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Sources of company law

Company code
EU directives
Jurisprudence: mainly important in UK/US [court cases]
Doctrine [what lawyers write, etc.]
EU company law
Most important (directives):

Protection of capital
Merger of PLCs
Annual accounts
De-merger of PLCs
Harmonizes and gives a group of companies a competitive advantage

US law
Corporate 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 country
Moving 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

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Real 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 it
Continuity
Business can be continued after death
Avoid family conflicts between heirs
Limitation of liability
Some (not all) companies are separate legal entities

Types of companies
Closed partnerhip
When you dont want anyone to know youre investing (you are a silent partner)
limited liability
Companies 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 office
EU-companies
No 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 company

NV/SA/AG
Much easier to transfer shares

Private limited company

BVBA/SPRL/GmbH/B.V.
A company is a contract where 1 or more partes aim to realize a common
objective.
a)

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Formation of a company
A 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 purpose

NV/SA (Public limited company): all shares in 1 hand sole shareholder becomes
completely liable
Valid consent must be given by all shareholders
Absence of consent:
a) Misrepresentation
b) Deceit
c) Simulation straw man
d) Minors cannot be a merchant/participate
Nationality/residency requirements
Nationality: forbidden in EU
Residency: in principle not, but substance requirements (Luxembourg)
Contribution
Needs to be evaluated; the only thing not allowed is contribution of labor profit
shares (shares with dividend priority) given for contribution of labor instead
Profit purpose
Essential characteristic of a company.
Exception: non-profit companies
Lion Clause
Provision reserving all profit/loss to one of the partners.
Separate legal personality
All its assets = separate from your own assets (for the limited liability companies)

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Formation
Separate legal entity
Establishing contract: notarial deed required
Different phases of formation:
1) Pre-contractual
2) 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 security
Separate 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.
Capital
Function: protection of creditors, last resort if bankcruptcy
Legal function: defines voting rights, relationships between partners, dividends
Minimal capital requirements
BVBA (private limited company): 18,550 EUR
NV (public limited company): 61,500 EUR
Financial 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 publicv
2 types of contributions
1) Cash
Open blocked bank account
Blocked until after incorporation
Certificate issued by bank (proof to notary public)
2) Kind
Only 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-contribution
Asset belonging to:
-

Incorporator
Director
Shareholder

That 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

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Subscription
In principle anyone can subscribe
Except: the company itself or a subsidiary
Incorporator
Everyone 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 incorporators
Liable 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 formation

Capital transactions
Capital increase
In principle: extraordinary general meeting of shareholders
Exception: authorized capital (authorization given to board by general
assembly)
2 alternatives:
1) New contribution in cash or kind
2) Incorporation of reserves of profits carried forward (= net assets will stay
constant)
Pre-emption right
When capital increase in cash, existing shareholders have the right to first
subscribe special procedure for exeptions
Shares
Represents a fraction of share capital.
Nominal value: fixed in articles of association
Face value not mentioned in articles of association
Types:
1. Registered shares
2. Dematerialised shares (buying shares online)
3. Bearer shares

Transfer 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

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Acquisition 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 itself
pledge: 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 distribution

serious threatening circumstances

If 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
o distribute their dividends to other shareholders
o attach dividends to the shares and pay it when they are sold
financial assistance
conditions:

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 this

Capital reduction
1. formal: incorporating losses carried forward
2. real: repaying shareholders OR exempting them from payments of uncalled
capital
cannot go against minimal capital requirements
Procedure: 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.

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Financing of a company
1) 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 first

Share transfer
Squeeze out: a majority shareholder throws out a minority shareholder.
Bonds
-

corporate law
freely transferable instrument
bondholders must be invited to general meeting of shareholders
o NO voting rights
o Only advice
Information right: receive same documentation as shareholders

Directors
No 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 meeting
Term for directors
PLC: max 6 years
Private LC: fixed by general meeting
Both can be renewed
A director can be dismissed/resign at any time (ad nutum)
No notice period!
Exception: statutory director in Private LC
# of directors
PLC: min 3, unless only 2 shareholders, then 2
Private LC: min 1

Financial 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

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Competences
BoD has full authority.
-

GM cannot instruct directors

BoD has all competences that are not explicitly allocated to GM
o Limitations: articles of assoc., internal relationship between
BoD& GM

Competences reserved to GM
Approval of AA
Appointment of directors
...
Corporate governance
Defend interests of Shareholders & anyone else interested in the company
-

Audit / management committees

Auditors independence
independent director for listed companies
...

General meeting
Ultimate 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
resoulutions
Ordinary GM: organized annually to approve Aas
Extraordinary GM: organized on another date than that of ordinary GM

The 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 competences
Control
Control 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 auditor
Appointed by GM for 3 years terms. Can only be dismissed for legal reasons. Can
request any document.

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Restructuring
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
company
3. Simplified merger: parent company holds 100% of shares before merging
no new shares are issued
Shareholders of a company being acquired become shareholders of the company
that is acquiring.
Consequences of de-merger
1) Assets transferred
2) De-merged company ceases to exist
3) Shareholders of de-merged company shareholders of acquiring company
Partial de-merger
Activities partially split up. We keep the company, just move certain activities to
a new/existing company.
Merger - procedure
1. Draft terms (by all boards involved)
2. Filing of draft terms with the commercial court
3. Special report by board of director
4.
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
o 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 name
Sale of assets to pay debts company can still be declared bankcrupt in case it
cannot pay all its debts.
Closing of liquidation
Decision by GM of SHs.
Discharge of the liquidator
Consequences of closing of liquidation
End of separate legal personality
liquidation bonus to SHs
Liquidator remains liable for 5 years after the closing
If no liquidator is appointed, the directors are considered liquidators.
Continuity
In difficulty = unable to service its debts & pay its creditors.
Can file for protection with commercial court
o Protection against creditors
o Allows for a reorganizing of the business
European insolvency proceeding
Court 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.
Bankcruptcy
Conditions:
1) Merchant
2) Credit = chocked (not able to get more loans!)
3) Not able to pay debts (by selling assets, etc.)