12/2Sources of company law Company code EU directives Jurisprudence: mainly important in UK/US [court cases] Doctrine [what lawyers write, etc.]EU company lawMost important (directives): Protection of capital Merger of PLCs Annual accounts De-merger of PLCs Harmonizes and gives a group of companies a competitive advantageUS lawCorporate law = competence of local states.Most developed corporate laws are established in Delaware.Incorporation theory (USA)Applicable law = law of country where the company has been incorporated.Real seat theory (EU except UK & NL)Applicable law = law of country where the seat of the company is located.Transfer of seat to another countryMoving from NL, NL will consider it as liquidation and tax it.EU-principle: free movement of people also applies to companies!If a Belgian company moves its seat to NL, the principles will clash this is solved by international private law (stating the NL principle will be used).Why start a company? Partnership, you can set the rules between you Limitation of liability Continuity; easier to split between children Tax reasons

19/2Real seat theory: the seat of the company is where the board meets. Against EUs principle of free movement you should be free to move a company from one country to another.Using assets of your company to buy a personal car is forbidden & you may be condemned.Partnership Articles define the rules of collaboration (set-up themselves) If conflict between parties, the articles form a reference to solve itContinuity Business can be continued after death Avoid family conflicts between heirsLimitation of liability Some (not all) companies are separate legal entitiesTypes of companiesClosed partnerhipWhen you dont want anyone to know youre investing (you are a silent partner) limited liabilityCompanies may be divided according to: Civil (attorneys, doctors) vs commercial With vs without separate legal personality Persons vs capital Public (listed) vs private Profit vs non-profit Single person companies Starter companies: many general rules about capital dont apply Listed vs non-listed companies EU-companies: establish 1 company for all your activities throughout EU Branch office vs representation officeEU-companiesNo success because no common rules on taxation. Around 25 EU-companies exist. Branch office: part of your company active in another company Representation office: cannot do commercial activities (call center, repair center)Public limited companyNV/SA/AGMuch easier to transfer sharesPrivate limited companyBVBA/SPRL/GmbH/B.V.A company is a contract where 1 or more partes aim to realize a common objective.a)

5/3Formation of a companyA company is a contract where parties aim to realize a common objective.Requirements: 2 or more shareholders (if all shares put in one hand for more than 1 year dissolved) Each partner must contribute something Common objective Profit purposeNV/SA (Public limited company): all shares in 1 hand sole shareholder becomes completely liableValid consent must be given by all shareholdersAbsence of consent: a) Misrepresentationb) Deceitc) Simulation straw mand) Minors cannot be a merchant/participateNationality/residency requirements Nationality: forbidden in EU Residency: in principle not, but substance requirements (Luxembourg)ContributionNeeds to be evaluated; the only thing not allowed is contribution of labor profit shares (shares with dividend priority) given for contribution of labor insteadProfit purposeEssential characteristic of a company.Exception: non-profit companiesLion ClauseProvision reserving all profit/loss to one of the partners.Separate legal personalityAll its assets = separate from your own assets (for the limited liability companies)

12/3FormationSeparate legal entityEstablishing contract: notarial deed requiredDifferent phases of formation:1) Pre-contractual2) Preliminary agreement letter of intent (LOI) careful! Can constitute a legal contract!3) Incorporation sign agreements (before a notary)Requirements after incorporation File with clerks office of the commercial court published in local gazette Register with trade register / VAT / authorities /social securitySeparate legal personality is required when notarial deed is filed to the commercial court.You can act in the name of a company under formation, but then these acts need to be acquired formally by the company after incorporation.CapitalFunction: protection of creditors, last resort if bankcruptcyLegal function: defines voting rights, relationships between partners, dividendsMinimal capital requirements BVBA (private limited company): 18,550 EUR NV (public limited company): 61,500 EURFinancial plan (only needed at the incorporation)Make sure that the capital is enough to support the activities Need to cover 2 financial years Submitted to notary public but NOT made publicv2 types of contributions1) CashOpen blocked bank account Blocked until after incorporation Certificate issued by bank (proof to notary public)2) KindOnly assets that are economically valuable NOT labor! Report by auditor: is the value correct? Are the shares reflecting the value? Can disregard auditors report, but may then end up personally liable if the company goes bankcrupt.Report by incorporators Indicate importance of the contribution Indicate reasons why deviating from auditors report (if applicable)Quasi-contributionAsset belonging to: Incorporator Director ShareholderThat the company intends to acquire within 2 years of the incorporation against a compensation of at least 1/10 of the share capital.

Share premiums(increase liquidity can spend share premium)Part of the contributed value that is not booked on a capital account. Part of net assets Must be paid in full at incorporation Available for distribution

19/3SubscriptionIn principle anyone can subscribe Except: the company itself or a subsidiaryIncorporatorEveryone who participates in incorporation of copany Exception: for PLC, a person can declare not to be an incorporator (in case bankcruptcy, and court finds financial plan invalid, incorporators can become liable)Liability of incorporatorsLiable for: Valid formation of capital Overestimation of the value for assets or contributions in kind Can be held liable in case of bankcruptcy within 3 years of formationCapital transactionsCapital increaseIn principle: extraordinary general meeting of shareholders Exception: authorized capital (authorization given to board by general assembly)2 alternatives:1) New contribution in cash or kind2) Incorporation of reserves of profits carried forward (= net assets will stay constant)Pre-emption rightWhen capital increase in cash, existing shareholders have the right to first subscribe special procedure for exeptionsSharesRepresents a fraction of share capital. Nominal value: fixed in articles of association Face value not mentioned in articles of associationTypes:1. Registered shares2. Dematerialised shares (buying shares online)3. Bearer sharesTransfer of shares Right to follow (tagalong): a party sells shares to 3rd party other shareholder has the right to offer his shares under the same conditions Obligation to follow (dragalong): a party selling shared to 3rd party can oblige other shareholders to sell their shares to that person as well.

Approval clauses = shares only transferred with approval of an organ of the company Stand still clause = for a certain period, shares cant be sold

26/3Acquisition of proper shares (company buying her own shares)A company cannot subscribe to her own shares, but in case of a merger she may own her own shares for a shorter period.Sometimes shareholders will ask the company to buy their shares.financial assistance: 3rd party willing to take over the company but has no money, gets funded by the company itselfpledge: giving shares as a guarantee (in case of loans, etc.)Conditions: approval of general meeting maximum 20% of subscribed capital only fully paid shares shareholders must be treated equally the amount must be available for distributionserious threatening circumstancesIf someone is about to take over the company, & the board/shareholders are not happy with this, they can start to quickly buy their own shares. (no prior approval of general meeting required)Exceptions: shares acquired to be cancelled immediately (capital decrease)Rights linked to the proper shares are suspended the company cannot vote for the shares the company cannot pay dividends to itself distribute their dividends to other shareholders attach dividends to the shares and pay it when they are soldfinancial assistanceconditions: transaction under responsibility of directors must be at arms length approved by general meeting special report by board of directors, explaining why they want to do thisCapital reduction1. formal: incorporating losses carried forward2. real: repaying shareholders OR exempting them from payments of uncalled capital cannot go against minimal capital requirementsProcedure: decision taken by extraordinary general meeting before a notary public.Opposition right of creditors: within 2 months of publicing the decision, creditors can ask for guarantees.

2/4Financing of a company1) shareholders (company law)2) long-term creditors (company law)3) creditors (civil law)

convertible bond: can be converted into capital bonds with pre-emption right: if company increases capital you have a right to subscribe first warrants: right to subscribe to capital increases firstShare transferSqueeze out: a majority shareholder throws out a minority shareholder.Bonds corporate law freely transferable instrument bondholders must be invited to general meeting of shareholders NO voting rights Only advice Information right: receive same documentation as shareholdersDirectorsNo nationality/residency requirements (may be restrictions in articles of association)Companies can be directors, but a permanent representative is required.Appointed by general meeting of shareholders. Exception: a director dismisses in the course of the year, then the board can appoint a new one until the next general meetingTerm for directorsPLC: max 6 yearsPrivate LC: fixed by general meeting Both can be renewedA director can be dismissed/resign at any time (ad nutum) No notice period! Exception: statutory director in Private LC# of directorsPLC: min 3, unless only 2 shareholders, then 2Private LC: min 1Financial interests of a director conflicts with that of the company.Collegial organ: majority ofd the directors decide.Representation: for private LC, each manager can represent the company solely

23/4CompetencesBoD has full authority. GM cannot instruct directors BoD has all competences that are not explicitly allocated to GM Limitations: articles of assoc., internal relationship between BoD& GMCompetences reserved to GM Approval of AA Appointment of directors ...Corporate governanceDefend interests of Shareholders & anyone else interested in the company Audit / management committees Auditors independence independent director for listed companies ...General meetingUltimate decision-maker Decides on mergers, appointment of directors, etc.Shareholders meeting for listed companies has become like a ritual only attended by major shareholders.Shift of power to the BoD & managers.Who participates: Shareholders Owners of profit shares Bondholders Owners of warrants & certificates (only advisory, cannot vote)Directors must answer questions and statutory auditor must be present if an auditors report is discussed.Agenda of GM: to be established carefully Law can impose contents changes to AoA Listed companies: agenda should also include the proposed resoulutionsOrdinary GM: organized annually to approve AasExtraordinary GM: organized on another date than that of ordinary GMThe AoA can limit # of votes attributed to a shareholder. Condition: must apply to all shareholders.Annulment of decisions Formal irregularity (if proved that irregularity has influenced decision) Substantive irregularity: exceeding their competencesControlControl by auditor (external & independent body): capital increase, merger, etc.Big companies are obliged to appoint a statutory auditor.Small: for 2 consecutive years dont exceed more than one of the criteria.Statutory auditorAppointed by GM for 3 years terms. Can only be dismissed for legal reasons. Can request any document.

7/5Restructuring 1. Merger: X merger into Y => Xs assets becomes Ys!Be careful about labor laws!2. Merger by incorporation: companies merge into a newly incorporated company3. Simplified merger: parent company holds 100% of shares before merging no new shares are issuedShareholders of a company being acquired become shareholders of the company that is acquiring.Consequences of de-merger1) Assets transferred2) De-merged company ceases to exist3) Shareholders of de-merged company shareholders of acquiring companyPartial de-mergerActivities partially split up. We keep the company, just move certain activities to a new/existing company.Merger - procedure1. Draft terms (by all boards involved)2. Filing of draft terms with the commercial court3. Special report by board of director4. 5. Consultation (shareholders can consult documents...)6. Approval (by extraordinary general meetings of the participating companies)

Liquidation ( bankcruptcy)Grounds for dissolution:1) Voluntary (decision by GM of SH)2) Judicial (decision by court)3) By law (automatically)Dissolution is just the decision to stop/liquidate.Liquidator is responsible for the process as soon as he is appointed.Consequences of liquidation Retention of legal personality Only acts related to liquidation are allowed Management is exhanged by the liquidator GM of SH remains in function No change of registered seat (unless approval by commercial court) No change of nameSale of assets to pay debts company can still be declared bankcrupt in case it cannot pay all its debts.Closing of liquidationDecision by GM of SHs. Discharge of the liquidatorConsequences of closing of liquidation End of separate legal personality liquidation bonus to SHs Liquidator remains liable for 5 years after the closingIf no liquidator is appointed, the directors are considered liquidators.ContinuityIn difficulty = unable to service its debts & pay its creditors. Can file for protection with commercial court Protection against creditors Allows for a reorganizing of the businessEuropean insolvency proceedingCourt in member state where creditor has main interest can declare bankcruptcy that will apply to all member states where the debtor has operations. Decisions are recognized automatically in the other member states.BankcruptcyConditions:1) Merchant2) Credit = chocked (not able to get more loans!)3) Not able to pay debts (by selling assets, etc.)