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Scarica business law appunti e più Appunti in PDF di E-Business solo su Docsity! 1 BUSINESS LAW - MODULE 1 EUROPEAN LAW - CREATION The Union is based on two treaties: the Treaty on European Union and the Treaty on the Functioning of the European Union. The Treaty on European Union contains the general provisions defining the Union, while the Treaty on the Functioning of the European Union contains the specific provisions with regard to the Union institutions and policies. The EU Treaties are designed to be “framework treaties”, as they provide the “framework” for subsequent secondary law. The EU Treaties provide some policy areas. In order to legislate within one of these policy areas, the Union must have a legislative competence. The Union's institutions are: ● The European Parliament; ● The European Council; ● The Council of Ministers; ● The European Commission; ● The Court of Justice of the European Union; ● The European Central Bank; ● The Court of Auditors. They constitute the core “players” in the Union. Each of these institutions is characterized by its distinct composition and its decision-making model. For our goal, the main Union institutions are: ● The European Parliament; ● The Council of Ministers; ● The Commission; ● The Court of Justice. These institutions cooperate in the creation of European legislation in the following terms: ● The Parliament constitutes – with the Council – a chamber of the Union legislature. It is directly elected by the European citizens; ● The Council is characterized as the “federal” chamber within the Union legislature. It shall consist of a representative of each Member State at ministerial level, who may commit the government of the Member State in question and cast its vote; ● The Commission is today located in the executive branch. In guiding the European Union, it acts like the Union's government. It is tasked to promote the general interests of the Union through initiatives. In order to fulfill this governmental function, 2 the Commission is given the (almost) exclusive right to formally propose legislative bills. ● The Court constitutes the judicial branch of the European Union. The Union cannot legislate in all areas of social life; there are two constitutional limits to Union legislation. Firstly, based on the principle of conferral, the Union must act within the scope of competences conferred upon it by the Member States. The second constitutional limit to the exercise of Union competences is based on the European fundamental rights, which first emerged as general principles of Union law, but have now been codified in the Union's Charter of Fundamental Rights. The Union legislator is – generally – a subsidiary legislator. For the exercise of its non-exclusive competences is restricted by the principle of subsidiarity. This principle prevents the Union legislator from exercising its competences where the Member States would be able to achieve the desirable social aim themselves. The Treaties do not enumerate the Union's “competences” in a single list; the majority of the Union's competences are spread across the TFEU. In each of its policy areas, the Union will typically be given a specific competence but, not all competences of the Union provide it with the same power. - ENFORCEMENT European law establishes rights and obligations that directly affect individuals. Where a European norm is directly effective, it is “supreme” over national law. The Union legal order has required National courts to provide effective remedies for the enforcement of European rights; in order to assist these courts in the interpretation and application of European law, the Union envisages a preliminary reference procedure. But, there is also a direct enforcement of European law in the European Courts. In order to exercise the Union's competences, the institutions shall adopt regulations, directives, decisions, recommendations and opinions. A regulation shall have general application. It shall be binding in its entirety and directly applicable in all Member States. A directive shall be binding upon each Member State to which it is addressed, but it shall leave to the national authorities the choice of form and methods. In general, it is not directly applicable, and would need to be “implemented” through national legislation. A decision shall be binding in its entirety. A decision which specifies those to whom it is addressed shall be binding only on them. Recommendations and opinions shall have no binding force. Since European law may have a direct effect, it might come into conflict with national law. According to the European perspective, all Union law prevails over all national law. Indeed, according to the national perspective, the supremacy of European law is relative: some national law is considered to be beyond the supremacy of European law. In particular, the absolute nature of the supremacy doctrine is contested by the Member States. While they generally acknowledge the supremacy of European law, they have insisted on national constitutional limits. National courts are the principal judicial enforcers of European law. 5 Business corporations have fundamentally similar sets of legal characteristics and face fundamentally similar sets of legal problems in all jurisdictions. Characteristics: ● Legal personality; ● Limited liability; ● Transferable shares; ● Delegated management under a board structure; ● Investor ownership. Agency problems: ● Conflicts between managers and shareholders; ● Conflicts among shareholders; ● Conflicts between shareholders and the corporation’s other constituencies. In some aspects, ECL may be linked to the company law of the US federal system. Each of the 50 US states has its own company law: ● Some states have adopted the so-called Model Business Corporation Act; ● Other states have drafted their noon company laws. Similar to US complaint law, companies established and/or operating in any of the EU member states are regulated by the company laws of the member states. In contrast to the US legal system, the company laws of the member states must comply with the rules and principles that constitutes the body of the ECL. EU institutions are empowered to issue acts that are directly binding on all citizens and companies incorporated and/or operating in the EU, thereby prevailing over the company laws of the member states. The are ECL ‘rules’ - binding either as hard law or soft law - and ECL ‘principles’ emerging from decisions of the ECJ. ECL refers to the legal rules and principles of the company law enshrined in the sources of law of the EU, either binding on the lawmakers of courts of the member states, or directly applicable to citizens., companies or firms established under the laws of any member states. Unlike US company law, ECL does not include the individual company laws of member states. The goal of the Treaty of Rome on EEC (1957) was the creation of a single European market. The same provisions are now incorporated in the TFEU. We have two fundamental l freedoms: ● Freedom of establishment: enables an economic operator to carry on an economic activity in a stable and continuous way in one or more member states. It includes the right to take up and pursue activities as self-employed persons and to set up and manage undertakings under the conditions laid down by member states where such establishments are affected by their own nationals (focus on article 49 TFEU). ● Freedom to provide services: enables an economic operator providing services in one member state to offer services on a temporary basis in another member state, without having to be established (focus on article 56 TFEU). - COMPANIES AND FIRMS: National laws regulate business organizations in various ways. Definition of companies and firms in TFEU -> constituted under civil or commercial law, including cooperative societies, 6 and other legal persons governed by public or private law, save for those which are non-profit making (article 54(2) TFEU). EU member states may have: ● A civil and commercial code, along with special bracts, providing a legal framework; ● Only a civil code; ● A civil code and a company code; ● No civil or commercial code, but common law and special acts for partnerships and companies. Notwhitstating the differences in the laws of the member states, all firms and companies are treated identically from an EU perspective, as all enjoy freedom of establishment and freedom to provide services. Companies and firms, both civil and commercial, are generally set up to pursue business activities for the profit of their members. Non-profit making entities do not benefit from the right of establishment because they bdo justo engage in economic activity. - COOPERATIVE SOCIETIES Cooperative societies do not pursue the aim of making profits for distribution to their members, because they are set up for the purpose of providing services on a non-profit basis either to, or in the interest of, their members. They are not regarded as non-profit making entities as they are considered undertakings. As undertakings, they must comply with the EU rules on competition, whilst enjoying the freedom of establishment. - EUROPEAN ‘CITIZENSHIP’ Individuals are considered citizens of the EU based on the connecting factors referred to by the laws of the single member states. Civil law member states generally rely on nationality. Common law member states rely on the domicile. ● Domicile of origin: acquired at birth, it depends on the parents’ domicile, not on the place of birth or the parents’ residence at that time. ● Domicile of dependence: it is considered on legally dependent persons by operation of law (such as for underage children or mentally incapacitated persons). ● Domicile of choice: it is acquired by an independent person residing in a country with the intention to settle indefinitely. Incorporation theory: a company is given end by the law of the place of incorporation. Real seat theory: a company is governed by the law of the place where the central management and control is located. The TFEU has made no choice as to whether the incorporation theory or the real seat theory should prevail. Regarding the free movement of capital, member states may not put restrictions on the freedom for companies or firms to provide services nor shall guarantee equal treatment of shareholders that are nationals of other member states (focus on articles 55 and 63(1) TFEU). The combination of the two principles led the CJEU to deliver many important decisions assessing the validity of laws granting special powers to member states themselves or other public bodies, as shareholders of companies operating in strategic sectors, such as gas and power or telecommunications. 7 UNIFORM COMPANY LAW The European Parliament and the Council have jointly delivered or cooperated in the delivery of various regulations on company law, including comprehensive statutes for establishing European types of companies or firms. The first approved regulation establishing a European super-national type of business organization is on the European Economic Interest Grouping, i.e. Regulation 1985/2137/EEC. The purpose of a grouping is to facilitate or develop the economic activities of its members by a pooling of resources, activities or skills and to improve or increase the results of those activities. The protection of third parties requires widespread publicity; whereas the members of a grouping have unlimited joint and several liability for the groupings debts and other liabilities, this does not affect the freedom to exclude or restrict the liability of one or more of its members in respect of a particular debt or other liability by means of a contract between the grouping and a third party. Once registered with the registry designated by Member States, the E.E.I.G. shall have the capacity, in its own name, to have rights and obligations of all kinds, to make contracts or accomplish other legal acts, and to sue and be sued. However, the E.E.I.G. shall only enjoy legal personality where the legislation of the Member State in which the grouping is formed so provides. Similarly to the law of partnerships, notwithstanding the legal capacity, the members of a grouping shall have unlimited joint and several liability for its debts and other liabilities of whatever nature. However, creditors may not proceed against a member for payment in respect of debts and other liabilities, before the liquidation of a grouping is concluded, unless they have first requested the grouping to pay and payment has not been made within an appropriate period; If it does make any profits, they will be apportioned among the members and taxed accordingly. The activity of the E.E.I.G. shall be related to the economic activities of its members and must not be more than ancillary to those activities. Therefore, the profits resulting from a grouping’s activities shall be deemed to be the profits of the members and shall be apportioned among them in the proportions laid down in the contract or, in the absence of any such provision, in equal shares. Correspondingly, the members of a grouping shall contribute to the payment of the amount by which expenditure exceeds income in the proportions laid down in the contract or, in the absence of any such provision, in equal shares. The second approved regulation establishing a European type of business. The organization is the Societas Europaea, Regulation 2001/2157/EC. Similarly to the E.E.I.G. The S.E. is a legal structure that allows a company to operate in different EU countries under a single statute, as defined by the law of the Union, and common to all EU countries. The S.E. Statute provides a complete framework of EU rules on many aspects of a company established by the EU. An S.E. is constituted by at least two companies originating in different EU countries, which means that it can only be created from an existing base; The registered office of the S.E. must be the place where it has its central administration, that is to say its true center of operations. The S.E. may, however, transfer its registered office within the EU without having to dissolve the original company to form a new one. The 10 to provide a common legal framework for the realization of a merger procedure involving companies formed in accordance with laws of different Member States. As a general rule, each merging company is governed by the provisions of its national law that are applicable to domestic mergers. Tenth Directive specified all the steps for completing the merger process. In particular, it provided a legal framework that companies may refer to while also providing the opportunity to define the terms of some thorny issues, such as the employee participation. Moreover, simplified formalities for mergers involving wholly owned companies or companies that have 90% of their shares held are also specified. Thus, the legal tool of the Tenth Directive has clarified, simplified and developed a framework that is fundamental for the enforcement of the freedom of establishment within the EU. The cross-border transfer of the seat for S.E.: ● Guarantees the transfer of the company seat without the winding-up of the S.E. or the creation of a new legal entity; ● Clarifies that both the S.E.’s registered office and its head office ought to be in the same Member State; ● As a cross-border operation, cannot proceed if proceedings for winding-up, liquidation, insolvency or suspension of payments have begun against the company that is willing to move; ● Begins when the management or administrative organ prepares both a draft transfer proposal and a report explaining the legal and economic aspects and implications; ● The competent authority will verify that shareholders and creditors’ rights and interests are respected; ● A further certificate attesting the compliance of the whole operation is required before the registration of the S.E. in the new registry. The deletion of the old registration closes the entire procedure. The E.E.I.G. procedure allows the transfer of the seat without having to wind up the grouping and re-establish it in the host State. In particular, the transfer could, but does not necessarily, result in the change of the applicable law. Tax policy in the EU has two components: ● Direct taxation, which remains the sole responsibility of Member States; and ● Indirect taxation, which affects free movement of goods and the freedom to provide services in the Single Market. With regard to direct taxation, the EU has established some harmonized standards for company and personal taxation, and Member States have taken joint measures to prevent tax avoidance and double taxation. On indirect taxation, the EU coordinates and harmonizes law on value-added tax and excise duties. It ensures that competition on the internal market is not distorted by variations in indirect taxation rates and systems giving businesses in one country an unfair advantage over others. - MODULE 4 11 THE PROCESS OF SETTING UP A NEW COMPANY Under ECL, the laws of Member States must permit single members to form a new private limited company, whilst Member States may also permit the formation of public limited companies by single members. In cases where the laws of a Member State do not allow the formation of single-member public limited companies, a PLC formed by a single member shall be declared null and void. Private and public limited companies formed by more founders may subsequently become single-member companies when one person holds all the shares. This situation may lead to dissolution only when, following a Court order, the company does not regularize its position within a given deadline. The formation of a NewCo must follow a process, including three steps: 1. Redaction of the instrument of constitution and of the statutes, if they are contained in a separate instrument; 2. Preventive control; 3. Entry in the public register. Preventive Control is a reminder of the old times when a legal person could only be created by an act of the State. Now, preventive control is generally carried out by an administrative or judicial authority of the Member State. If no administrative or judicial control is provided for (e.g. Italy), the instrument of constitution shall be drawn up and certified in due legal form, to imply control by a notary or similar authority. EU law does not clarify the nature of any object for preventive control. As a matter of fact, it does not go beyond the conditions laid down for the validity of the instrument of constitution. In contrast with the old times, when the official grant was given by the State based on the merits, no authority is currently entrusted with the powers to challenge the business activities that are declared as objects of the company, except when they are unlawful. After preventive control – if this is necessary according to the laws of the Member State – the instrument of constitution is published in the public registry; therefore, the information included in it is made available to all interested parties. Although the three steps for creating a NewCo are generally very close to one another, time may elapse between the signing of the instrument of constitution and the moment in which this is entered into the public registry. The “pre-company” is an existing legal entity, although not yet enjoying legal personality, which only follows registration. ECL provides for rules preventing the company – once registered with the public register – to challenge the validity of certain obligations entered into before registration, on the grounds that the company was not in a condition to conclude binding contracts or, otherwise, to engage in obligations, because it does not yet have a legal personality. For these obligations, the (natural) persons who acted are jointly and severally liable, unless otherwise agreed. Despite entry into the public register, some companies operating in certain business sectors, such as banking and insurance, may not commence business without the authorization of the relevant authority. After the company is registered in the public register, obligations entered into by the company, shall be binding for the company. Indeed, registration constitutes a bar to any irregularity in appointment of the representatives being relied upon as against third parties unless the company proves that such third parties had knowledge thereof. Some EU and extra-EU Courts adopt the so-called ultra vires doctrine, by which acts attempted by a company that are beyond the scope of the powers granted by the 12 company’s objects clause – found in the statutes or similar founding documents – are void or voidable. ECL, however, rejects the ultra vires doctrine. Further disclosure is required in case a company has a sole member or opens a branch in another Member State: ● Where a company becomes a single-member company because all its shares come to be held by a single person, that fact, together with the identity of the sole member, must be entered in a register kept by the company and accessible to the public; ● Decisions taken by the sole member in the field on which the general meeting has powers to decide shall be recorded in minutes or drawn up in writing, as well as contracts between the sole member and his company as represented by him. THE FORMATION OF THE SOCIETAS EUROPAEA S.E.s are only created: ● By merger of at least two companies originating in different EU countries; ● By establishment of a holding company or subsidiary by at least two companies originating in different EU countries or having had a subsidiary or branch in another EU country for at least two years; ● By conversion of a company having had a subsidiary in another EU country for at least two years; ● By formation of a subsidiary by an S.E. or division of an existing S.E. An S.E. may be formed by means of a merger following one of the two procedures: ● Merger by acquisition or ● By formation of a new company. In the case of a merger by acquisition, the acquiring company shall take the form of an S.E. when the merger takes place. In the case of a merger by formation of a new company, the S.E. shall be the newly formed company. A merger involves three steps: ● The drafting of the terms of merger; ● The decision by the general meetings of the companies to be merged; ● The deed of merger. After publication of the draft terms of merger in the national gazette, the general meeting of each of the merging companies shall approve the draft terms of merger. The legality of a merger shall be scrutinized, as regards the part of the procedure concerning each merging company, in accordance with the law on mergers of public limited-liability companies of the Member State to which the merging company is subject. In addition, as regards the part of the procedure concerning the completion of the merger and the formation of the S.E. The same shall be scrutinized by the court, notary or other authority competent in the Member State of the proposed registered office of the S.E. to examine the legal aspects of mergers of public limited-liability. The merger shall take effect, and the S.E. shall be deemed to be formed, on the date of registration of the deed of merger. 15 form part of those assets. Where legal capital is mandatory, shares represent parts of the legal capital and measure the shareholders’ interest in a company. Shares are deemed to have a nominal value, this being the part of the legal capital that each share represents. The overall amount of all shares’ nominal values corresponds to that of the legal capital. As a consequence, provided that the nominal value of all shares is equal, division of the legal capital into the overall number of issued shares results in the nominal value of each share. However, ECL does not require that all shares have the same nominal value. Moreover, ECL does not require that shares have an expressed nominal value. In case a nominal value is not expressed, the concept of ‘accountable par’ is the proportion between the price paid for the shares and the value accounted for in contributions made to the company and being part of the legal capital. Therefore: ● Nominal value and accountable par are the lowest price at which shares are issued; ● As such, it is apparent that shares may be subscribed at a higher price; ● The difference between the nominal value or accountable par and the total consideration paid constitutes a share premium. This premium is accounted for in a reserve named the share premium account; ● Under certain conditions, and if the laws of the Member States provide accordingly, it is also possible to issue shares at a price lower than the nominal value or the accountable par. ECL requires that at the time the company is incorporated or is authorized to commence business, or at the time of a subscription in case of a capital increase, at least 25% of the total contributions are paid-up. The value of contributions other than in cash, either credits or contributions in kind, must be assessed. In order to ensure the protection of creditors and other shareholders that contributions other than in cash are not overvalued, ECL mandates for a report by an expert appointed or approved by an administrative or judicial authority. CAPITAL MAINTENANCE ECL provides not only capital formation rules, i.e. rules ensuring correct assessment of assets contributed for the formation of the legal capital, but also capital maintenance rules. Dividends are only paid when a company is showing a profit above the level of historically recorded legal capital. More precisely, ECL makes reference to the value of the net assets shown in the company’s annual accounts. In particular, the concept of net assets corresponds to that of equity. Depending on the balance sheet layout adopted by Member States, net assets or equity are shown in: ● Item A. Capital and reserves of the column Capital, Reserves and Liabilities of the horizontal layout; ● Or item L. Capital and reserves of the vertical layout. These Items measure the resources contributed to the company or accumulated by it, which are not liabilities or debts towards third parties. Contrary to US law, under ECL not all these resources are available for distribution to shareholders. ECL requires that, prior to a 16 distribution, the company performs a so-called balance sheet test, confirming that assets corresponding to the value of the legal capital and to reserves which may not be distributed under the law or the statutes are not reimbursed to shareholders as dividends. Moreover, reimbursement of these resources may only occur after dissolution of the company, or following a reduction of the subscribed capital, in case the general meeting provides accordingly and creditors do not object within a certain time limit. In any case, a reduction of capital below the minimum set out by the law is not permitted. As a consequence of the above provisions, ECL does not permit the distribution of so-called nimble dividends which are dividends paid out of the net profits of a company, in cases where there is a deficit in the account from which dividends may be paid out of surplus. Distributions of dividends made contrary to the previous provisions shall be deemed irregular. Hence, money paid to shareholders shall be returned to the company, but for the protection of shareholders unaware that the distribution was irregular, ECL requires that the company proves the irregularity of the distribution made to them. Dividends are declared and paid after the general meeting or the supervisory board approve the annual accounts. ECL does not take a position as to whether directors or the general meeting should declare dividends. As regards capital reductions, ECL requires that existing creditors are allowed to object to the execution of the corporate transaction, in case the distribution of assets or release of shareholders from the obligation to pay up their shares in full could prejudice the company’s ability to pay debts as they become due, i.e. the company’s solvency. In these cases, creditors may obtain immediate payment or adequate safeguards for their claims. As regards transactions on the company’s own shares, ECL prohibits a self- subscription of shares and a subscription of shares of the parent company by its subsidiary. Member State laws may now permit finance assistance, provided that safeguards are granted. In circumstances of a serious loss of the subscribed capital (or, more precisely, when the net assets fall below half of the subscribed capital: the amount of a loss deemed to be serious may not be set by the laws of Member States at a figure higher than half the subscribed capital), ECL requires that the board of directors – within the period laid down by the laws of the Member States – calls a general meeting of shareholders to adopt a resolution concerning appropriate measures, such as: ● A Change in the objects of the company; ● The pursuit of new financial resources, including a capital increase; or ● The dissolution of the company. ANNUAL AND CONSOLIDATED ACCOUNTS The annual financial statements are to comprise (at least) a balance sheet, a profit and loss account and the notes to the accounts. These documents constitute a composite whole. In addition to the three documents constituting the annual financial statements, it is required that the management board issues an annual report. Annual financial statements pursue various objectives: above all to provide information for investors in capital markets, as well as for creditors and other third parties, to give an account of past transactions and enhance corporate governance. Prudence and true and fair view, along with the going concern and the accrual basis, are EU general accounting principles: these are also applicable to consolidated financial statements. A true and fair view is compromised by missing information, but also by an excess of information and detail. There are two balance sheet 17 alternative layouts, leaving it to the Member States to choose and two layouts for the profit and loss account from which Member States are free to choose. Whatever the chosen layout, companies must comply with the general provisions concerning the balance sheet and the profit and loss account. Simplifications are provided for companies qualifying as either medium- or small- size, or for micro-undertakings. The annual financial statements must include the notes and a management report shall be added to the annual financial accounts. This shall include a fair review of the development and performance of the undertaking’s business and of its position, together with a description of the principal risks and uncertainties that it faces. Companies qualifying as public-interest entities shall also include in the management report a corporate governance statement. Consolidated financial statements pursue the objective of providing information to members and third parties. In brief, consolidated financial statements present the activities of a parent undertaking and its subsidiaries as a single economic entity (a group). An undertaking is deemed to be subsidiary to a parent undertaking when the latter has control over the former. The concept of control is based on: ● Holding a majority of voting rights in the general meeting; ● An agreement with fellow shareholders or members; and ● Holding a minority or none of the shares in the subsidiary: the first situation occurs when the shares of the subsidiary are widespread, the second situation occurs in case of a contractual relationship between the parent and the subsidiary giving the parent company dominant influence without participation in the subscribed capital. Consolidation requires the full incorporation of the assets and liabilities, of the income and expenditure of group undertakings, of the separate disclosure of non-controlling interests in the consolidated balance sheet within capital and reserves as well as the separate disclosure of non-controlling interests in the profit and loss of the group in the consolidated profit and loss accounts. Recognition and measurement principles applicable to the preparation of annual financial statements should also apply to the preparation of consolidated financial statements. Unlike subsidiaries, associated undertakings are included in consolidated financial statements by means of the equity method, i.e. the process of treating equity investments in associated companies as an asset. The investor’s proportional share of the associated company’s net income increases the investment (and a net loss decreases the investment), and proportional payments of dividends decrease it. In the investor’s income statement, the proportional share of the investee’s net income or net loss is reported as a single-line item. The use of the equity method is relevant for both the consolidated and the annual financial statements; as such it has an influence in the determination of the profits of the parent company available for distribution. Compliance with the IAS/IFRS standards adopted by the EU Commission is mandatory for the preparation of the consolidated accounts of all companies – being the ultimate parent companies – whose securities are admitted to trading on a regulated market of any Member State. However, Member States may permit or require these companies to prepare the annual financial statements in accordance with IASs. Member States may also permit or require that all other companies adopt the IASs. IAS/IFRS standards require that items included in the assets are accounted for at net realizable value or fair value, these being the expected net selling price in the ordinary 20 Recommendations, and a certain coordination of corporate governance codes in the EU should be organized to encourage further convergence and the exchange of best practice. The Future Plans for EU Corporate Governance are more transparency and more engaged shareholders. These new goals include: ● Enhancing transparency by: ○ Requiring disclosure of board diversity policy and management of non- financial risks; ○ Improving corporate governance reporting; ○ Permitting shareholder identification; ○ Strengthening transparency rules for institutional investors; ● engaging shareholders by: ○ Better shareholder oversight of remuneration policy; ○ Better shareholder oversight of related party transactions; ○ Regulating proxy advisors; ○ Clarification of the relationship between investor cooperation on corporate governance issues and the ‘acting in concert’ concept; ○ Employees share ownership. MANAGEMENT AND CONTROL “One-tier”/“two-tier”/mixed systems: the EU acknowledges the coexistence of these board structures and has no intention of challenging or modifying this arrangement. The S.E. governance structure is a typical example of this approach. The two-tier System’s structure is based on the general meeting of shareholders, the supervisory organ (responsible for supervising the management) and the management organ (responsible for managing the company). In particular, as regards the management organ: ● The statutes shall determine the number of members within a minimum and maximum amount eventually fixed by the Member States; ● Its members are appointed and removed by the supervisory organ; however a Member State may require or permit that the members of the management organ shall be appointed and removed by the general meeting under the same conditions as for public-limited-liability companies that have registered offices within its territory; ● No person may at the same time be a member of both the management organ and the supervisory organ of the same S.E. (only in case of vacancy, a member of the supervisory board may be nominated to act as member of the management organ by the supervisory board). As regards the Supervisory organ: ● Its members may not manage the company or be appointed as member of the management organ; ● Its members are appointed and removed by the general meeting; 21 ● The statutes shall determine the number of the members of the supervisory organ, within the minimum and maximum amount eventually fixed by the Member States. The wording of the S.E. Statute seems to preclude that the supervisory organ is composed of a single member. The S.E. Statute doesn’t specify how the supervisory organ shall supervise the management of the company, nor does it determine its duties and responsibilities. It only: ● Allows the Member States to grant the supervisory organ the power to make certain categories of transactions subject to authorization; ● Requires the management organ to provide the supervisory organ with information on business events, in particular on the events likely to have an appreciable effect on the SE or on the progress and foreseeable development of the S.E.’s business (at least once every three months); ● Grants the supervisory organ powers of investigation. The one-tier System’s structure is based on the general meeting and a single organ (responsible for managing the company). As regards the management organ: ● The wording of the S.E. Statute seems to preclude that the administrative organ is composed of a single member; ● In case of corporate co-determination of employees, the number of members shall be at least three; ● The chairman in this last case must be elected among the members appointed by the shareholders and, in case of tie, shall have a casting vote. The S.E. Statute doesn’t specify how the administrative organ shall manage the company, nor does it determine its duties and responsibilities. It only: ● Requires the organ to meet at least once every three months to discuss the progress and foreseeable development of the business; ● Mandates equal treatment of all members as regards information submitted to the organ. Not all members of the administrative organ shall necessarily engage in the day-to-day management of the company. Members who do not engage in it are called non-executive directors. They are involved in policy-making and planning exercising, along with the function of supervising the activities of the executives. These functions are similar to the supervisory board in the two-tier system. The presence of independent non-executive or supervisory directors as a means of preventing conflict of interests of management is particularly high as regards the nomination and remuneration of directors. Notwithstanding that one of the main goals of good corporate governance is to prevent conflict of interests, the general issue of conflict of interests with the company falls outside the normative framework of ECL. Nevertheless, it is possible to point to at least one set of provisions that aims at preventing conflicts of interests in case the directors, on behalf of the company, advance funds or make loans or provide security with a view to the acquisition of the company’s own shares by a third party, or in particular by individual members of the administrative or management body 22 of the company. As concerning control, statutory audits are not only related to annual and consolidated financial statements, but rather have a much broader relevance in the corporate governance of companies. After the financial scandals of the early millennium, the EU institutions adopted a new, more comprehensive Directive on statutory audits of annual accounts and consolidated accounts. GENERAL MEETING The engagement of shareholders in corporate governance depends, first of all, on the matters on which the general meeting decides. To define such matters it is useful to refer to the S.E. Statute. In particular, the S.E. Statute requires the shareholders’ meeting to decide on: ● The appointment and removal of members of the management organ in the one-tier system and, exceptionally, in the two-tier system; ● The appointment and removal of members of the supervisory board; ● Any amendment of the S.E. Statute; ● The winding-up; ● The conversion of the S.E.; ● An increase or reduction of capital, a redemption of shares not implying a reduction of capital or a compulsory withdrawal of shares (in case the statutes merely allow such withdrawal). Other important decisions, such as the acquisition of the company’s own shares or to provide financial assistance for the acquisition of the company’s own shares by a third party, are taken by directors upon an authorization of the general meeting. These authorizations are part of the so-called ‘whitewash procedure’. Some EU Member States require that the general meeting decides on the annual and consolidated financial statements, unless the company adopts a two-tier board system: in this case, as provided for in other member States, the supervisory board is entrusted with the task of approving the annual and consolidated financial statements. The shareholders’ meetings Procedure is held any time when their decision is required or appropriate, upon the convocation of the: ● Administrative; ● Management; ● Supervisory board; ● Shareholders holding a certain amount of shares may request the administrative or management organ to convene a meeting on certain items to be put on the agenda. In case of no compliance of the latter, the competent judicial court or administrative authority shall call the meeting. The meeting has to be held at least once a year, which is generally called for the approval of the annual financial statement and, where provided for by the Member State legislation, or by the company’s statute, for the distribution of dividends. In all legislation, the shareholder meetings shall follow a legal procedure granting that shareholders are put in a condition to take part in the meeting on a certain date and with all