IBL Week 5
22 flashcards · Other · by Daniel F.
European Company Law
Objective: foster a single market where companies can operate seamlessly across borders Instruments Directives: legal objectives MSs must achieve Regulations: applicable rules to all MSs Case Law of the ECJ Harmonization provide equivalent safeguards to shareholders and others, especially creditors, across Member States; and facilitate & promote cross-border activities for firms in the EU Freedom of establishment Article 49 TFEU: freedom of establishment, enjoyed by natural persons, but also co…
National Company law
E.g. Companies act in the UK Companies Act 2006 Mandatory and non-mandatory default rules Case law interpreting the legal provisions Articles of Association: companies own constitution outlining how to implement these rules
incorporated business org
Definition: Legal entity in its own right Created through a legal process Continues in existence despite membership changes Obligations and liabilities carried out by the organization Limited personal liability for owners Debts and obligations the responsibility of the organization Example: private limited companies
unincorporated business org
Definition: No separate legal identity Risks and liabilities belong to owners/management Contracts entered on behalf of the organization Personal assets at risk if business assets are insufficient Informal operation, offering flexibility Example: Sole trader and partnership
Sole proprietorship
Main characteristics Simplest and most flexible business organization No regulations, disclosure, or public accountability requirements General obligations: Employment law and health and safety law Self-employed status No limit to the size of the business Possibility of a large turnover and multiple employees Organisation and management autonomy in organizing and running their business Take all profit and loss Pay income tax on profits and liable for capital gains must inform tax authorities, k…
Pros and cons of sole proprietorship
Pros Simplicity: simple to establish and can begins trading immediately Independence and autonomy: the sole trader is responsible to themselves and their customers Privacy – No need to publicly register business or financial info Cons Unlimited liability No continuous succession Complete responsibility Unsuitable for businesses needing substantial external investment
Types of partnerships
General partnerships, most common Limited partnership, used by PE investors Limited liability partnerships, gaining popularity
General Partnership
Main characteristics business set up between at least two partners with a view to make profit Governed by the Partnership Act 1890 Each partner is self-employed and shares in profits. Partners participate in decision-making. no separate legal existence, personal liability for debts. Trust is crucial due to personal liability. Formation No specific legal requirements for forming a general partnership Partnership is a contractual arrangement governed by contract rules If no partnership agreement…
Liability within a general partnership
Pros and cons of general partnership
Pros Privacy Pooling of talent and resources/capital Partners may offer expertise in an area or provide the ability to enter new markets. Partners may share the work of the business and share the liabilities. Cons Unlimited liability Partners may create liabilities for the other partners and the firm. Partners share in the profits of the firm therefore the individual partner's share may be reduced.
Limited Partnership
Main charactersitics partnership with limited partners alongside general partners General partners assume an unlimited liability Limited partners Limited liability, contribute capital can't bind the partnership or participate in management must be registered at Companies House must include "Limited Partnership" or "LP" at the end of their names
Limited Liability Partnerships
Main characteristics Governed by Limited Liability Partnerships Act 2000 Separate legal entity with LLP's liability limited to its assets and members' liability limited to the capital they contributed Continuity: LLP continues to exist even if a member leaves Flexibility: combines partnership flexibility with limited liability Taxation: taxed as a partnership, with members taxed on their share of profits Financial disclosure and creditor protection Creditors receive some protection through the…
Capital Companies limited by shares
Main characteristics distinct legal personality separate from its members, directors, or employees; Limited liability of shareholders Capital: The company gets its capital by issuing shares (or securities) Public Company: Must be limited by shares Private Company: Can be limited by shares or guarantee, or unlimited Private vs public
Capital Companies pros vs cons
pros Separate legal personality Perpetual succession and 'dies' when formally wound up. Limited liability Scalability Tax benefits are available for corporations cons Internal and external regulation. Greater administration requirements No automatic right as a shareholder to participate in management.
Llc/plc vs partnership vs ll partnership
The Salomon principle
Corporations, if correctly formed, enjoy separate legal personality and limited liability Salomon v Salomon & Co. Ltd. [1897]. company is not the agent of the shareholde(s) Consequences of Salomon A company's legal personality is independent of its members or directors The company acts in its own name: contracting, suing, being sued, incurring debts, and owning property Asset portioning: SLP protects company assets from shareholder creditors Entity shielding: because of limited liability, share…
Veil-piercing
Veil: legal personality of a company separates the company from those who own it Strict adherence to SLP and limited liability can be problematic: Adams v Cape Industries Plc [1990] Gilford Motor Co Ltd v Horne [1933]; Jones v Lipman [1962] Veil-piercing disregards corporate personhood, identifying the controlling shareholder with the company (or vice versa). court can hold shareholders personally liable for the debts and obligations of the company When is it justified Veil-piercing is justifie…
Difficulties in piercing the veil
English law does not allow the piercing of the veil simply because justice requires so (Adams v Cape Industries Plc [1990]) Piercing the veil is justified under the evasion principle (Prest v Petrode) Control and impropriety by the wrongdoer are key (both Gilford and Jones) Piercing the veil is a remedy of last resort (Prest v Petrodel [2013]) Why are courts reluctant to lift/pierce the corporate veil Limited Liability: A Cornerstone of Modern Business Promotes investment and risk-taking Reduce…
Formation of capital companies
Usually requires registration. Pre-incorporation contracts: Personal liability for promoters until the company assumes the obligations (s. 51, Companies Act 2006).
Parties involved in management
General Meeting of Shareholders (GM) Shareholders exercise decision-making power. Majority rule applies. Division of power between GM and board varies by Member State Board of Directors Manages the company. Executive Directors: Manage day-to-day operations. Non-Executive Directors: Provide oversight and strategic guidance. One tier or two tier Co-determination (employees influence)
Directors’ liabilities in a capital company
Liable to the company, shareholders, and creditors. Based on the principle of fault (civil law). Burden of proof on the injured party. Wrongful trading: Directors can be held liable for failing to take appropriate action (rescue or liquidation) when insolvency is foreseeable.
Restructuring
Schemes of arrangement: Compromise or arrangement between the company and its stakeholders (shareholders or creditors). Requires court approval. Takeovers: Regulated by the EU Takeover Directive (2004/25/EC). Applies to bids for listed companies. Judicial mergers: Regulated by Directive (EU) 2017/1132. Applies to public companies. Results in the transfer of assets and liabilities to the acquiring company. Shareholders of the transferring company become shareholders of the acquiring company.