Tier systems Flashcards
One-tier system governance, explain main competences
single governing body that combines both management and supervisory functions. * Common in countries like the UK and the US.* Internal audit committees often monitor management. MAIN COMPETENCES- Representation of the Company,Shareholder Relations and General Meetings,Management of the Company,Decision-Making and Corporate Policies
Please describe the main bodies present in a two-tier corporate governance system and briefly state the main competences of each of them.
In a two-tier corporate governance system, there are two main bodies: the Supervisory Board and the Management Board. Supervisory Board-Appointing and dismissing members of the Management Board, Approving major business decisions, Protecting shareholder interests.
Management Board- Executing business strategies, Preparing financial reports, Representing the company, Making operational and financial decisions. * Common in Germany and the Netherlands.
Explain Latin Traditional System in Corporate Governance, and its main competences.
Used in countries such as Italy, Portugal, and Romania. It is characterized by a three-body structure.
The Shareholders’ General Meeting (SGM)- highest decision-making body,Appoints and dismisses ,Approves financial statements,Amends company statutes
The Board of Directors (BoD)-Holds exclusive management powers, Makes strategic and operational decisions , Can delegate certain functions, Prepares financial reports for shareholder and auditor review.
The Board of Statutory Auditors-A separate body composed of independent members (3-5 auditors, at least one accountant)., Monitors the actions of the Board of Directors,inspection and reporting rights.
Convertible bonds:
Are usually issued at least with the authorisation of the Shareholders’ meeting, as the conversion
entails a capital increase.
What are a company directors’ main duties?
Duty of privacy and duty to increase the capital, if needed
Which one of the following statements about shares is correct
In a given company all the shares always incorporate the same set of rights
In a given company all the shares always incorporate the same set of duties
In a given company all the shares are included in the same category
In a given company all the shares always have the same par value
What does the Business Judgment Rule primarily protect directors against?
Liability for informed and rational decisions
Discuss the differences between the one-tier and two-tier corporate governance systems, including their advantages and disadvantages.
The one-tier system centralizes decision-making within a single board, enhancing efficiency but requiring strong internal checks like independent directors. The two-tier system separates supervision (supervisory board) from management, providing better oversight but risking slower decision-making due to its layered structure. Countries often choose based on cultural and legal traditions, balancing control and efficiency.
What is the minimum capital required for public companies in the EU?
€25,000
is NOT a valid contribution to capital under EU rules?
Labor services
Types of General Meetings
Ordinary Meetings: Approve financial statements and regular business.
Extraordinary Meetings: Approve major changes like mergers or amendments
Procedures in General meetings
Shareholders must be notified in advance.
Voting thresholds: Simple majority for most decisions, supermajority for critical matters.
who can Challeng Decisions in general meetings,why
Shareholders can challenge decisions in court for reasons like conflict of interest or procedural violations.
What are the types of Financial Instruments?
Bonds
Hybrid Instruments
What are bonds?
Bonds represent debt obligations of the company, with terms defining maturity, repayment, and interest.
Convertible Bonds:
Allow bondholders to convert bonds into shares.
Requires shareholder approval, as it dilutes existing equity
What are Hybrid Instruments?
Combine features of debt and equity.
Examples:
Italy: – financial rights and limited voting rights.
Sweden: Dividend-linked loans.
What are the type of shares?
Bearer Shares: Ownership is transferred simply by handing over the certificate.
Name Shares: Transfer requires a change in the company’s register.
Par Shares: Have a nominal value stated in the articles of incorporation. EU law prohibits issuing shares below par value.
Non-Par Shares: No nominal value is stated; the price reflects the company’s net worth.
What rights shareolders have?
Basic Rights:
Voting (e.g., appointment of directors).
Dividends and reserve distributions (if declared).
Initiating lawsuits against directors.
Secondary Rights:
Access to information.
Ability to challenge corporate decisions.
Right to call a general meeting (subject to a percentage threshold, e.g., 5%-20% of shares).
Classes of Shares
Voting Shares: Some shares grant multiple votes per share (common in Belgium, France, Italy).
Non-Voting Shares: Usually entitled to higher dividends or priority returns.
Golden Shares: Grant specific powers to certain shareholders, often governments, such as veto rights over key decisions
What is the role of an expert in assessing in-kind contributions?
To evaluate the economic value of the contributed asset
What is a drag-along right?
Majority shareholders can require minority shareholders to sell shares in a transaction.
Which countries allows only the two-tier corporate governance system?
Germany
What is the main difference between a supervisory board and a board of directors in the two-tier system?
The supervisory board oversees and monitors the management board.
What is a convertible bond?
A bond that can be converted into shares of the issuing company.
What percentage of minority shareholders is required to call a general meeting in most EU Member States?
5%
Why are hybrid instruments considered unique?
They combine equity and debt features.
Which of the following actions requires a supermajority vote in a general meeting?
Amendment of the articles of association
What are the main differences between debt, equity and hybrid instruments?
Equity refers to shares representing ownership in a company, debt refers to borrowed money like bonds which must be paid back with interest, and hybrid instruments combine aspects of both equity and debt.
What is the purpose of a solvency test with regards to distributions of company profits?
A solvency test ensures that a company is able to meet its financial obligations; the directors must consider the solvency of the company before distribution of company profits.
Name three basic rights typically granted to shareholders.
Shareholders have the right to appoint/dismiss directors, receive yearly financial statements, and receive dividends/reserve distributions if any.
Explain the difference between tag-along and drag-along rights in the context of share transfers.
Tag-along rights allow minority shareholders to sell their shares along with majority shareholders, while drag-along rights allow majority shareholders to force minority shareholders to sell their shares.
