European company law Flashcards
1
Q
Sole trader characteristics
A
- 1 natural person conducting business
- no legal basis
- cheap and easy formation
- no separation personal and business assets
- need to register
- personally liable
2
Q
sole trader advantages
A
- swift, easy and cheap formation
- flexibility
- easy to dissolve
- fiscal advantages (not taxed twice)
- the owner with full authority
3
Q
sole trader disadvantages
A
-unlimited liability
- no continuity
- limited financial resources
- transfer of business is complicated
4
Q
partnership characteristics
A
- 2 or more natural persons conducting business
- must be registered
- common goal
- contractual basis
- mutual agents
- contributions (with personal assets/kind/services)
5
Q
General partners
A
- Management rights
- Representation rights
- Contributions in cash, kind or services
- Jointly (fully and severely) liable
6
Q
Limited partners
A
- Restricted/no management rights
- No representation rights
- Contributions in cash or kind (no services)
- Limited liability
7
Q
partnership advantages
A
- easy, quick, cheap formation
- co-operation
- flexible
8
Q
partnership disadvantages
A
- Unlimited liability for general partners
- No continuity (in principle)
- Transfer of business is complicated
- Limited financial resources
- Requirement of at least two persons
9
Q
company characteristics
A
- Legal personality
- Limited Liability for Shareholders
- Transferable shares
- Centralized delegated management under a board structure
- Investor ownership
- Attracting financial resources
10
Q
legal personality
A
o Fiction of the law
o Separate entity from its directors/shareholders
o Acts in own capacity
o Priority rule (Creditors always have priority before the directors or shareholders)
o Liquidation protection rule (Company is protected against deliberate withdrawal of shares by the shareholder: shares can only be transferred)
11
Q
centralised/delegated management under board structure
A
- Dual structure: board of directors and general meeting of shareholders
- Separation between ownership and control (management, directors)
12
Q
public limited liability company
A
· Large (multinational) enterprises
· Stock exchange
· Open ‘public’ character - Easy to become a shareholder
· More regulated (and harmonized) structure of the company - because large, cross-border business
13
Q
private limited liability company
A
· Small and medium enterprises (family business)
· Closed character
· Less regulated (more flexible) structure of the company
14
Q
real seat theory
A
Location of the company’s central management and control, its headquarters/head office, as the connecting factor for determining the applicable national company law (FR, BE, GE, PL, ES) - requires dissolution and re-formation in the host state.
15
Q
incorporation theory
A
company law of the state where the company has been incorporated, thus the location of the company’s registered office/statutory seat (UK, NL)
16
Q
branch office
A
- not a separate legal entity
- home company is directly responsible for all the liabilities of the branch
- The branch must file the (translated) financial statements of its home-company with the domestic companies register
- Branch must have a branch manager appointed by the home company
17
Q
branch manager
A
- Must be appointted by the home company
- Branch manager should have the power to represent the company to some extent and as a minimum should be able to represent the company in legal proceedings
- Branch manager must fulfil the same requirements as persons who are appointed as directors of domestic companies
- Branch manager also appointed to represent the home company in its dealings with tax authorities
- Responsibility depends on the facts, degree of independence, and powers delegated to him (the more the role resembles the one of the employee, the lower the liability except gross negligence or recklessness in the performance of employment contract)
18
Q
Gebhard
A
Measures to prevent/penalize fraud are allowed if:
(1) non-discriminatory (2) public interest (3) suitable for securing the objective (4) proportional
19
Q
Centros
A
UK-DK Branch, inbound, refusal to register is a violation of Arts. 49 and 54 TFEU, MS cannot refuse the registration of foreign branches (choosing the least restrictive jurisdiction to set up a company is not an abuse)
20
Q
Inspire Art
A
UK-NL Branch, inbound, imposing conditions of minimum capital requiremens and directors’ liability based on domestic law in respect of company formation of a company lawfully established in another MS is contrary to EU law
21
Q
Daily Mail
A
UK-NL Moving HQ, outbound, outside the scope of Arts. 49/54 (restrictions by MS allowed, companies are creatures of national law and they must abide by the restrictions imposed by this national law)
22
Q
Uberseering
A
NL-GE Moving HQ, inbound, host MS has to recognize the legal capacity to be a party to legal proceedings of the company duly established in a different MS, violation
23
Q
Cartesio
A
HU-IT Moving HQ, outbound, outside the scope of Arts. 49/54 (if both legal and HQ moved - HU cannot restrict)
24
Q
Polbud
A
PL-LU Moving legal seat, outbound, home MS cannot impose a condition to liquidate a company which wants to change the legal seat to another MS
25
Vale
IT-HU cross-border conversion, inbound, restrictions prohibited if (1) Conversion allowed under the national law of the host MS (2) The converted company is reincorporated in accordance with the national law of the host MS.
26
Sevic
A receiving Member State is prevented from treating a merger between a foreign and a domestic company differently from the merger of purely domestic companies.
27
Daihatsu
- Access to the registers not confined to members, creditors or employees of a company (innere circle)
- All interested persons (any interest) should have access to disclosed documents and company matters
28
Marlesing
Exhaustive list of grounds for nullity under art. 11
29
UK private company
no minimum capital requirement
30
UK public company
minimum capital requirement 50.000
31
UK incorporation requirements
- Memorandum and Articles of association
- Registration in register grants the company legal personality
32
FR private company
No minimum capital requirement
- Max. 100 members (shareholders) - If they exceed, they are dissolved within 1 year, can convert to a public company
33
FR public company
- Minimum capital requirements €37 000
- At least 2 members
34
FR incorporation requirements
- Articles of association have to be signed (notarial deed not required)
- Company obtains legal personality at the moment of registration
35
GE private company
1. GmbH
- Minimum capital requirement €25 000
- Better reputation than UG
2. UG
- Minimum capital requirement of €1
- Requirement to pay up the entire amount of the share capital before registration
- Requirement to set up a reserve fund equal to a quarter of the annual net profit
- Reserve fund = €25.000 conversion to GmbH possible
- Contributions in cash only allowed
36
GE public company
minimum capital requirement 50.000
37
GE incorporation requirements
- Articles of association in notarial act
- Legal personality at the moment of the registration
38
NL private company
minimum capital requirement 0,01
39
NL public company
minimum capital requirement 45.000
40
NL incorporation requirements
- Act of incorporation in notarial act - Company obtains legal personality at the moment of the notary act
- Registration is required to avoid director's liability, but is no requirement for incorporation
41
General requirements for registration
- statement of compliance (abiding by formalities)
- statement of proposed office
- statement of the capital
- initial shareholders
42
nature of a company
- Company = Nexus of contracts (most importantly between shareholders and directors)
- Separation of ownership (shareholders) and control (directors)
- Agency problems (behaviour of one person affects the wealth of another)
o Shareholders - Principals
o Directors - Agents
-Shareholders are residual claimants because they are the risk-bearers)
43
agency costs
1. The cost of creating and structuring contracts between SH and management
2. Costs of monitoring managers
3. Costs of managers incurred in proving loyalty
4. Residual loss incurred because diligence and loyalty are never perfect
44
one tier board structure
both company executives and non-executive board members serve on a single board of directors
45
two-tier board structure
consists of separate boards, a supervisory board, which is primarily composed of non-executive directors and a management board, which is composed of executive directors
46
advantages of one-tier
More collaboration, everyone is involved.
· All directors are accountable as they all sit on the board.
· Easier to obtain information
47
advantages of two-tier board
· More independence for the supervisors
· Separation of roles is clearer
· Clear rights and duties
48
rules
clear cut and describe certain behaviour that should be avoided
49
standards
- Prescribe how a person should act or fulfill a function or task
- Operate as open-ended measures against which the quality of the performance can be assessed ex post
50
directors duties
- Duty of care and diligence
- Duty of loyalty (not explicit in GE)
51
models based on which the directors owe their duty to someone
- Shareholder model (because risk-bearers, owners)
- Stakeholder model (duty owned to the company and not the shareholders: employees, creditors)
- Enlightened shareholder model (While they serve the interest of the shareholder, they have to take into account the interests of the company)
52
shareholders rights
Control - Voting
· Financial – net earnings dividents
· Right to exit (also withdrawal)
53
classes of shares with regard to voting
- non-voting shares
- multiple voting shares
54
rights of GM of shareholders
- Right to appoint and dismiss the directors
- Instruction rights
- Right to approve certain board decisions (core assets transfer)
- Right to call a general meeting
- Right to place items on the agenda
- Right to amend the articles of association
- Right to information
- Right to wind-up the company
55
duties shareholders
- Transparency requirements and duty to report significant shareholdings (disclosure)
- Fiduciary duties of the controlling shareholder (towards the minority)
56
shareholder liability
limited except:
- Shadow directorship (shareholder-de facto director, liable as a director under national law)
- Piercing of the corporate veil
- Majority shareholder abuses minority shareholder
57
powers of directors
day-to day managing
representation
58
reasons for capital protection
- protecting creditors
-protecting shareholders
59
capital protection in the narrow sense
Minimum capital requirement is supposed to apply during the company's whole lifetime to have a fund to potentially compensate creditors
60
capital protection in a widened sense
Also transparency of the company's financial records with the aim to inform the outer world (creditors) properly
61
capital
sum of all the shares that have been issued multiple by nominal value of each share
62
shares
bundle of rights that the shareholder has with respect to the company as a consequence of the contribution of equity
63
nominal value of shares
An arbitrary value assigned for balance sheet purposes when the company is issuing share capital (market value - premium)
64
market value of share
value depending on supply and demand
65
authorised capital
maximum capital that a company is authorised to issue to their shareholders
66
issued capital
value of shares investors have promised to buy when they are released
67
non-issued capital
the value of shares that have not yet been issued
68
paid up capital
subscribed shares for which the shareholder has already paid up
69
not paid up capital
subscribed shares for which the shareholder has not yet paid up
70
called up capital
the amount of share capital shareholders owe, but have not paid
71
reserves
profit which is not distributed to shareholders, but is put back into the business
72
registered shares
- Possibility of paying only 25% in case of issuing (Art. 48)
- We know the shareholder – linked to the share
73
unregistered shares
- Share certificate
- Easy transfer because no need to go to notary (a transfer certificate needed, but national law determines the conditions for the transfer of shares, e. g. a share certificate as a document)
- Have to be fully paid up
- Dematerialized and abolished in most MS because of potential fraudulent transactions and money-laundering
74
acquiring/subscribing to shares
newly issued shares are subscribed to, old shares can be acquired
75
Siemens case
MS may extend pre-emptive rights to an increase of capital by consideration in kind, EU law provides for minimum harmonization
76
diamantis
abuse of pre-emptive rights determined by national law
77
dissolution and liquidation
Dissolution – Prerequisite for liquidation, decision made by the general meeting of shareholders
Liquidation – selling of all the assets of a company to satisfy the remaining claims, if anything left it goes to the shareholders
78
Disadvantages of public limited liability company compared to private limited liability company
- The investors in the company are generally not known and shares can also be transferred without the company knowing. This free transferability of shares inherits the risk of shareholders with wrong intentions becoming part of the general meeting and exercising their control rights in the company. In private limited liability companies, the shareholders are known, and shares cannot be transferred without the consent of the other shareholders.
- Higher minimum capital requirement compared to private limited liability companies (which in most jurisdictions require no minimum capital).
- More regulated compared to private limited liability companies.
79
derivative action
- Allows shareholders to claim a director’s internal liability on behalf of the company in case the director’s acts caused the company damage
- Not possible in all jurisdictions
- Light version in GE (shareholder sues in his own name but the damages go to the company)
80
dual structure and its idea
Mandatory internal organization of companies:
a board of directors and a general meeting of shareholders
The idea is that there should be a balance of powers within a company; every organ has its own powers and rights
This is even the case in a single-member company
81
limited liability company advantages
- Legal personality
- Limited liability of shareholders
- No liability for directors
- Access to financial resources
- Continuity
- Easy transfer of the business
82
limited liability company disadvantages
-minimum capital requirements
-not very flexible- regulated
83
asset transaction
- Legal personality
- Limited liability of shareholders
- No liability for directors
- Access to financial resources
- Continuity
- Easy transfer of the business
84
share transaction
- Company A acquires shares of company B (compensation in cash or shares of company A)
- Advantage - simple transaction
- Disadvantage - no flexibility nor cherry picking
85
legal merger
- Takes effect by registration, not a private act
- Advantage - legal certainty + harmonization
-Disadvantage - no cherry-picking
86
Reasons why in practice BoD decides about the increase in capital instead of general meeting
1, A better insight in the day to day business of a company and knows when the company is actually in need of such a capital increase
2, It is easier and quicker for the board of directors to make such a decision, because they meet on a weekly basis, instead of in general once a year like shareholders do
3, More expertise
