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COMPARATIVE COMPANY LAW > WEEK 3 > Flashcards

WEEK 3 Flashcards

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1
Q

EQUITY CAPITAL TRANSACTIONS

A

increase or reduction of capital:issue and cancellation of shares, many countries consider it as an amendment to the charter of co–> requires resolution of sh

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2
Q

INCREASE IN TRANSACTIONS

A
  • provided by new or existing sh for + shares
  • capitalization of profits and reserves
  • in eu shareholders are granted pre-emption rights fro subscription of new shares
  • ue: par value (protects creditors)
  • us: no par value; insolvency test (equity& balance sheet)
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3
Q

INCREASE IN TRANSACTIONS FRANCE

A

PRIVATE CO: alteration of co articles to be approved by 2/3 of sh
PUBLIC CO: extraordinary. meeting 2/3 sh represented, power to directors, statutory pre-emption rights (can be limited or excluded)

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4
Q

INCREASE IN TRANSACTIONS GERMANY

A

PRIVATE CO:non discrimination of sh,majority of 3/4 votes cast
PUBLIC CO: extraordinary resolution, majority of 3/4 of sh,statutory pre-emption rights,delegation power to directors

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5
Q

STEPS TO FORM COMPANY

A
  1. shareholders enter into a founding deed
  2. sh make capital distributions
  3. non cash contributions
  4. charter filed with public register
  5. aquisition of legal personality with step 4
  6. sole sh company: on setting up; contributions in full it or by providing security
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6
Q

FOUNDING DEED/CHARTER CONTENTS

A
  • name of founders
  • name of the company
  • purpose
  • place fo registered office
  • contributions of shareholders
  • number of shares issued
  • capital
  • name of directors or delegated agents
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7
Q

STEPS TO FORM COMPANY FRANCE - PRIVATE

A
  • set up by single-member or more than 1
  • ARTICLES of association must set out the type of co., duration(not more than 99y), legal capital
  • NO MIN amount of CAPITAL
  • articles must be executed by all shareholders, co acquires LEGAL PERS on filing with the register of commerce and companies
  • valuations of contribution in kind by expert report (mandatory usually): consequnce for lack of valutation or not compliance with report: liability of shareholders for 5 y
  • 1/5 of capital contribution must be paid immediately , in full contributions in kind
  • contributions in work or sevices allowed but rare; nto part of legal capital
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8
Q

STEPS TO FORM COMPANY FRANCE - PUBLIC CO.

A
  • 2 to unlimited sh
  • mandatory min capital: non-listed- €37.000,00; higher for listed Co
  • set up by article, by founding sh in notarial form
  • contributions in kind: experts report, appointment by the president of commercial law court—> consequences i not compliant with report: criminal liability on sh. contributions of work or service are not allowed
  • once company filed–> legal personality
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9
Q

STEPS TO FORM COMPANY GERMANY-PRIVATE CO

A
  • 1 or more sh
  • articles of association by a notary public
  • min amount of capital€ 25.000; 25% contributions
  • contributions in kind: made in full, valuation procedure described in report executed by all sh
  • articles lodged with commercial register of lace where co has its registered office–> legal personality
  • GMbH (Unternehmergesellschaft): €1 capital; ¼ yearly profits to be set aside as capital reserves
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10
Q

STEPS TO FORM COMPANY GERMANY-PUBLIC CO

A
  • 1 or more
  • set up through notarial deed and registration of articles in the commercial register
  • min capital €50.000, 25% of contributions in cash paid immediateley
  • in kind: made in full; written report by founding shareholders describing validation procedure later checked by directors
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11
Q

STEPS TO FORM COMPANY ITALY- PUBLIC CO

A

in italy two types o public co(law distinguishes them only on some issues; governance rules):
•closely -held
•widely held

  • 1 or more sh
  • deed of incorporation and bylaws (1 doc, notarial form) registration with register of enterprises by notary public
  • min capital:50.000
  • in kind: valutation by expert appointed by president of tribunal and later checked by directors
  • charter: capital,type of governance system
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12
Q

STEPS TO FORM COMPANY ITALY- PRIVATE CO

A

• 1 or more
• shares not tradable in regulated financial markets
• min capital 10.000
–> simplified s.r.l.: form 1 to 9999 euros, restriction on distribution of profits and identity of shareholders
• in kind: report by expert appointed by contributing sh
• special rules for contribution of work or services
• Fewer mandatory rules than public companies: e.g.: rules which can be opted out: decision-making process for shareholders; process for shareholders, specific rights of some shareholders; system of management; cases of retirement for shareholders;

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13
Q

STEPS TO FORM COMPANY US

A

DEPEND ON STATE LAWS BUT SOME GENERAL PRINCIPLES
• documents delivered to appropriate states for filing
• every state imposes a filing fee
• different names of founding doc excecuted by founding sh ( articles of organization (Texas))
• minimum contents: mandatory provisions (se standard contents) and permissive provisions (e.g. pre-emption right or other restrictions to transfer; management model in close corporations; amendments to default rules like quorum).
• no min capital, no stated capital in some regions eg. cali
• After incorporation an organizational meeting will take place to complete the organization of Co.; purpose: to adopt the by-laws; to appoint officers.

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14
Q

DEBT SECURITIES( BONDS,DEBENTURES)

A

• division of a loan made to the Company into many fractions having the same size; no right to vote; bondholders are only creditors of the Company.

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15
Q

DEBT VS EQUITY

A
  • Debt is riskier for the business, because it must be repaid; it is safer for investors, but if the Company does well the profits do not need to be shared with lenders.
  • Equity is riskier for investors, because they can lose the money invested; at the same time, investors will obtain shares of the profits made by Co.
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16
Q

SHARE CAPITAL TRANSACTIONS

A

EU States: any decision to increase/decrease the capital of Co. consists of an alteration of the articles of Co. and usually requires a decision by the shareholders.
Debentures convertible into shares. Conversion at holder’s will.
E.g.: Bonds € 1000 debt of Co. towards bondholders (BH);
BH exercise their right of conversion; liabilities of Co. are reduced by €1000 and the capital is increased by €1000. Co. will issue new shares for the amount of € 1000.

17
Q

EQUITY-CLASSES OF SHARES- FRANCE

A
  • possibility to issue classes of shares different from ordinary shares granted to public Co. only recently: preference shares cumulative or non cumulative
  • Issue restrictions for preference shares of public co: if no or limited voting rights: not over 50% of capital; 25% for listed Co : rationale: a significant part of shareholders must be able to participate in shareholders’ decision making by voting. Multiple voting rights are allowed for public companies
  • 2004 securities giving rights of conversion into capital: convertible bonds/debentures.
  • Tracking shares.
  • Private Co.: freedom to issue different classes of shares.
18
Q

EQUITY-CLASSES OF SHARES- GERMANY

A
  • private and public Co. can issue special classes of shares.
  • Private Co: freedom on regulation of economic and personal rights.
  • Public Co: strictly regulated.
  • cumulative preference shares with no voting rights attached: admitted only in compliance with complex and strict rules set out by law about economic preference and voting restrictions.
  • cumulative preference shares with no or limited voting rights cannot represent over 50% of the capital.
19
Q

EQUITY-CLASSES OF SHARES- ITALY

A

• Private Co.:Special allowed only for Small Medium Enterprises (SME) s.r.l. (since 2017); no special classes of shares for the other s.r.l. non SME; the law allows the Co. to confer special rights as to the distribution of profits and administrative rights to individual Sh.

•Public Co. :each share enjoys equal rights. Special rights cannot be attributed to an individual Sh. but can to special classes of shares.
• Special (i.e.: non common) classes of shares: limited or no voting right; in closely-held public Co. additional voting restrictions can be imposed.
• The number of shares with no or limited voting rights must not exceed half of the capital: such special classes of shares concentrate decision–making power on ordinary Sh.
• Tracking shares.
• Multiple voting rights: max 3 per share for non-listed Co.; “loyalty shares” for listed (double voting right if shares are held for a minimum amount of time).
Issue of additional classes of non-common shares

20
Q

EQUITY-CLASSES OF SHARES- US

A

Types of equity securities:
• common stock: usually, one share one vote; but multiple voting rights are admitted for all Corporations; stock with limited or no voting rights admitted;
• preferred stock: the economic benefits and possible voting rights restrictions can be freely decided by Co.
• Tracking stock allowed.

21
Q

EQUITY CAPITAL TRANSACTIONS INCREASE-ITALY

A

alteration of articles; extraordinary Sh.s’ meeting; 2/3 majority of capital in attendance.
•Directors’ delegated power.
•Pre-emption right for Sh. of private and public Co. and possible restrictions.
•Treatment of non subscribed shares.

22
Q

EQUITY CAPITAL TRANSACTIONS INCREASE-US

A

Authorized stock: maximum amount of shares which can be issued under the charter.
•issued stock: number of shares which have been actually issued (sold) by Co. to Sh.
•In States where the notion of stated capital still exists, the issue of new shares increases the stated capital; in other states it just increases the overall equity (own means) of Co. (directors “sell” shares on behalf of Co.).
•Pre-emption rights: not mandatory.

23
Q

DECREASE/REDUCTION OF EQUITY CAPITAL

A

Two types:
- a) capital contributions are returned to the shareholders pro-rata (repayment or waiver by Company to claims to Shareholders’ contributions).
- US: distributions to shareholders.
- Issue of protection of the creditors of the company/corporation.
- b) the capital must be reduced because the Company incurred losses: the reduction is only an accounting formality.
In most jurisdictions the transaction is an amendment of the charter resolved by the shareholders.

24
Q

DECREASE/REDUCTION OF EQUITY CAPITAL- FRANCE

A

Private and public Companies.
•If the reduction is carried out as a distribution of assets (money) to Sh. extraordinary resolution (see quorum); equal treatment of Shareholders;
•Right of objection of creditors: court decision.
•Reduction due to losses: no right of objection by creditors;
•If the actual amount of capital falls below half of the value of nominal capital Sh. must decide whether to recapitalize or wind up the Company.

25
Q

DECREASE/REDUCTION OF EQUITY CAPITAL- GERMANY

A

Private and public Companies: always alteration of charter; approval with 3⁄4 majority of votes cast.
•Reimbursement of contributions to Shareholders: right of objection by creditors and right of creditors to payment of claim or receive a security for repayment after the Shareholders’ resolution is made public.
•For both private and public Companies, the procedure of reduction is simplified if the reduction is carried out in order to write off losses (“nominal” reduction)  creditors cannot object, nor claim any payment or security.
•Restrictions of distributions of profits following a capital reduction in relation to the amount of capital.

26
Q

DECREASE/REDUCTION OF EQUITY CAPITAL- ITALY

A

Private and public Companies: mandatory in case of losses which cause the legal capital to diminish by over 1/3; optional in the other cases.
•Procedure: shareholders’ extraordinary meeting and shareholders’ prior information.
•Reduction of capital below minimum level: consequences.
•Voluntary reduction  Sh.s’ extraordinary meeting and creditors’ protection through right of objection

27
Q

DECREASE/REDUCTION OF EQUITY CAPITAL- US

A

Transactions of capital reductions are linked to the issue of distributions of assets of the corporation to Shareholders;
•Different rules if there is a stated capital or not:
•Stated capital: no distributions to Shareholders if the accounts of the corporation
show losses (for the majority of the States);
•No stated capital: distributions are decided by the directors in compliance with the insolvency test (equity test and balance sheet test); liability of directors for breach of the insolvency test.

COMPARATIVE COMPANY LAW (3 decks)

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