2 week Flashcards
Business Organizations
is an expression that it is intended to embrace the way business activity can be organized and run under Corporate Law
Partnerships
entity (formally) separated from the partners organization based on individuals who:
Interpersonal and fiduciary relationships amongst partners are of the essence for the structure and management of Partnerships. Weak Form of Entity Shielding
Companies
legal entities (form of organizations) with Strong Separate Legal Entity and Limitation of Responsibility (for Equity-holders)
Binding
Obligation that cannot be altered by privates
PLC (Public company )
company that emphasizes the typical characteristics of a company with shares (“S.p.A.”):
with shared ownership of the capital
with freely tradable shares
potentially with a large and undefined number of shareholders
with an inbred dissociation between the status of shareholder and company’s management
with capitals mostly raised on stock exchange markets
Private Company:
ownership (of the capital) is aimed at entrepreneurial investment
individual investment is at high threshold
individual interest in information/monitoring is (proportionally to the investment) intensive
investing in information/monitoring (in Corporate Governance) is affordable
information is un-needed on recurring basis (long-term and stable investment decisions
How many shares does such a company has?
Dependson the nominal value of a single share
Nominal Value
Initial amount of capital
stock exchange price
Price pay in between the seller and the buyer of the share, nothing to do with the company
Residual claimers
share holders that are pay after all the other obbligations are fully covered by the company
(U.S. system)
Widely held Corporations» (company’s shares are held by a great and dispersed number of individuals)
(E.U. system)
«Closely held Corporations» (company’s shares are held by a smaller and more concentrated number of holders (stable “blocking equity-stakes”)
Private Company Law based
“networks of contracts”: missing a market, potentiated Voice rights (ex ante) and Exit rights (Appraisal right)
Common Between PCL & Private
Legal personality Limited liability Investor Ownership Delegated management Transferable shares
Legal personality
The firm serves as a single contracting party that is distinct from the various individuals who own and/or manage the firm (a «nexus for contracts») (Kraakman at al., 2009): Separate Entity (rights and liabilities pertain to the firm) with Separate Patrimony (pool of assets that are distinct from other assets owned, singly or jointly, by the firm’s owners)
Separate Entity:
the firm operates with third parties by means of specific designated individuals who have authority to act in the name of the firm
the law provides for procedures by which both the firm and counterparties can bring lawsuits
a Separate Patrimony (“Entity Shielding” Function):
firm’s rights of ownership company’s assets
company’s assets unavailable for attachment by personal creditors of firm’s owners
Limited liability:
Business creditors are limited to making claims against assets that are held in the name of (“owned by”) firm itself and have no claim against assets that the firm’s shareholders hold in their own names
Limited liability shields the firm’s owners – the shareholders – from creditors’ claims
to isolate different line of business
to share (and reduce) the risks
to grant flexibility in the allocation of risk and return between equity-holders and debt-holders
to facilitate tradability of firm’s shares
to facilitate “delegated management”
Investor ownership and shares:
Shared ownership tailored by contribution of capital: ownership rights proportionally tied to the amount of investment of capital contributed to the firm
each equity interest in the company is standardized and shaped on the basis of a nominal value equally assigned to all shares
each share normally bears equal rights and duties
different rights can be attributed only to different classes of shares
rights and duties are incorporated in the share and pass on with shares transfers
each share is therefore fungible with any other share (of the same class)
Delegated management with a board structure:
Authority over corporate affairs typically (and mandatorily) dissociated from the status of shareholders and vested in a separate and special office/body: board of directors (managing function); board of auditors (supervising and monitoring function).
board of directors
managing function
board of auditors
supervising and monitoring function
Managing Body
the managing organ is the “bailee” of the firm’s general government, separate from the operational and day-to-day (hired) managers/officers of the corporation:
the organ is elected by the firm’s shareholders (exception: Mitbestimmung in Germany)
the organ is formally distinct from the firm’s shareholders and is the exclusive depositary of managing activity
the organ is ordinarily a multiple members board: this enhances (and facilitates) mutual monitoring and checks idiosyncratic decision-making, while enriching skills and professional qualification of the managing board as a whole (Board’ Diversity)
Two-tier system
Dualistic System
Single-tier system
Monistic System
Three-tier system
Latin System
Transferable shares:
Free Transferability:
permits the firm to conduct business uninterruptedly as the identity of her owners changes.
maximizes the liquidity of shareholdings
maximizes the ability of shareholders to diversify their investments
grants the firm maximal flexibility in raising capital (on stock exchange markets)
Strong-form legal personality – limited liability – transferable shares tend to go together and are all features of the standard corporate form worldwide
segmentation and limitation of the risk together with easy exit
the risk of the investment can be ax ante limited (stop loss rule)
the investment can be easily disposable
the evaluation of the right shares price too is less expensive
segmentation and limitation of the risk together with delegated management
each investment does not require individual commitments in firm’s management
changes in the ownership do not diminish firm’s reliability in obtaining finance
changes in the ownership prevent shareholders from negative externalities
by Laws
Refers to Statute (rules how the goverment is govern
Comply or Explain
They can embody the reccomendation of the Europe court, they are free of not follow but the will have to explain
Market of Captial
Stock exchange market
Market for corporate control
power of influicing how the coporate is managed
Rules for having good corporate control
- transparency on qualify treasure ownership
2. mandatory public offer (opportunity to sell)
Mandatoriry premiun price
Usually 33% higher that normal price on stock exchange, you are not just buying share you are also buying the voting power
