College aantekeningen
Cross Border Corporations UVT - Hoorcolleges
- Instelling
- Tilburg University (UVT)
Lecture notes of 31 pages for the course Cross Border Corporations at UVT
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Cross Border CorporationsLectures
Lecture 1
Company law is law about business organizations, it provides different types of business
forms: partnerships, private companies and listed companies. It decides how to regulate the
internal structure of companies. But the entities that aren’t arranged by company law: the
Trust/Foundations (stichting) and the associations (vereniging). They aren’t arranged in
business forms, and not included in EU company law.
Securities law: opposite of company law. We mean by securities law all kind of financial
instruments that are traded on the stock market, also called the capital market law. To trade
shares and securities (obligaties) on a stock market. So the securities law has a different set
of rules. It provides separate securities law in statutes. Whilst company law is arranged in
company statutes.
Statutes = law.
There is a clear distinction between both, they are both influenced by the EU. But it differs in
how the EU influences both. Company law has for example never been effected fully by EU
law. Company law is mainly made by the MS, there is a minimum of harmonization. However,
security law is influenced heavily by the EU. Although most security law is implemented in
MS, the content is mostly the same in all MS, we call that maximum harmonization. Security
law is relatively young, the harmonization started in 1999 by the financial service action plan.
History
There are 2 treaties in Europe. (1) The Treaty on the Functioning of the EU (TFEU) and (2)
The Treaty on the EU (TEU). The TEU is also called the Treaty of Rome, at the beginning of
the EU there were 6 MS (Italy, Germany, France, Benelux). By now we have 27. When the
EU started in 1957 there wasn’t that much necessity to have a EU commission. Company
law has been dealt with in the initial stage on the basis of mutual agreement. The task of the
EU was to coordinate the harmonization process (1969). But they didn’t succeed in making 1
coherent body of law that was applicable in every MS, there are a few reasons for that:
1. Countries want to protect their own set of company rules, Germany and France
thought that their law was superior to Dutch law.
2. The EU doesn’t provide any authority to the EU commission to make rules. It simply
needs to coordinate (formal problem)
3. Jurisdictions don’t come up in the minds of lawyers within a short period, there is a
history of legislation. For example in the Netherlands we started with company law in
1838, Germany made company law in 1818. In France Company law started in the
era of Napoleon. All MS had already company law before the EU started to make
company law Theory of the past dependency. Development of legislation heavily
depends on culture, history, language.
Difficulties, for example Italy. The Fyra for example, in the view of the Italians they did
enough, they provided the services. But it doesn’t work in the Netherlands. There are
differences on how to do business.
4. Principles of subsidiarity and proportionality, article 5 on the Treaty on the EU. It
entails that if a subject matter could be dealt with in a better way according to the MS
by the MS, the EU commission has no authority in this area.
,Freedom of entrepreneurship
Isn’t the same as the freedom of movement, but it means that everybody has the right to start
a business. No authority will come up with general restrictions in this regard. Everybody in
the EU agrees to this principle, yet it isn’t in the treaty. There is some reference in the EU
social Charter, however the EU Social Charter isn’t binding. It isn’t something on which you
can rely on directly in court. This is, of course, very odd.
But there are difficulties that arise when you are dealing with companies over whole Europe:
- Mutual recognition of business forms. But we solved this problem by saying that if
you are establishing a company according to the rules of your country, your company
exists in the whole of Europe.
- The other issue that has been solved by EU law is that we manage to take away the
uncertainty about scrutiny of agreements after closing on grounds of
misrepresentation or ultra vires. In the first harmonization directive we said that if you
deal with a company from another country, you have to check whether the people
with how you are dealing, is mentioned as a director. If these persons are a director,
he has the right to represent the country. We also said in that directive that you can’t
cancel a contract by referring to the objective of the company. If the objective of the
company says that it can only deal with companies within that same country, it
doesn’t have any external effect on contracts (ultra vires rule)
- Uncertainty about financial position of contracting parties: for example you make a
contract with an Italian firm, the amount of transaction is 1,000 €. You at least want to
know if the company has enough money to pay damages. How do you get insight?
The best solution is that any private company has to produce financial accounts. This
was the idea of the EU legislature. If companies are obliged to file, any creditor could
have a look at it before they enter the contract. But does this work? It is in the 4th
directive of EU company law, it has been implemented in every MS, but it doesn’t
work. This is because the deadline for filing financial accounts is 13 months after the
closing of the bookyear. Every single MS has these extension. So once you enter a
contract, the accounts may be one year old. So we made this rule, but it doesn’t have
any effect.
So these problems are solved by stating in the contract that you won’t make a
contract without knowing the current financial status of the company.
- Capital protection: We used to have the minimum capital requirement, it didn’t protect
creditors at all.
- How to get access to other MS markets: the issue of freedom of movement.
- Who to minimize transaction costs of setting up and maintaining a business in
another MS: Branch: has no separate legal personality. Any risk, liabilities of doing
business in another MS are ensured by the Dutch company, There is no legal
separation between the Dutch firm and the branch. It hits the financial account of the
Dutch company directly.
That’s why the subsidiary is used more (Daughter company): has a separate legal
personality. That’s one of the major inventions, a separate legal entity means that a
share holder isn’t responsible. Predators can only take recourse on the assets of the
subsidiary.
You are confronted with national law of the other country, which is highly costly. The part
dependency which we discussed (that every MS has it’s own national law on
, company), is highly costly. In the EU we tried to come up with supranational set of
business forms that applies to every single MS. For example the making of a SA.
Since 2005, the birth of the EU company statute, there are only 450 SA’s established.
That is less than 2 for each MS. Most of the SA’s are there only for tax reasons, but
not an active company.
Freedom of movement Article 43 TEC/49 TFEU
Within the framework of the provisions set out below, restrictions on the freedom of
establishment of nationals of a MS in the territory of another MS shall be prohibited. Such
prohibition shall also apply to restrictions on the setting-up of agencies, branches or
subsidiaries by nationals of any MS established in the territory of any MS.
Freedom of establishment shall include the right to take up and pursue activities as self-
employed persons and to set up and manage undertakings, in particular companies or firms
within the meaning of the 2nd paragraph of article 48 (54), under the conditions laid down
for its own nationals by the law of the country where such establishment is effected, subject
to the provisions of the Chapter relating to capital.
The freedom of movement, article 49 TFEU is applicable on nationals. Which are not only
MS an national persons, but also companies. It also applies to agencies, branched or
subsidiaries. Which means that a Dutch person can establish a business in Germany.
Whether a company exists, and could rely upon the freedom of movement, is not dealt with
in European law. The freedom of movement for companies and firms, and to set up new
companies is set up in the treaties. But whether if a company exists, is dealt with in company
law.
• Basic rule in the Daily Mail case. Whether a company exists, depends on national
company law. A dutch company has to comply with company law from the
Netherlands.
Incorporation doctrine vs. Real Seat doctrine
It doesn’t give a rule where the management has to be. You can formally establish a
company in the Netherlands, but there is no obligation that the management has to be in the
Netherlands.
However there are different styles of jurisdictions, like Hungary, Germany refer to the real
seat doctrine. Whether it has been established, and if the real seat has been established in
the MS. You are only valid as a company if your board of directors is in the same MS as the
MS where you are in established.
EU company law doesn’t say anything about this, we accepted that these 2 doctrines apply
in the EU. For example: You establish a company in the Netherlands, X is the director and
only shareholder. The company is registered in Tilburg, but the business is being done from
Germany, where the office is and all the decisions are being made. Business administrations
and business is completely in Germany, is that still a Dutch company? YES, it doesn’t matter
where your business administration is, once you are established in the Netherlands you are a
Dutch company. However, if you establish a German private company, Germany doesn’t
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