Advanced Corporate Law
Summary
Table of Contents
Lecture 1: Comparative corporate law & Freedom of Establishment / corporate
mobility...................................................................................................................................................1
Lecture 2: shareholders right to influence decision making................................................6
Lecture 3: Liability of Shareholders: Corporate Veil doctrine..............................................8
Lecture 4: Shareholder’s Duties & Enforcement of Shareholder’s Rights......................14
Lecture 5: Techniques for Business Combinations................................................................16
Lecture 6: Internal mechanisms for control of Board of Directors..................................21
Lecture 1: Comparative corporate law & Freedom of
Establishment / corporate mobility
What is advanced corporate law?
Comparative corporate law
Globalization: increased international company activities
Many companies that go beyond the border, have companies in other countries.
Forced to compare national systems
To find the best place with the most beneficial company laws for the company
Stimulates development comparative corporate law
So, we compare national laws & EU law on companies
… how:
i. Select specific countries
ii. Compare selected topics (you can compare only the companies)
… why these: influential systems, English language sources, allow comparison civil v
common law EU v non-EU.
Civil law v Common law / EU v Non-EU
1
,Germany
Civil law system
EU MS
UK
Common law system
Influenced US law
Takes middle position between US and Germany
US (Delaware state)
Non-EU
Influenced scholars & laws W-Europe
Who compares?
Types of comparatists – Aim: Help or develop company law
1. Practical comparatists
Legal counsels: work legal practices of companies
o Which country fits best
o Multiple law perspectives
o Choices on best approach
o Leading to “market practice”: all the choices lead to visible pattern
2. Academic comparatists
Academic researchers
o How companies behave
o Investigate practical findings (sustainable, acceptable?)
o Providing for authoritative or academic support
o Form “best practice” laying foundation for potential new company law
3. Legislative comparatists
Who? Institutions, professional associations
o P.e. EU, UNIDROIT
o Discuss and research differences and effects
o Leading to harmonization or stimulation of desired results in corporate law
Analogy
Roads = existing company laws
Cars = company guided by practical comparatists
Academic comparatists= look at the cars and how they behave and who are particular
interested if the companies follow the roads and stick to them
If companies seem to go off road, so gray area, roads lack/incomplete area where
interesting findings and academic comparatists take notes.
Legislative comparatists= look at AC and what they find and look at satisfaction or whether
there should be new laws and further design the road map.
Internal affairs
Relate to organization or management of corporation
Interaction between members of organs within corporation
o E.g. conflict between shareholders and directors
Where company’s organs are involved (internal key actors)
External affairs
Relate to the corporation having legal personality
Corporation as legal person acting with external parties (stakeholders outside
company)
o E.g. when entering into contracts (contractual parties = external parties
Where company interacts with parties outside the company (external actors)
2
,Influence of EU law Rules on Companies
Background: harmonization vs. autonomy? Eu copying US; negative influence on markets?
60’s early years of EEC, wish for strong and full harmonization anticipated and
expected
80’s followed by period in which a wish arose to follow Delaware example
o “let states decide their company laws, it should result in better laws”
o … led to legislative choices in MS which were diverging from one another
90’s EU harmonization program stalled
o Member States felt justified maintaining protectionist measures
o Skepticism of “purifying powers of market” because of race to bottom
o Fear of community “having Delaware in its territory”
o Regulatory competition or “race to the bottom”: means that companies will
choose jurisdiction/laws most beneficial, where they can dodge certain risky
00’s, see Cahn & Donald
Why Delaware important? Specific one to attract large business to its territory
Attractive rules, very little regulations for companies to control them.
Extremely low conditions for companies to come to example the Netherlands
Read the book.
EU: no function to develop national company law. principle of subsidiarity!
But EU does have a role in harmonization of national laws
… as MS have leeway in designing national laws, differences may arise
… e.g., Directives on companies must be implemented
… binding only as to the result to be achieved
… so, MS must implement directive’s substance into their national law, but leaves
them free the form and method of implementation.
Company law directives: what is weight for the jurisdictions we study?
Started since 1968 (amended but in place)
Adopted by EU on many key aspects of forming and operating companies
Focus on public companies, not so much on private companies
However, ECJ case law does influence both public and private companies
Harmonization efforts visible through cases in situations where companies are affected by
differences in national MS laws!
1st company law directive
1968, as amended. Harmonization on disclosure of information company must lay
down in public registry
E.g., facts re incorporation, legal capital (the company’s cash, w2), key actors,
persons authorized to represent the company
2nd Company Law Directive
1976 now consolidated into Directive ER 2017/1132
Related to incorporation of a company and capital paid b shareholders in cash and
procedure for auditing non-cash payment to company for shares
Divided distributions (and rules restricting them)
11th Company Law Directive
Establishment of branched in other MS
Harmonization efforts visible for company’s!
Especially in field of Freedom of Establishment or Corporate Mobility area
3
, Freedom of establishment (FoE)
How several national laws can impact a company
Who decides if company can be created & under which conditions?
Legislator of a country (state a)
So, a company is governed by? National company law
Company operating in more than one country example
Potential legal issue if…
o The company operates in A, home country, and
o It wants “to branch out” to foreign country B, host country, and
o National legal framework of B, host comes into play and
o A and B’s legislation differ from one another?
What is FoE
Right of establishment or corporate mobility
One of the freedoms
EU Framework arts 49-54 TFEU (fka 43-48 EC treaty)
ECJ case law made deep inroads into national company laws
… in respect of private companies also!
Y1 Centros ltd v Erhvervs case typical FoE
ECJ Decision: Denmark must allow UK private limited company to establish in
Denmark
Even if UK company was created “for the sole purpose of evading” D’s stricter
laws (on capital adequacy)
Even if UK company conducted no business in UK
Eu Framework art 49-54 TFEU
Art 49 TFEU
“restrictions on the freedom of establishment of nationals of Member States shall be
prohibited”
Art 50 TFEU
Provides for the community power to issue DIRECTIVES
“for the protection of interests” required by MS/companies/firms
Art 54 TFEU
“companies formed in accordance with MS law having their registered office, central
administration or principal place within the EU, shall be treated in the same way as
natural persons”
Differences between member states and their legal theories
Incorporation theory: internal affairs of a company are governed by the laws of its
state of incorporation
Real seat theory: the internal affairs of a company are governed by the laws of the
state where it has its central administration.
Überseering B.V. -case
Facts
Dutch company incorporated in NLs: incorporation theory country
Shares / management to German citizens
“actual center of administration” now in Germany: real seat theory
Dutch company litigates in German Court
German court refuses to recognize Dutch company: “no legal standing”
Issue
Technically: German company laws require company to reincorporate in Germany to
have legal standing
4
Summary
Table of Contents
Lecture 1: Comparative corporate law & Freedom of Establishment / corporate
mobility...................................................................................................................................................1
Lecture 2: shareholders right to influence decision making................................................6
Lecture 3: Liability of Shareholders: Corporate Veil doctrine..............................................8
Lecture 4: Shareholder’s Duties & Enforcement of Shareholder’s Rights......................14
Lecture 5: Techniques for Business Combinations................................................................16
Lecture 6: Internal mechanisms for control of Board of Directors..................................21
Lecture 1: Comparative corporate law & Freedom of
Establishment / corporate mobility
What is advanced corporate law?
Comparative corporate law
Globalization: increased international company activities
Many companies that go beyond the border, have companies in other countries.
Forced to compare national systems
To find the best place with the most beneficial company laws for the company
Stimulates development comparative corporate law
So, we compare national laws & EU law on companies
… how:
i. Select specific countries
ii. Compare selected topics (you can compare only the companies)
… why these: influential systems, English language sources, allow comparison civil v
common law EU v non-EU.
Civil law v Common law / EU v Non-EU
1
,Germany
Civil law system
EU MS
UK
Common law system
Influenced US law
Takes middle position between US and Germany
US (Delaware state)
Non-EU
Influenced scholars & laws W-Europe
Who compares?
Types of comparatists – Aim: Help or develop company law
1. Practical comparatists
Legal counsels: work legal practices of companies
o Which country fits best
o Multiple law perspectives
o Choices on best approach
o Leading to “market practice”: all the choices lead to visible pattern
2. Academic comparatists
Academic researchers
o How companies behave
o Investigate practical findings (sustainable, acceptable?)
o Providing for authoritative or academic support
o Form “best practice” laying foundation for potential new company law
3. Legislative comparatists
Who? Institutions, professional associations
o P.e. EU, UNIDROIT
o Discuss and research differences and effects
o Leading to harmonization or stimulation of desired results in corporate law
Analogy
Roads = existing company laws
Cars = company guided by practical comparatists
Academic comparatists= look at the cars and how they behave and who are particular
interested if the companies follow the roads and stick to them
If companies seem to go off road, so gray area, roads lack/incomplete area where
interesting findings and academic comparatists take notes.
Legislative comparatists= look at AC and what they find and look at satisfaction or whether
there should be new laws and further design the road map.
Internal affairs
Relate to organization or management of corporation
Interaction between members of organs within corporation
o E.g. conflict between shareholders and directors
Where company’s organs are involved (internal key actors)
External affairs
Relate to the corporation having legal personality
Corporation as legal person acting with external parties (stakeholders outside
company)
o E.g. when entering into contracts (contractual parties = external parties
Where company interacts with parties outside the company (external actors)
2
,Influence of EU law Rules on Companies
Background: harmonization vs. autonomy? Eu copying US; negative influence on markets?
60’s early years of EEC, wish for strong and full harmonization anticipated and
expected
80’s followed by period in which a wish arose to follow Delaware example
o “let states decide their company laws, it should result in better laws”
o … led to legislative choices in MS which were diverging from one another
90’s EU harmonization program stalled
o Member States felt justified maintaining protectionist measures
o Skepticism of “purifying powers of market” because of race to bottom
o Fear of community “having Delaware in its territory”
o Regulatory competition or “race to the bottom”: means that companies will
choose jurisdiction/laws most beneficial, where they can dodge certain risky
00’s, see Cahn & Donald
Why Delaware important? Specific one to attract large business to its territory
Attractive rules, very little regulations for companies to control them.
Extremely low conditions for companies to come to example the Netherlands
Read the book.
EU: no function to develop national company law. principle of subsidiarity!
But EU does have a role in harmonization of national laws
… as MS have leeway in designing national laws, differences may arise
… e.g., Directives on companies must be implemented
… binding only as to the result to be achieved
… so, MS must implement directive’s substance into their national law, but leaves
them free the form and method of implementation.
Company law directives: what is weight for the jurisdictions we study?
Started since 1968 (amended but in place)
Adopted by EU on many key aspects of forming and operating companies
Focus on public companies, not so much on private companies
However, ECJ case law does influence both public and private companies
Harmonization efforts visible through cases in situations where companies are affected by
differences in national MS laws!
1st company law directive
1968, as amended. Harmonization on disclosure of information company must lay
down in public registry
E.g., facts re incorporation, legal capital (the company’s cash, w2), key actors,
persons authorized to represent the company
2nd Company Law Directive
1976 now consolidated into Directive ER 2017/1132
Related to incorporation of a company and capital paid b shareholders in cash and
procedure for auditing non-cash payment to company for shares
Divided distributions (and rules restricting them)
11th Company Law Directive
Establishment of branched in other MS
Harmonization efforts visible for company’s!
Especially in field of Freedom of Establishment or Corporate Mobility area
3
, Freedom of establishment (FoE)
How several national laws can impact a company
Who decides if company can be created & under which conditions?
Legislator of a country (state a)
So, a company is governed by? National company law
Company operating in more than one country example
Potential legal issue if…
o The company operates in A, home country, and
o It wants “to branch out” to foreign country B, host country, and
o National legal framework of B, host comes into play and
o A and B’s legislation differ from one another?
What is FoE
Right of establishment or corporate mobility
One of the freedoms
EU Framework arts 49-54 TFEU (fka 43-48 EC treaty)
ECJ case law made deep inroads into national company laws
… in respect of private companies also!
Y1 Centros ltd v Erhvervs case typical FoE
ECJ Decision: Denmark must allow UK private limited company to establish in
Denmark
Even if UK company was created “for the sole purpose of evading” D’s stricter
laws (on capital adequacy)
Even if UK company conducted no business in UK
Eu Framework art 49-54 TFEU
Art 49 TFEU
“restrictions on the freedom of establishment of nationals of Member States shall be
prohibited”
Art 50 TFEU
Provides for the community power to issue DIRECTIVES
“for the protection of interests” required by MS/companies/firms
Art 54 TFEU
“companies formed in accordance with MS law having their registered office, central
administration or principal place within the EU, shall be treated in the same way as
natural persons”
Differences between member states and their legal theories
Incorporation theory: internal affairs of a company are governed by the laws of its
state of incorporation
Real seat theory: the internal affairs of a company are governed by the laws of the
state where it has its central administration.
Überseering B.V. -case
Facts
Dutch company incorporated in NLs: incorporation theory country
Shares / management to German citizens
“actual center of administration” now in Germany: real seat theory
Dutch company litigates in German Court
German court refuses to recognize Dutch company: “no legal standing”
Issue
Technically: German company laws require company to reincorporate in Germany to
have legal standing
4
