principle of recapitalisation in case of serious losses is under attack. Art 76(1) 36 1. Member States need not apply Article 75 to a reduction in the subscribed capital the purpose of which is to offset losses incurred or to include sums of money in a reserve provided that, following that operation, the amount of such reserve is not more than 10 % of the reduced subscribed capital. Except in the event of a reduction in the subscribed capital, that reserve may not be distributed to shareholders; it may be used only for offsetting losses incurred or for increasing the subscribed capital by the capitalisation of such reserve, in so far as the Member States permit such an operation. > only as a possibility for MSs > in the case of reduction of capital with creation of a reserve (to offset losses): 1. the rules on the protection of creditors may not apply 2. if you satisfy some requirements, you can carry out the transaction without giving creditor protection (requirements: the reserve should not be made available for distribution and not more than the 10% of the capital after the transaction) > allowed by Luxembourg, not Italy > reduction of capital in case of losses v. real reduction of capital: the line between them is blurred (in terms of rules on them) Argomenti affrontati nelle guest lectures nell’a.a. 2022/2023, queste sono le spiegazioni del prof. Malberti a.a. 2021/2022: MERGERS AND DIVISIONS The 3rd and 6th company law directives harmonise the merger and the division procedures: these directives were created in view of harmonising domestic procedures only, but they didn’t aim to harmonise also the rules concerning cross-border mergers and divisions. Cross-border procedures were adopted 50 years ago, but they were revised recently in the 2019 directive providing for the additional rules regarding cross-border divisions, mergers and conversions (transfer of seats, registers and offices). The interests protected by national rules concerning mergers and divisions are the same protected at EU level: interests of shareholders and creditors are protected in two ways: 1. Requiring the disclosure of some documents 2. Requiring that some procedural steps are followed in order to authorise the procedures Something that became important throughout the years, when the problem was examined in the prospective of cross-border reorganisation as well, was the protection of employees: there is not a comprehensive harmonisation on the rules concerning employees’ protection across MSs, therefore cross-border mergers and divisions were also used as a way to transfer companies into legal systems applying more lenient rules regarding protection of employees. That’s why something that is not really evident in the rules on national mergers and divisions, was instead ensured through the rules concerning cross-border procedures. With regards to the scope of the 3rd and 6th company law directives, this is limited to public limited liability companies, but these rules are applicable also to all limited liability companies because MSs decided to extend rules applicable to public limited liability companies to all other types of companies, including private ones, because in this way it’s easier to have a single set of rules regarding mergers and divisions instead of many depending on the type of company we are dealing with. The rules on mergers and divisions however were not as debated as the ones on capital protection we find in the 2nd company law directive: there was not a strong opposition for their implementation in the MSs of the EU. Even if the scope of the 3rd and 6th is similar to the 2nd, the relevance of the former is stronger because these rules are frequently applicable to all mergers and divisions taking place in MSs in all limited liability companies (wider scope and application). 37 Shareholders of disappearing company receives shares in the new companies. Different definitions of divisions in different MSs. There is also another way, a new procedure deriving from German law, not mentioned in the directive on national divisions, but in cross-border division directive: A and B  you take part of assets of A and transfers it to B  as a rule, shares of B should go to A’s shareholders  German law (now EU law) had this procedure: as a result instead of giving shares of B to shareholders of A, you give the shares to A itself  contribution in kind but not regulated by rules of contribution in kind. From a procedural standpoint, rules regarding cross-border mergers and divisions are the same. Scope of 6th company law on national divisions is limited to public limited liability companies, but with an additional nuance  no obligation for MSs to harmonise rules at national level for national divisions  they can if they want, but they are not required to. Now with directive on cross-border divisions, they must introduce harmonised rules on cross-border divisions. Cross-border mobility Different ways to recognise cross-border mobility:  Regulation 2001/2157 on the Statute for a European company (not a cross-border convention)  Directive 2005/56 harmonising rules on cross-border mergers  these were partly mentioned in the 2001 regulation  in order to create these legal entities, among the methods used there is the possibility of carrying out cross-border mergers between companies belonging to different MSs. This 2005 directive brough out a novelty: it addresses not only the mergers resulting in the creation of a European company but all limited liability companies. This directive is consolidated in directive 2017/1132, which was repealed again by directive 2019/2121. The scope of the directive is broader than the one of the 3rd and 6th company law directives on national mergers and divisions, which were addressed only to public limited liability companies (even if in practice many MSs extended the scope of these rules to all limited liability companies in order to have a single set of rules for all companies). There is therefore a broader harmonisation in cross-border mergers than in national mergers. How is merger defined in this directive? The definition is similar to the one we find in the directive on national mergers. Mergers shall take place either by acquisition or by formation of a new company  the methods are quite similar all over EU  possibility of having either a company incorporating another one or two companies wound-up together, transferring their assets to a new one whose shares will be assigned to the old shareholders. The cross-border merger directive makes references to the 3d company law directive on national mergers  the procedures indeed are similar: 1) draft term of merger 2) approval by the general meeting 3) merger takes effect However, there are some specificities: the merger in this case has a cross-border nature, therefore, in the merger draft, you need to disclose information about the likely repercussions of the cross-border merger on employment because in national legal systems it’s difficult to carry out mergers that may result in arbitrage regarding the rules on employees’ protection or participation (he said that last lecture -.-), while at cross-border level, a cross-border transaction may be driven only by the goal of making conditions of employees softer after the transaction since in many MSs rights to participation to governance granted to employees are crucial (right employees have to appoint a representative body in many countries  Germany, Austria etc.  not the case of Italy or Spain, where you have representatives for private companies, not public ones). In order to avoid these problems, rules on cross-border mergers put the attention on employees: you find it first in 40 a) the merger draft  where appropriate, information on the procedures by which arrangements for the involvement of employees in the definition of their rights to participation in the company resulting from the cross-border merger are determined pursuant to article 133  the important thing is to maintain the same condition of employees before and after the transaction  maintenance of the status quo. When you create a European company, you are under obligation to follow the rules of EU company law. In Germany for instance, the bigger the company, the more the employees  more participation of employees. If you become bigger, the company will have more employees’ participation in the supervisory board  many German companies decided to convert their national companies into EU companies in order to avoid this increasement in the participation of employees  if the rules of EU company law aim to maintain the status quo, no increasement in the participation of employees shall be encouraged  you maintain the status quo by not overcoming the threshold of 1/3 of participation in the supervisory board. To whom is the merger draft addressed? The fact that reference is made to employees, does it make the draft a document prepared also for employees (and not for shareholders only)? Or is it available to shareholders only even if it also contains information about employees? We said that if a document (especially the report of the board) is prepared for shareholders only, the latter can even decide to renounce it in order to speed up the transaction. However, if it is made also for the interests of the employees, and there is the will to renounce the preparation of the document, everybody shall agree to renounce, including the employees. Reports of the management body The report of the board cannot be renounced, as well as the one of the experts. The report of the management body deals with the likely implications of the mergers for creditors and employees. The report of the experts is mainly on the exchange ratio of shares, but as we will see, starting from the cross-border merger directives, the focus started to shift also to the interests of employees. As a matter of fact, nowadays it is no longer about the exchange ratio only, but also about other additional interests, such as the ones of the employees, creditors, the state as creditor of the company, and also one of the goals directive 2019/2121 tried to achieve is to avoid the risk of abusive cross- border transactions with regards to cross-border taxation and money laundry. One distinguishing feature of the cross-border merger directive is that we don’t have in national mergers, and therefore in the 3rd company law directive, a harmonisation on HOW the mergers take effect. Depending on MSs, the procedures may be different. In Luxembourg for instance, the merger takes place when the general meeting of the last company approves the merger. In other MSs after the approval you have the need to have both companies acknowledge the accomplishment of the formalities needed to ensure the effect of the merger (Spain and Italy). How to coordinate these different approaches when there is an actual cross-border merger? The cross-border merger directive adopted this approach of relying on pre-merger/pre-operation certificates issued by competent authorities (i.e., judge, notary, administrative body, depending on the MS). Interestingly, in some MSs you don’t have a coincidence between the authority in charge of allowing the incorporation of a legal entity, and the one in charge of delivering these certificates. In UK the authority of the incorporation is an administrative authority, but for the certificate it is the High Court (judicial body). In other MSs the authorities are almost all the same (Italy and Benelux  notary/Spain  registrador). Once these certificates are granted, still the merger will take effect when the authority (generally the same competent for the pre-merger certificate) of the MS where the merger will take effect collects all the pre-merger certificates from the countries involved. Only after this control, the merger can take effect. Therefore, legal consequences of the merger will follow  transfer of assets to the acquiring company, dissolvement of the acquired company without liquidation, new shares assigned to old shareholders. A problem quite sensitive in the negotiation for directive 2121 was: how can we ensure the protection of creditors? This became relevant because the directive just says you need to protect creditors’ interests but MSs have different approaches in that too. Indeed, in some MSs you have a protection after the decision of the general meeting, in other MSs the protection starts before the approval, when the draft document is published (first important 41 dichotomy). Again, with regards to the effects creditors’ protection may have, in some MSs the opposition of the creditors block the transaction unless there is a specific decision by a court authorising to proceed with the transaction. In other MSs, creditors have the right to ask for more money or securities (graph on moodle  ex ante/ex post protection). DIRECTIVE EU 2019/2121  Stricter rules on mergers  revision of cross-border merger directive (2005  2017  2019): this directive was mainly concerned with cross-border conversion, but Germany feared cross-border mobility was not sufficiently regulated, therefore they started to accept the idea of a harmonisation  German approach was extended to cross-border mergers as well, which existed since 2005, but are now more regulated and difficult to be carried out. Actually, at the beginning the commission tried to leave untouched rules on cross-border mergers, while changing the ones for cross-border conversions and divisions where there was no harmonisation at all. It was clear it was impossible to maintain this approach because in the end if you have an easier transaction to carry out (merger), all the others, which are more strictly regulated, will be organised around it. *qua vuole dire che, siccome mergers erano molto meno regulated, alla fine tutte le altre transactions non propriamente mergers venivano attuate come fossero tali, perché le regole erano molto meno strict.  Strangely, with this directive there is harmonisation on divisions imposed on all MSs. Indeed, the 6th company law directive on national divisions was not mandatory before directive 2019/2121  divisions could be carried out according to the 6th company law directive, but states could decide to have none at all. With directive 2019/ 2121 they are mandatory.  More stringent controls before issuing the pre-conversion/merger/division certificate. Article 127 (abusive clause) of directive 2019/2121 8. Member States shall ensure that the competent authority does not issue the pre merger certificate where it is ‐ determined in compliance with national law that a cross-border merger is set up for abusive or fraudulent purposes leading to or aimed at the evasion or circumvention of Union or national law, or for criminal purposes. EU COMPANY FORMS 3 strategies - harmonisation - competition - unification approach unification  3 examples 1. EEIG (European Economic Interest Grouping) Introduced in 1985 with the goal of enabling cooperation between enterprises from different countries. It’s not really a company in the strict sense (which would imply contribution in cash and get money in return  dividend) but more an association of businesses trying to achieve a common goal, good for the business themselves but not for the association per se. 2. SOCIETAS EUROPEA (SE) Introduced in 2001 after more than 30 years of discussion in order to enable to move seat across MSs. Many aspects are dealt with by EU law, if not  reference back to national law. 3. SOCIETAS COOPERATIVA EUROPAEA (SCE) Introduced in 2003, rules are similar to the SE, what changes is the nature of the legal entity. A cooperative has a completely different goal from a company. Cooperative is a specific company where you don’t divide dividends, but provides a service to the shareholders (e.g., 5 persons want to buy a piece of land to build several apartments  they do that because they want to have an apartment, not money). EEIGs 42 There are also specific rules regarding the majority required to take decisions both in these boards and also in the general meeting. For the boards, the 50% of the appointed is required, and decisions are taken with simple majority (50% +1 of the persons that took part in the meeting). GENERAL MEETING VOTES The rules regarding the majority may change across MSs à in principle, simple majority is sufficient, but this rule may be derogated by national law (there are some stated modifications requiring supermajority). This regulation doesn’t require implementation since it is a regulation (has direct effect) but in some MS like Germany, a legislation was enacted to fill the gaps left by the statute à interesting choice because in other MSs like Italy it was decided not to fill these gaps with a specific law, therefore it is far more difficult in these states, to understand what are the rules governing these gaps exactly (of course we can make reference to rules concerning public limited liability companies, but we do not really know to what extent they can be coordinated with the rules on the EU company). Decisions requiring the general meeting vote There are some issues which must be decided by the meeting of the shareholders (general meeting), which normally are the most important structural decisions, like the merger or the secondary incorporation method, the transfer of the registered office to another MS, etc. Moreover, it is important to highlight that if you want to leave the status of EU company you can do that, but you can convert it into a public limited liability company, only in the MS where there is the registered office (therefore if you want to convert, you do not have much freedom). Few final remarks on the EU company:  It is a useful exercise of innovation, not practical in business terms, but can set a path for reforms, like the one on cross-border mergers and cross-border mobility, and also for debates, like the one we have seen regarding the jurisprudence of the ECJ;  In order to modify this piece of legislation, it would be necessary to have the unanimous vote of the MSs, this is why probably this will remain a piece of EU company law that will be never updated;  In practical terms, we do not have a single EU company, unique for all MSs, but the continuous references to national law highlight that we have, in practice many EU companies as many MSs we have, which was not the real goal wanted to be achieved, but in business terms this is important because the EU company is used in the different MSs to achieve specific goals driven by the limitations existing in these MSs. In Germany the EU company is used to curb employees’ participation or to adopt the one-tier structure; in Czech Republic it is used because it is less expensive than creating a public limited liability company according to the Czech law; in Italy it is not much used because it doesn’t provide many advantages over public limited liability companies, unless you need to have a cross-border common enterprise. EUROPEAN COOPERATIVE The EU company was a so great achievement in the field of European company law, that it was decided to go further, and after two years we had the statute on the European Cooperative which is almost identical to the statute of the EU company. They address problems in very similar way (transfer of registered office, methods of incorporation, involvement of employees, etc.). There are still some differences between the two, deriving form the fact that cooperatives are cooperatives, and not companies. Cooperatives are companies that serve the benefits of the shareholders, not by providing to them profits, but services. Cooperatives tend to be structured around principles of openness to new participants, they are more similar to associations from this perspective rather than a company. (You can become a member of the company by buying shares, you can become member of the cooperative by applying to the board which may accept your candidature, like an association does). Indeed, it is not important the shares you hold but it is important that you want to participate. 45 Another important aspect about the European Cooperative is that acquisition and loss of membership is governed by different rules, which are not rules of contracts. Another important aspect again, is the principle that essentially each member has a single vote, there is not vote proportional to the shares held by the participants. This is the general rule, there may be deviations, but cooperatives normally adhere to the idea that all members are on equal terms. Cooperative can be considered as a mix between an association and a company. Other entities These are the three main entities in EU, but there were many other entities proposed. In 2008 there was a proposal for the European Private Company, and in the proposed statute the idea was that only the incorporation theory was adopted and not the compromise of having the registered office and real seat in the same place. In the end, the problems with this new entity were three: -the registered office and real seat (there was separation between the two); -involvement of employees (rules on this topic were not clear) -minimum capital requirements (the new capital requirement was 1 euro). These three elements excluded the possibility of having the proposal approved, therefore there is no EPC. Then, the Commission came back with a new proposal saying that the proposal failed because there was the need of unanimous consent of the MSs; so the new proposal was the one of creating a directive harmonising the law of MSs creating a new legal entity with the same name for single-member companies. In this way, unanimous consent is avoided, because majority is sufficient; there will be companies with the same name in all MSs, but in fact they will be national companies and not European ones. This proposal was made in 2014 and in any case it was recently withdrawn, also because there was not enough political momentum over this initiative. However, this proposal in the end resulted in Dir.1151, dealing with many aspects of the online incorporation procedure which was the least problematic part, inserted in this new directive. It was also tried to create a European Foundation, but this failed again, and the reason is that it is easier to create a European statute when you are working in a harmonised legislation, because for foundations rules are completely different across MSs. In some countries you need 1000000 euros to create them, in others it is sufficient to have 10 000 euros; in some countries they can carry out full business activities, in others they cannot. What we have now, therefore, is a new proposal debated at EU level, about a new environmental legal entity, but it was discussed that it is not possible to create a harmonised legal entity, it is too difficult, so it is easier to create a label that will be attributed to companies if they comply with some environmental requirements (they could be labelled as ‘’environmentally sustainable companies’’). We will see if this proposal in the future will be approved. Argomenti spiegati dal prof. Malberti nell’a.a. 2022/2023: Formation and Financing PUBLIC COMPANIES We have more harmonization in the case of public companies than in the case of private ones (in fact, the procedures set out in the 2nd CLD are valid only for PuLL companies). Formation procedures The rules regulating formation procedures are substantially similar across EU for both public and private companies, stemming from both 1st and 2nd company law directives (2nd company law directive addressed to public companies only). 46 Two methods to form a public company: 1) Creation of the company by raising capital to a public subscription - using capital only subscribed by members - using capital raised through public subscription > (remember: expert evaluation in the case of a contribution in kind) 2) Transformation/conversion of an existing company  changing the type of the legal entity (e.g., from a private to a public limited liability company) With regards to the latter, there are not rules when they take place at national level. On the other hand, there is harmonisation of rules on cross-border conversions (cross-border mobility of legal entities resulting in the change of the legal form, from the MS of departure into the MS of destination). When you create a public limited liability company by means of transformation, you will need to comply with the rules that are mandated for the contributions of a public limited liability company (in particular, contribution in kind), e.g., if you move from a partnership to a public limited liability company and you have assets in the partnership, you will need an evaluation of the assets. Instrument of incorporation must contain (mostly in the 2nd CLD):  Legal form (in Germany called: the type, in many MSs there’s the idea that companies have to be created according to a certain type indicated by the law) and name of company  Company’s objects (= the activity - in the UK there’s a trend: unrestricted object clauses, a company can carry out any activity, less relevance of the object clause) and duration (if not indefinite)  Amounts of authorised capital (if established - it must be written clearly in the bylaws) and subscribed capital at time of incorporation  Rules governing the company’s organs (board of directors, board of auditors, supervisory board etc.,  by means of the 5th company law directive there was an attempt to harmonise also the internal structure of companies, but this directive was never approved. The only common direction in this sense can be found in the Regulation on the European Company, according to which companies should be allowed to opt between one-tier and two-tier board structure).  Company’s RO (registered office) - it is the connecting element for determining the applicable law to companies  For all classes of shares: - number and nominal value of subscribed shares (if nominal value is required by RO of the MS), - any special restrictions on transfer of shares, - rights attributable to each class of shares > usually, two types of classes of shares: those endowed with rights regarding governance (voting rights), on the other hand those with patrimonial rights attached (right to distribute dividends)  Amount of paid-up capital at time of incorporation  Nominal value or, if no nominal value is required, the number of shares issued for a consideration other than cash, from whom and for what  Identity of all legal and natural persons signing the instrument of incorporation (also in the case of PuLL companies, because of an issue of liability/responsibility, because of the idea that companies are contracts - from the French tradition)  The amount or a reasonable estimate of company’s formation costs (why? protection of the share capital since the beginning of the company)  Special advantages granted to anyone Instrument of incorporation, other company statutes and any amendments, must be prepared and certified in due legal form (pursuant to the laws of the RO Member State) unless RO Member State’s law provide for a preventive review at the time of formation/amendment. (preventive control - by judge and/or notaries: typical in the EU, even though not the same in all MSs, in some there is even double control like Austria and Germany; in the US no preventive control) This preventive control should be carried out in order to prevent the nullity of the company: they can be administrative/judicial/notarial authorities. In some MSs there is even a double control, such as in Germany and Austria, since there is first a notarial and then a judicial control. However, the trend is towards having a single 47 harmonisation on legal structures. Each country adopted its own simplified legal form, which do not provide for many similarities but for the one of MCR at 1 euro. The goal of EU business company law should be however that of simplifying the life of businessmen operating at cross-border level, and in this case (private companies) it is not happening.  Some Member States have no minimum capital requirement at all (e.g., UK, now Germany) o UK private limited company registrations exploded after the ECJ’s Centros decision o Competition among Member States for company registrations encourages “informal” harmonization (e.g., Germany revised its requirements)  Some countries are still strict about valuing in-kind contributions (e.g., Belgium, the Netherlands, Spain, France, Germany, Poland - similar rules to those of the 2nd CLD on contribution in kind)  Member States free to establish requirements (typically less stringent) No harmonisation at all: this is why we have regulatory competition strategy among MSs, pushing MSs to adopt the same approach of other MSs which turn out to be quite successful (Germany and UK established 1 euro as the MCR for private companies)  however this was politically important but didn’t result into proper harmonisation. Management and control No harmonisation at EU level: there was an attempt with the 5th CLD (see: Rabobank), however it was never codified. Many times the EU tried to harmonise the structure of private and public companies, however it never succeeded. The process started while the UK was not yet part of the EU and the idea was that of adopting the two-tier board system (the German system: general meeting appoints the supervisory board, which appoints the managing board). When the UK joined the EU, it did not accept the German system. After years of attempts and negotiations, culminated in the 5th CLD (never adopted), no harmonisation was achieved. What was achieved: a compromise which allows companies to have either the German governance structure, or the UK system (single-tier, the general meeting appoints the board of directors, while within the board of directors there is an auditing committee which verifies the actions of the directors). While creating the European legal structures for companies - EU company and EU cooperative (SE and SCE: see HH notes) - the idea of the 5th CLD was resuscitated in order to provide for rules for these types of companies. These types of companies can decide which structure to adopt. Please note: the UK model is similar to the model used in France and Italy, the main difference lies in the presence of monitoring corporate bodies in the structures provided by these States, which are not created inside of the board of directors (UK). TRADITIONALLY, France: Commissaire aux comptes, Italy: Collegio Sindacale (accounting control). After allowing the choice of structure in the 60s, the roles of these monitoring bodies changed. [We have more harmonization in the case of public companies than in the case of private ones. The EU was prone in using the German structure in PrLL (two-tier board structure). UK opposed this (one-tier board structure). They tried to draft a 5th CLD on the matter, but it was never ratified (see: Rabobank case). The harmonization of management and control was a failure. So, the UK model and German model are both allowed. In some MSs there are the so- called monitoring bodies (e.g., Collegio sindacale), exercising accounting control, still there are more similarities with the UK system than the German one.] Then, on the topic of governance, there is no harmonization. Example of the 9th company law directive: organization on the laws of groups of companies (German idea - also popular in Brasil). From the UK point of view, this idea doesn’t make sense, each company is individual. The German idea was that of allowing in some cases the interest of the group to override the interest of the single companies. It was never adopted. e.g. of groups of companies: Ferrari in Trento (wine) Groups of companies are legislated very differently among States: for example, in Italy there are only 5 provisions on the matter, in Germany there are books on groups of companies (Konzernrecht), in common law countries there are no provisions on the matter. The Commission is proposing legislation on the matter on January. No harmonised framework: 50 - Failed adoption of the 5th CLD - A different approach was adopted for EU business organisations (in particular for the SE and SCE)  dualism between one-tier and two-tier board structure > In MSs were gradually adopted provisions on which was the structure of choice of the State. In some States still you can choose between the two (France or Italy for example, in Italy there are even three structures: UK, German and Italian). In Germany, on the other hand, only the two-tier board structure was kept. Still, there is a caveat in order to adopt the other model, how? By creating an EU company. Even though there is no harmonisation, there are some elements common to all MSs: 1) Directors’ duties: - Duty of care (duty to act diligently, behave correctly) - Conflict of interest (duty not to act in conflict of interest, also called duty of loyalty) > Usually, when courts are confronted with cases concerning these two duties, they are much more lenient in the case of duty of care and much stricter in the case of a conflict of interest. The idea is that we want to encourage directors to take “difficult” and risky decisions (see: Modern Portfolio Theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of diversification in investing, the idea that owning different kinds of financial assets is less risky than owning only one type). According to this, there is an inherent value in allowing directors to take risky decisions, without considering them liable (business judgement rule). The breach of the duty of care is not so serious according to courts (especially in the US, different nuances according to MSs). Principle coming from the US and then codified in Italy and Germany: the duty of care can be invoked only if directors take decisions being informed of the circumstances. This comes from the US Van Gorkom case, which in the US is considered, however, as a wrong case. In Italy and Germany this principle was adopted instead. The US rationale is based on the fact that collecting information on the circumstances could significantly slow down the decision-making process. 2) Appointment and removal (still no harmonisation, although the trend is towards allowing the adoption of either one-tier or two-tier structure)* - Appointment - Removal > Please note: in Germany we have also codetermination (part of the supervisory board is being appointed by employees). The two-tier board structure is strictly tied with codetermination: the appointment of the board of directors by employees could not be tolerated. > French codetermination is codified in the Loi Pacte: it provides for a small representation of employees also in one- tier structures. > In Italy there is no codetermination. 3) Role of the different corporate bodies - General meeting - Directors - Controlling corporate body > everywhere there is this trialism > the controlling corporate body is what changes more throughout all MSs *In the one-tier structure, the directors are appointed by the general meeting of shareholders, the board of directors plays a supervisory function, while management of the company is carried out by the CEO, the FO and some other executive members of the board. The majority of the members instead are independent members with the general duty of supervising what the executive members of the company do. Within the one-tier structure, you may have sub-committees that are entrusted with the duty to monitor both what happened in the past and what could happen 51 in the future (UK style). Depending on the MS, there may be also other corporate bodies, e.g., the Commissaire aux comptes in Luxembourg and France, entrusted with the role of verifying compliance by the company with accounting procedures (which was also the duty of the board of auditors in Italy), and the Collegio sindacale in Italy. On the other hand, in the two-tier board structure (Germany), the general meeting appoints the members of the supervisory board, which is entrusted with the role of controlling directors’ activities, and the supervisory board then appoints members of the management board, which is the corporate bodies carrying out the management of the company. The monitoring functions here are in the hands of the supervisory board, while the management functions are carried out by the managing directors (CEO, FO, etc.). Some maps will follow. Note that after the end of communist regime, almost all Eastern-European countries adopted a board structure inspired by the German traditions. Germany doesn’t allow to choose between two-tier and one-tier board structure. The only way to have a one-tier board structure is to have a European company. The following slides are useful; however they are not precise: CODETERMINATION 52 In many studies, they gave a score to the number of tools each country adopted, so also creating ranking of what countries are more likely to protect minorities. UK is probably the country that ensures more minority protections; the opposite is for continental Europe; but this index may not be considered completely reliable because these tools to protect investors are tools that were conceived mainly in the Anglo-American world. These are the countries in which there is the liquidation/re-capitalization rule. The EU law just requires companies to call a general meeting, then in some MSs it is necessary to re-capitalize the company, in other MSs it is possible to go on. If you re-capitalize the company, you do that to protect creditors, whereas if you just call a meeting, you do that only in the interests of the shareholders. However, in France, Italy, Spain, etc, after the COVID-19, there are many limitations to the application of this rule, it is not clear now if the re-capitalization rule will still be applied. This is the map of the countries adopting the real seat theory, the incorporation theory, a mixed approach, etc. In Ireland and Great Britain there is a purely incorporation theory; in the Netherlands they used to have a purely incorporation theory, now they adopt the statutory seat theory. In Germany and Austria, the tradition was real seat theory even if there are some departures from this idea; in Spain, Italy, real seat doctrine was applied but now Italy is a statutory seat country, while in Spain real seat was mainly maintained. France is a real seat country. 55 Belgium moved from a real seat approach to the statutory seat, with a reform occurred two years ago, which is also a sign of the trend promoted also by the EU, towards using the statutory seat approach. PUBLIC AND PRIVATE COMPANIES IN DIFFERENT COUNTRIES In France, société à responsabilité limitée is managed by one or more directors; they can act separately -> it is not necessary that they act as a board or jointly, which is true also when they represent the company vis a vis third parties; in France there is a limitation on powers of the directors deriving from the object clause-> art.9 Dir.1132, written to comply with the desires of the French government; shareholders may be given an important role in decisions, they are competent for major decisions which is true for almost all countries. Indeed, it is important to understand that in private limited liability companies, shareholders are normally given more decisional and managerial rights than in public limited liability companies, where in all MSs, the distinction between management directors and shareholders is clear. In some countries like Belgium, France, Italy, the general meeting is the ‘’sovereign’’ corporate body of the company, while in other countries like Germany, there is an internal structure that really insulates the different corporate bodies (shareholders have some competences and the board of directors is the one really uncharged to manage the company). In France, the société anonyme is the public limited liability company that can be one-tier or two-tier board structure, this second one deriving from the German experience (France was one of the countries giving to public companies the possibility to choose between the two structures, now possible also in SE and in many other states of the EU). However, in France, the most important role in managing companies is played by the president directeur general who is the chair person of the board of directors, which is the peculiarity of the French system, because in the Anglo-American world it is considered a bad governance to have the chair person of the board and the CEO being the same person. The board acts as corporate body, so without dividing the powers of directors; moreover, also in this case, there are limitations in the powers of the directors coming from the object clause; the supervisory board has a controlling function -> in France, and also in Italy, it has a role very different from the supervisory board of German/Dutch companies, because in Germany/Netherlands they used to have involvement of the employees in the corporate bodies, while in France and Italy not. Even though, it should be considered that in France, recently, it has been introduced a representation of employees in corporate bodies (even if in small numbers). Another feature of the French system is the existence of a legal entity existing mainly in France and in few other MSs like Luxembourg, which is the société par actions simplifiée: a legal entity standing between SRL and SA, but it is 56 more a simplified société anonyme, more flexible than the normal one. It is an approach deriving from the 90s, adopted only in France, and many companies in France are created according to this structure. Essentially, this form should not comply with the 2nd Company Law Directive because it is not a public limited liability company, but beyond that, it tends to be a flexible structure inspired by the SA. In Italy there is the SRL, that does not require necessarily a board but one or more directors that may act separately. Until 2003, in Italy, we used to have the limitation deriving from the object clause. Nowadays after 2003, we adopt the German approach, so the object clause is not relevant anymore when a director is acting with other parties. One important feature of the Italian law is that there are three possibilities (more in public limited liability companies, actually) to choose the governance structure: one-tier structure, two-tier structure, traditional structure. This last is composed by a general meeting appointing a board (like in one-tier board structure) and also appointing a board of auditors, collegio sindacale. So, also for private limited liability companies there is the need to appoint the board of auditors. The difference with the two-tier structure present in Germany, is that in Germany the supervisory board appoints the management board, while in Italy the supervisory board of auditors doesn’t appoint anyone, it just supervises directors’ activities. Also in Italy, shareholders have a lot of power to take the most important decisions. For the SpA, there are, again, three possible corporate structures-> in Italy, once you have a traditional board structure, you may also give more power to some directors (becoming for example CEO, the real chiefs of the company). The object clause doesn’t play any role when the directors with the power to represent the company act vis a vis parties. A really distinguishing feature of the Italian governance is that, the collegio sindacale, appointed by the general meeting and supervising the board of directors, is not part of the board of directors. 57