UGENT
European and Comparative
Company Law and Corporate
Governance
2023-2024
Anna Sonnenschein
,CompanyEuropean
law in Europe and European company law
and Comparative Company Law and Corporate Governance | Anna Sonnenschein
A brief overview of some main features, also compared to US corporate law
What we will see In this topic
→ The important feature of CompL in European country compared to the different approaches in the US
→ The influence of European CompL
1. Company law vocabulary in English
Vary basic BUT nevertheless important!
Companies: We have to be aware that when we talk about companies and corporation, those words have a
slight different connotation in the UK, in the US or even in Germany as opposed to in Belgium
→ We are usually the word company in a broader sense that what it is used by an English lawyer.
Company = partnerships and corporations (in Belgium)
Partnerships: companies with no limited liability of shareholders; closed (intuitu personae)
→ The partners run the firm (=function as directors)
Corporation: word which is used by people all over the word BUT for the American it is used to indicate entities
with legal personality, limited liability, transferable shares (hence: “public”) and delegated management
→ Could be used for what we call public company on the EU continent
Public company: the shares are freely transferable (they can be bought and sold to whoever you want)
→ The shares are traded on the stock exchange
→ NV, SA, AG type
Private company: the shares are not freely transferable
→ BV, sarl, GmbH type
So there is a slight difference of words used by the EU continent and the native English speakers
2. Corporate governance
>More than half the course will be devotes to corporate governance issues
= about agency conflicts between stakeholders
→ Agency conflicts: when stakeholders want to work together within a firm but have conflicting interests
and (risk) preferences
o You have various stakeholders’ groups who all want to work together and turn the firm into a
success BUT at the same time they all have conflicting interest
o Studying corporate government = studying those agency conflict
Corporate law is about 2 things:
→ providing an organisational blueprint; largely enabling law
→ mitigating agency conflicts, largely through mandatory, “paternalistic” law
we can see 3 types of Agency conflicts
→ Type I: shareholders vs managers
o Managers runs company on the day-to-day basis and take the strategic and other decision.
▪ BUT they are supposed to take those decisions in the interest of the shareholder BUT
they may have a tendency to pursue their own interest
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, European and Comparative Company Law and Corporate Governance | Anna Sonnenschein
→ Type II: minority vs controlling shareholders
o The interest of small investor (people like you and me or institutional investor who only own 2
or 3% of the company) diverge very often form those of the shareholder
o Because controlling shareholder are often extracting benefits from the company
o Very commune in the US
→ Type III: the firm versus external stakeholders: employees, creditors, “affected communities”
The study of corporate governance = study of those 3 types of agencies
→ We as lawyers we look at how legal rules influences the development of those agency conflict and how
law awards power to those various parties and how law can mitigate those conflicts
3. Varieties of capitalism: EU-US-Asia-…
If we compare how firm function compared to the US and to Asia, we can see many differences with corporate
law and firms as they evolve on each of those “3 continents”
◊ Different balance between various stakeholders in practice
→ Shareholders v managers
→ Shareholders v workers
→ Different types of shareholders: controlling v. minority or pure investor
◊ Different role of the state
→ The government plays a different role
◊ Different and evolving views on what corporations are for
→ In the US, firms are still funded in a different way
◊ Differences in sources of funding: debt v equity; capital markets v banks and private placements
Law reflects this (eg different powers for board and GM in US vs EU) and influences this
3.1. Features of company law in Europe
>this really is an introduction
If you look at companies act, and you compare Delaware (the general corpora law act) to corporate law at the
EU level you will see that EU thinks that one of its functions is to protect not only the shareholder BUT also of
creditors
→ In the Delaware company act, you will find no rule that is helpful for the protection of creditors
→ Ex: if a Delaware corporation in 2022 makes a loss of 10M and in 2023 it makes an operating profit of
15M than if you take those 2 years together, we have a profit of 5M
o BUT it can forget about the loss of 2022 and just look at the 15M
o BUT in the EU, you cannot do that: company who made such a loss and gain, in the EU view, can
only distribute by its shareholder 5M (we look at the full picture)
▪ That is a mandatory rule for us for this limitation of dividend distribution: you have to
compensate the losses of the past with the profit
o We protect the creditor here because you can only take 5M from the company and give it to the
shareholder
o This protection is no doubt partially explained by the importance of banks as funders
→ US legislator does not think that the role of law is to protect other person than the shareholders
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, European and Comparative Company Law and Corporate Governance | Anna Sonnenschein
In certain EU country, company law contains disposition in order to protect the employee
→ Ex: in Germany and in the Netherlands
→ You have a lot of codetermination at a board level
o In Germany you have rule that say that company need dual board and depending on the size of
the company, the supervisory board must be chosen by the employees
→ But we can see huge differences between the members states
In short:
→ US: evolution from manager-focused to shareholder-investor model
→ EU: has never had focus on only one stakeholder group
Then State has always been more important in the EU than in US but less so than in China
3.2. Ownership structure
If we look at large firm, companies should have a free flow
→ The share can be freely bought and sold, and it is not like there is a shareholder who has 20 or 30% and
who wants to keep that for himself
Traditionally, in the 1990, it was said that one of the diff between the US and the EU is that US has way more
dispersed shareholder (Dispersed ownership refers to many shareholders with none having the ability to exercise
power over the corporation individually) whereas companies in EU and Asia do have concentrated shareholder
(refers to individuals or controlling shareholders with the ability to exercise power over the company)
→ It is partially true, BUT is requires a more fin-grained analysis
o UK but also Japan and Switzerland have clearly more dispersed ownership than rest of world,
including US
o In the US, there are many major corporations with family/concentrated ownership
o Some EU jurisdictions see clear trend towards more dispersed ownership
Now we see it both in Europe and US, BUT it stays more pronounced in the US:
→ Today, many US companies also have big shareholder who hold 20-30%
→ “common ownership”: large asset managers (Blackrock, Vanguard, …) are largest shareholders in “the
whole economy”
BUT is stays a big differences!
3.3. Differences in economic and institutional background
Another big difference, is that company where traditionally funded in a different way
→ This difference is still there BUT…
Traditionally, large firms in Europe, where funded through banks whereas in the US, the funding through the
stock market was more important
→ Stock market shave traditionally have been far more important in the funding of US firm than EU
→ BUT that has changed during the past 20 years
o Bonds (obligations) are now almost as important in Europe as in the US
o In the past 10 years, we see a steep decline in the US of the number of firms who become public
(which was a strong tradition in Europe)
▪ drop of 50% in number of listed companies and IPOs in US 1996-2016
=> it very likely explains the importance of creditor protection as a goal in corporate law in Europe, first and
foremost Germany, which exported its model (with British help) to rest of EU
=> very likely explains conservative approach of accounting law in EU (EU GAAP), until the switch to IFRS
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