default rules
defaults which can be overruled if necessary fallback, if not defined otherwise
mandatory rules
rules for any company e.g. tax law
Approaches
what a company is for, what it works towards
shareholder view
as long as shareholders maximize their profits everyone will benefit through indirect self-interest of the owners
enlightened shareholder view
not just profit maximization but also benefits to employees and creditors
Partnerships and Companies
partnership != company
no other business forms can be created (GmbH, AG, etc) but not any more
Business Register
Business Register
facts or legal relationship public accessible for everyone power of representation → attorneys public entry is mandatory list of members or directors annual accounts visible
Link to original
Partnerships
“Offene Gesellshaft” unlimited liability for entire debts, not by individual share owners vs employees default rules:
- no inheritance or transfer of share limited partnership → only liable to own share / equity silent partnership → not in business register but still existing partnership under civil law → only smallest businesses, even by tacit agreement
not taxed directly, only with individual incomes of members
Companies
five criteria
- legal personality,
- limited liability,
- transferability of membership,
- management not directly by the members
- i.e. manager != owner
- investor ownership
shares are transferable
private limited company → “GmbH”
- primarily default rules public limited company → “AG”
- primarily mandatory rules
profits taxed twice
- first on the company level
- second on the individual income level
Others
- cooperative “Genossenschaft”
- limited liability but management through members
- further economic interest of members
- common fields: agriculture, banks, housing
- association “Verein”
- legal entity
- not primary goal is profits
- foundation “Stiftung”
- mostly charities
- may be private to insure against death
National Law
- company law is national law
- similar in Europe, but different still
- one-tier approach or two-tier approach in management
- codified law
- enforced privately, not on the courts own initiative
other sources of law
- securities law or capital markets law
- companies listed on stock exchange
- protection of investors
- information publishing on beginning
- continuously publish information
- might be deterrent from selling stocks in first place
- one reason for going private, i.e. not selling stocks anymore
- corporate governance codes
- guides that should be complied with
- “comply or explain” principle
- non-compliance might be hard to explain to investors
- Insolvency law
- cannot meet due debts or negative equity
- not profit maximization → maximize proceedings of creditors
- insolvency manager and court supervision
- often lead to restructures instead of liquidation
- if assets do not cover liquidation costs → straight deletion of company
Company Law in the EU
- no concise body
- harmonization in focus
- mostly affecting public companies
- in US, company law on state level, not federal
- separate company forms
- mostly used temporarily for mergers within EU
- only public companies
- interest group for private companies exist, not done yet
- securities law
- cross-border investments
- ESMA
provisions
- freedom of establishment
- company may be founded in another country
- laws of other country are relevant
- pseudo-foreign corporations
- actual incorporation country has to accept
- free movement of capital
- limit on Golden Shares held by member states
- unlimited Golden Shares could prohibit free movement of capital
- important part in company law
directives
- other Directive regarding public companies
- Raising Capital
- Mergers and Acquisitions
- Cross-Border Mergers
- harmonization in Accounting
- not included is topics of internal organization or private companies
Principal-Agent Conflicts
Principal-Agent Conflicts
related to Principal-Agent Principle
Concept
trying to settle conflicts between interest groups within company
- principal … person which welfare are represented
- agent … person acting to infringe in welfare of principal
- types of conflicts
- less investment, money or time
- corruption
- asymmetric information → high “agency costs”
- trying to reduce agency costs
Relations
Shareholders and Management
- management by third parties → managers do not have shares, just salaries
- managers obligated to act in best best interest for shareholders
- monitoring costs
- free-riding more common with many smaller shareholders → wider held
- monitoring mandatory, even if no single shareholders wants to enforce
Majority and Minority Shareholders
- applies to closely held companies
- principals … minority
- agent … majority
- mostly affecting subsidiaries affected by parent company
- less influence by shareholders on managers
Shareholders and Other Stakeholders
Link to original
- employees protected by labor law
- works council
- trade unions
- creditors protected by company law
- shareholders to not carry debt
- creditors cannot influence management
- imbalance
Generated Flashcards
“Shareholder view of a company” ::: Shareholders maximize their profits for indirect self-interest of the owners.
“Enlightened shareholder view of a company” ::: Profit maximization with benefits to employees and creditors.
“Differences between partnership and company” ::: Partnerships do not have legal personality and limited liability like companies do.
“What is the difference between a partnership and a company?” ::: Partnerships do not have legal personality or limited liability, while companies do.
“What is the role of shareholders in a company according to the shareholder view?” ::: Shareholders aim to maximize their profits for indirect self-interest.
“What is the role of shareholders in a company according to the enlightened shareholder view?” ::: Shareholders aim to maximize profits while also benefiting employees and creditors.
“What is the difference between a private limited company and a public limited company?” ::: A private limited company (GmbH) primarily follows default rules, while a public limited company (AG) primarily follows mandatory rules.
“What is the taxation process for profits in companies?” ::: Profits in companies are taxed twice, first at the company level and then at the individual income level.
“What is the purpose of securities law or capital markets law?” ::: Securities law or capital markets law aims to protect investors and ensure transparency in companies listed on the stock exchange.
“What is the purpose of insolvency law in relation to companies?” ::: Insolvency law aims to address situations where a company cannot meet its debts or has negative equity. It focuses on maximizing the proceedings for creditors and often leads to restructuring instead of liquidation.
“What is the significance of company law in the European Union?” ::: Company law in the European Union focuses on harmonization, particularly for public companies. It includes provisions for freedom of establishment and free movement of capital. Directives also address topics such as raising capital, mergers and acquisitions, and accounting harmonization.
“What are principal-agent conflicts in the context of companies?” ::: Principal-agent conflicts refer to situations where the interests of shareholders (principals) and managers (agents) may not align. These conflicts arise due to the separation of ownership and control in companies, and can lead to agency problems and potential misuse of company resources.
“What are the criteria for a company to have legal personality?” ::: The criteria for a company to have legal personality include having limited liability, transferability of membership, management not directly by the members, and investor ownership.
“What are the default rules for partnerships?” ::: The default rules for partnerships include no inheritance or transfer of shares, unlimited liability for entire debts in an “Offene Gesellschaft,” and limited liability only to own share in a limited partnership.
“What is the purpose of a cooperative (Genossenschaft)?” ::: A cooperative is a business form that combines limited liability with management through its members. It is commonly used in fields such as agriculture, banking, and housing, and aims to further the economic interests of its members.
“What is the difference between a partnership under civil law and other types of partnerships?” ::: A partnership under civil law is a business form that is typically used by the smallest businesses and can be established even by tacit agreement. It has limited liability and does not require registration in the business register, unlike other types of partnerships.
“What are the sources of law that govern companies besides national company law?” ::: Besides national company law, other sources of law that govern companies include securities law or capital markets law (for listed companies), corporate governance codes (guides that companies should comply with), and insolvency law (for situations where a company cannot meet its debts or has negative equity).
“What is the purpose of a foundation (Stiftung)?” ::: Foundations are primarily used for charitable purposes and can provide a means to ensure ongoing support even after the death of the founder.
“What is the role of the business register?” ::: The business register is a public record that contains information about registered businesses, such as their legal form, ownership structure, and key details. It serves as an important source of information for legal transactions and provides transparency in the business environment.
“What is the significance of harmonization in company law within the European Union?” ::: Harmonization in company law within the European Union aims to create a more consistent and predictable legal framework for businesses operating across different member states. It helps promote cross-border investments and facilitates the functioning of the internal market.
“What is the purpose of ESMA in relation to securities law in the EU?” ::: ESMA (European Securities and Markets Authority) is an EU agency that aims to enhance investor protection and promote stable and orderly financial markets in the European Union. It plays a crucial role in the regulation and supervision of securities markets, ensuring consistency and coordination among national authorities.
“What is the ‘comply or explain’ principle in corporate governance codes?” ::: The ‘comply or explain’ principle requires companies to either comply with the provisions of a corporate governance code or provide a clear explanation for non-compliance. This principle promotes transparency and accountability by encouraging companies to disclose their deviations from the code and justify their reasons for doing so.
“What is the purpose of the free movement of capital in EU company law?” ::: The free movement of capital is a fundamental principle in EU company law that aims to remove restrictions on the movement of capital between member states. It ensures that businesses and investors can freely invest, establish, and transfer funds within the EU without facing unwarranted barriers or discrimination.