THREE ELEMENTS FOR EUROPEAN CORPORATE LAW?

1. Corporation and other forms of business organization.

2. European dimension: national or supranational
3. Law: sources and binding force
Elements:
1. Corporate: Corporation is a body formed and authorized by law to act as a single person although
constituted by one or more persons and legally endowed with various rights and duties including the
capacity of succession. Activity = Business. Goal = Profit.
2. European: relating to, or characteristic of Europe or its people.
3. Law: binding rules

Ancestors of the modern corporation are the “India Companies” such as the Dutch East India Company 1602
(circa)- followed by the Dutch West India Company, the British East India Company 1600 (circa) (up to: 1833)
and the French East India Company 1664 (circa)- followed by the Dutch West Inda Company 1635 (circa).
These companies were qualified by:
1. Creation by an act of the4 monarchy (called parent/charter; octroi): a concession given by the
monarch;
2. Monopoly of trade in certain areas, which the company became an instrument of colonization of
faraway territories;
3. Limited liability of investors;
4. Investments in the company represented by transferable shares; creation of a market for shares.
Corporations / Companies may vary in their forms such as public company which is not listed on a stock
exchange (whose shares are not negotiated on a regular market), a public company which is listed on an
Italian Stock Exchange (whose shares are negotiated on a regular market), a private company or a small
private company.

FORMS OF BUSINESS ORGANIZATIONS:

1. Sole Proprietorship
2. Partnerships:
a. General or Limited: depending on the liability of the partners (general=unlimited; limited=liability
quantified by the contributions made to the partnership);
b. Civil or Commercial: depending on the nature of the business activity (civil may be an agricultural
activity, sometimes a professional activity such as law firm, a medical practice, an architectural practice etc..);
3. Companies:
a. Private;
b. Public (also called: corporation, joint-stock company)
c. Listed (also called: listed corporation, listed joint-stock company)
d. For Profit or Cooperative (the latter does not pursue the division of profits between its members
but runs a business to provide its members services/products at value better than the market
ones)
Business organizations vary for:
1. Liability of the owner/partners/members/shareholders.
2. Creation of a new legal entity with legal personality.
3. Control and Management of business.
4. Continuity of existence.
 5. Transferability of interest.
6. Formalities of creation.
7. Governing statues/rules.

Which are the goals of corporate law?

• Ensure the maximum profitability for the shareholders.
• Reduce the conflict of interests between directors and shareholders.
• Ensure the accountability of directors towards shareholders.
• Ensure the accountability of directors towards other stakeholders.
• Ensure the protection and the pursuit of the interests of other stakeholders.

CORPORATE LAW AND EUROPEAN UNION: Rules on business organizations and on corporations are still
national, meaning that each Member State has its own set of rules on sole proprietorship, partnerships,
corporations. There is no such thing as a European Corporate Law if by this we mean a set of uniform laws
applicable to all corporations (or to companies in general) everywhere in the European Union.
Why is European Union interested in corporate law? To create a single European internal market. Article 26
TFEU: The Union shall adopt measures with the aim of establishing or ensuring the functioning of the internal
market, in accordance with the relevant provisions of the Treaties. The internal market shall comprise an area
without internal frontiers in which the free movement of goods, persons, services and capital is ensured in
accordance with the provisions of the Treaties.
EUROPEAN INSTITUTIONS INVOLVED IN THE LEGISLATIVE PROCESS:
1. EU Commission from which the proposals come from.
2. European Parliament and European Council have the decision-making power

EUROPEAN UNION AND COPRORATE LAW: 3 approaches:

1. Freedom of establishment: everyone can create a company in any member state, divided in:
a. Primary establishment (ART. 48 TFEU): every citizen can start a business in any member state at
the same conditions of that specific nation- following the State rules.
b. Secondary establishment (ART.49 TFEU): freedom to start a new company, but also
branches/subsidiaries of another company located in another member state.
2. Harmonization of national corporate law (NOT UNIFORMITY), smoothing legal differences, and leveling
the playing field. Thanks to this intervention the divergences between the national corporate legislations
are smoothed and reduced (preferred legal instrument: directives and regulations);
By uniforming the law, superseding the national corporate law and replacing it with common European
rules, which are the same everywhere and are equally applied in each Member State (preferred legal
instrument: regulations, or very detailed directives);
3. Creation of business forms directly regulated bu the EU

European Union: legal instruments Harmonization or uniformity of national laws is pursued by two main legal
instruments:
• directives: pieces of legislations which the European Union Member States are under the obligation to
implement by means of national legislation.
• regulations: pieces of legislation which are immediately binding and applicable in all the Member States
with no need of an implementing measure by each Member States.
Art. 288 TFEU THE LEGAL ACTS OF THE UNION: To exercise the Union's competences, the institutions shall
adopt regulations, directives, decisions, recommendations, and opinions. A regulation shall have general
application. It shall be binding in its entirety and directly applicable in all Member States. A directive shall be
binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to
the national authorities the choice of form and methods. A decision shall be binding in its entirety. A decision
which specifies those to whom it is addressed shall be binding only on them. Recommendations and opinions
shall have no binding force.

MAIN FOCUSES OF HARMONIZATION (for COMPANIES):

1. Formation/incorporation process, publicity/disclosure, capital integrity
2. Major extraordinary transaction (merger, split-off/division, take over)
3. Right of shareholders, engagement of shareholders
4. Accounting and reporting requirements

CENTROS CASE: 2 Danish citizens couldn’t create a private company because of the minimum amount of
money was too high for them, so they decided to create it in the UK; but they wanted to put there only the
legal seat/mail address, and so to run the entire business in Denmark. They were challenged for having
violated the Danish Law. If the business ins entirely run in Denmark, it HAD to respect Danish Law, including
the initial minimum capital.
This case arrived to the Court of justice in EU: was it against or in compliance with the Treaty?
Two outcomes:
1) Reinforced the freedom of establishment: it’s possible to create business everywhere and
run it in another place, but ALWAYS in the EU.
2) Risk: start a sort of competition between member states in attracting investors from all
European States.

SOCIETAS EUROPEA: A «EUROPEAN COMPANY»

European Company -> EU REGULATION 2057/2001 -> S.E is a public company with:
 Limited liability of members
 Minimum share capital of 120k

ONE TIER SYSTEM: company will have: a Shareholder meeting

a Board of Directors
TWO TIER SYSTEM: company will have: a Shareholder meeting
Body: Management Body of Directors
Body: Supervision
CREATION OF S.E
 Only by existing companies
 Business in two different member states (at least)
a S.E can move from one state to another.

EU REGULATION 2001 gives only certain provisions, some aspects are not clarified.
How will the gaps be filled?
 Look at BYLAWS (charter/ agreements) of S.E. Bylaws are documents signed at the moment of the
creation of a company stating the organization of it and all the rules governing that company.
  National rules/Laws

BUSINESS ORGANIZATION
A business, an enterprise, a firm, an undertaking may be organized in different business forms: Sole
Proprietorship, Partnerships and Corporations/Companies.

Most common forms of business organizations are:

The sole proprietorship:
1. No separate business entity: the business is an extension of the proprietor himself
2. Unlimited liability with all the assets (either business assets or personal assets) of the debts of the
business, as well as the personal debt
3. No transferability of interest in the business
4. No perpetual existence
5. No formalities to create the proprietorship
The partnership (general or limited):
1. Creation of a separate business and a separate pool of assets (disputed: whether or not a separate legal
person is created).
2. Unlimited liability of the members.
3. No free transferability of interest.
4. Limits on the perpetual existence.
5. Limited formalities to create the partnership.
The business corporation (public companies/stock corporation/joint stock corporations) and the limited
liability company (private limited companies/llc/ltd):
1. Creation of a new legal entity, with a separate business and a separate pool of assets
2. Limited liability of the participants (either shareholders, or quotaholders)
3. Free transferability of interest (not always)
4. Perpetual existence
5. Formalities to create such entity

SOLE PROPRIETORSHIP
An individual doing business for himself/herself. In some countries not all the business activities are
considered enterprises for the purpose of the law: i.e. Italy has businessmen who are entrepreneurs and
businessmen who are not entrepreneurs but independent professional workers (an architect; a lawyer; an
engineer; a designer …). Doing business entails some legal consequences that a worker (even a independent
self-employed professional one) may not face: registration for publicity (where requested); bankruptcy in case
of default; accounting duties; regime on the sale of the ongoing concern (the sale of the ongoing concern is
regulated in a different way from that of the single asset included in the ongoing concern).

1. Governing law:
a. Some legal system have no specific rules for the sole proprietorship (UK);
b. Some legal systems have a specific statute governing the sole proprietorship: Italy has a set of norms for
the sole proprietorship and the commercial (not agriculture) sole proprietor (“imprenditore commercial”;
 Germany has a set of norms for the Kaufmann. For Germany and Italy registration is needed, whilst in the
UK no registration is needed.
Note: Despite this different approach, bankruptcy is the consequence for a sole proprietor when the activity
cannot be ran by regularly paying the obligation with ordinary means. All creditors of that entity will be
gathered and will gather COLLECTIVE SATISFACTION of creditors. Sales assets -> money devoted to creditors.
Creditors are treated equally (they all get the same percentage), except when we have CREDITORS
PRIVILEGED, special claim on assets.

2. Formalities of Organization: No formal document or filing is required for the creation of a sole
proprietorship. Although a filing or a registration may be required for tax purposes. In Italy and in Germany
commercial entrepreneurs file a registration in the business and companies/commercial register (Registro
delle Imprese; Handelsregister) to enjoy a publicity regime, which allows to have as known by any third party
any piece of information registered pursuant to the law. I.e. The registered address of the entrepreneur is
held as known by anyone once it has been registered. A communication to a different address will be
considered as not effective. [Italy: art. 2193 Italian Civil Code; Germany: sec. 15 Handelsgesetzbuch]. In UK, no
such regime is provided: a registration is needed just for fiscal reasons; plus the registration of the business
name is advisable to have an exclusive right to use it.

3. Control and Management: The owner of a sole proprietorship has the full and absolute control of the
business. No one else participates in management. No one else takes decision on his behalf. The owner may
appoint employees or agents. No one shares profits or suffers losses of the business beyond the owner.

4. Liability of owner: A sole proprietor is personally liable for all the obligations of the business to the full
extent of his personal and business assets. He is fully liable in contract. He is fully liable in tort. There is no
distinction between the owner’s personal assets (not employed in the business) and the business assets. All
these assets can be seized or levied for the satisfaction of the (personal or business) creditors of the sole
proprietor.

5. Continuity of Existence: A sole proprietorship ends with the death of the proprietor. A sole proprietorship
has no continuity of existence as such. Nonetheless the heirs of the sole proprietor may succeed in the
proprietorship and continue it in their own name and behalf or continue it under their predecessor name and
on their behalf. In both cases new subjects intervene in the running of the business. If there is more than one
heir there might be a de facto partnership (if the heirs continue the business): lease the ongoing concern and
receive the lease fee or sell the ongoing concern and receive the sale price. If there is more than one heir
there might or a community property (if the heirs lease the assets to a businessman and receive a rent).

6. Transferability of Interests: The business of a sole proprietor may be transferred by disposing of the assets
employed in the business, either as a whole or in part (if such part is a self-standing unit able to continue a
business) or by selling each asset separately. The purchase and sale of the ongoing concern may be different
from the purchase and sale of single goods, and it is different from the sale and purchase of shares/stock
(which is used in case of partnerships/companies).

PARTNERSHIP
GENERAL PARTNERSHIP: partnership is an association of two or more persons to carry on, as “co-owners” or,
more properly, “in common”, a business for profit.
 1. Governing law: Depending on the legal system the partnership is generally subject to the partnerships
statute, act or regime. Such statute are national piece of legislation. The EU intervention on partnerships
has not been really relevant. Therefore partnerships regulation is poorly harmonized.
In Italy and Germany there is the need to register the partnership in the commercial register for the sake
of registration, so there’s the need to present an AGREEMENT (charter) between parties.

2. Formalities of Organization: How to create a general partnership? Conduct of the parties, Oral agreement,
Written agreement or often a registration of the partnership is requested: verify each time is this registration
is requested for:
a. valid existence of the partnership;
b. application to the partnership of a specific regime. (I.e. absent the registration other rules will apply to
the members running the activity in the form of a non registered partnership);
c. proof of a certain qualification of the activity or of the partners;

3. Control and Management: Absent an agreement to the contrary,

a. each partner has an equal voice in the management and control of the partnership;
b. in the event of disagreement, a majority of the partners may control;
c. amendment of the partnership agreement is only by consent of all members. These general principles
may be varied by agreement.

4. Liability of Partners: Each partner has full personal liability for all the partnership’s obligations, either in
contract or in tort. The partners are jointly and severally liable for all the partnership’s obligations, either in
contract or in tort. Newly admitted partners are liable only for future obligations/or also for the past
obligations (depending on the country). Retired partners are liable only for past obligations.

5. Continuity of Existence: A partnership may suffer two form of dissolution:

a. Dissolution of the partnership: the partnership as it is wound up and dissolved. How? By a common
decision of the partners! By a court decree (in case of bankruptcy)! By the prolonged lack of at least two
partners! By a number of other events (expiry of the term; impossibility to pursue the goal; full completion
of the partnership’s goal).
WINDING UP (ENDING): The assets of the partnership are sold to satisfy the creditors, ranked based on their
priority claim and at the time of the expiration of each obligation. The positive net amount, if any, is
distributed among the members. The proceeding is managed by an appointed liquidator (either appointed
by the partners or by a court).

b. Dissolution of the single membership in the partnership: One (or more) partner die or want to retire from
the partnership (by means of sale of their interest or by means of withdrawal/termination of their
partnership) or are excluded by the others. How? A single partner may cease to be a member of the firm
through: Withdrawal/termination, Expulsion/exclusion, Death, Sale and Purchase of his interest in the
partnership.
WINDING UP (ENDING): In some legal systems one or more of the above listed event imply a dissolution of
the partnership. Hence, like the sole proprietorship, the partnership does not, at least theoretically, have
perpetual life. In other legal systems, one of these event imply a dissolution of the single partner’s
participation, while the partnership continues to exist.

6. Transferability of Interests: The partners’ interest in the partnership (i.e. his stock of the partnership capital
and his share of profits and his right to participate in the management of the partnership) is not transferable
unless all the member consent. In such a case a charter amendment is necessary. This rule is softened in some
legal systems which allow transferability by the consent of a majority of the members or subject
transferability to a preemptive purchase right of the other members.
If a partner changes, then there is a change in the agreement. Change in person=Change in contract

COMPANY
A new legal entity, granted a full and perfect legal personality. Created by means of an agreement subject to
formalities for its validity and publicity (when a single member company is possible, a unilateral act replaces
the agreement). Management is centralized on a board of directors or on a single director. Directors are
periodically appointed. Limited liability of shareholders.

1. Governing law: for the UK there is a specific statute -> COMPANIES ACT 2006
In Italy there is the Civil Code + Testo Unico Della Finanza 1998, for listed companies
In Germany we have a Statute for listed companies

2. Formalities to start the business: companies setting ups request formalities.

A Company is a NEW LEGAL ENTITY everywhere, with a separate business and a separate pool of
assets.
Process to create a company: INCORPORATION (creation of a new body)

3. Liability of the members: we have a complete separation of assets. ASSETS OF THE COMAPBY BELONG
EXCLUSIVELY TO THE COMPANY (not touched by anyone but the creditors of the company).
Shareholders are protected by a limited liability

4. Management and Control: how are decisions taken in a company?

 OWNERSHIP: shareholders (owners of the company, or better said, they own the company’s shares)
participate in losses and profits facing the ultimate risk. Shareholders are the LAST RESIDUAL CLAIMANT: they
receive money only if creditors have been fully repaid. Shareholders don’t have a fixed claim, creditors do.
SHAREHOLDER POWER: appoint managers, directors and also revoke and replace them.
 CONTROL: managerial powers-> decisions belong to a body/office: BOARD OF DIRECTORS (elect
specific persons) or a SOLE DIRECTOR
So there is a separation between ownership and control. In a company exists the FUNCTION OF
MONITORING THE MANAGERIAL POWER: SUPERVISION.
CORPORATE GOVERNANCE= how bodies of companies are organized.

5. Transferability of interest: there is a DEFAULT RULE, which is a rule that is going to be applied unless
differently is stated. It is possible to limitate the transferability, impossible in listed companies, accept
share freely transferable, without a change in contract.

6. Continuity of the organization: company existing dates quite back in the past. In Italy it’s possible to
incorporate a company without a date of expiry.

PARTNERSHIP
We focus on 3 kinds:
1. GENERAL PARTNERSHIP: corresponds to Società In Nome Collettivo s.n.c. (Italy), O.H.G (Germany)
At least 2 persons are needed.
What kind of activity is a GP? Any kind of activity (either commercial, agricultural)
What kind of activity causes problem? Professional activities (law firm, medical practice) since they
could be difficult to say if a GP can be used for professional acts.

2. LIMITED PARTNERSHIP: Lack of registration implies that the limited partnership is deemed to be an
ordinary general partnership. Corresponds to: K.G. (Germany), Società in Accomandita Semplice s.a.s.
(Italy).
We can have limited liability and unlimited liability; the former means that there is no involvement at
all from partners but risking an amount of money, while the latter means that partners are actively
taking decisions.

3. SIMPLE PARTNERSHIP: simplest form of partnership, only for agricultural activity. Corresponds to:
G.B.R. (Germany), Società Semplice s.s. (Italy).
The German system uses the SP depending on the dimension of the activity but also on the purpose of
the activity.

FORMATION OF THE PARTNERSHIP

 UK: no formalities for the GP, no registration of the GP
 GERMANY: GP registration is the condition of existence of a partnership.
 ITALY: GP registration, but it’s not a condition of validity and existence of a partnership.
Do we need a registration in order to say that a partnership exists in the legal system? In Italy partnership
exists regardless the formal registration of it; however, a GP not registered is going to be qualified as a SP.
In Germany registration is a condition of existence, but it doesn’t mean that there is a way out of bankruptcy.
For the Limited Partnership there is the need to know who is liable, so registration gives critical info for
creditors.

LIABILITY REGIME GP
Partners are generally jointly and severally liable (in UK this applies roughly)
 UK: all partners are fully and unlimited liable, and they are the ONLY recourse. The partnership does
not exist a s a legal subject, so there is no distinction between partnership and partners, so the is also no
distinction between primary and secondary recourse, creditors just ask DIRECTLY to partners. Here the
creditors can choose to ask only one partner or some of them to repay the debt, maybe going after the
wealthiest one.

 GERMANY: all partners are fully liable, and they are the primary recourse. Partners aren’t liable on
primary recourse, regardless of the assets or the possibility to repay the debt of the partnership itself;
creditors can freely CHOOSE.

 ITALY: all partners are fully liable, but they are the secondary recourse. Partnership creditors must find
the CLAIM first in the partnership itself, only then in the partners, if the partnership isn’t able to repay them.

INCOMING NEW PARTNER/s are liable only from that moment, or (depending on the system) they’re liable
also for previous obligations because before entering a partnership they know what they’re dealing with.
 UK: no liability for past debts, incoming new partners are more protected, they face liability only for
future debts.
  GERMANY/ITALY: new partners face liability for ALL obligations, past and future, because the
partnership is a legal entity.

EXISTING PARTNER/s can’t get rid of liability by exiting the partnership

 UK/GERMANY/ITALY still liable for the obligations until RETIREMENT
o One possibility is to say that the retirement starts when the partner tells the others that is
retiring.
o Another possibility is when all creditors/partners are aware of the retirement of one partner,
so creditors are more protected than the first option, where they are aware of the retirement
later on.
NO MORE LIABLE when:
 UK: only after a NOTICE OF RETIREMENT to other partners and to creditors, through email, billboards
etc..
 GERMANY/ITALY: only after the PUBLICITY OF RETIREMENT

MANAGEMENT and CONTROL

MANAGEMENT is different from the AGENCY POWER OF ATTORNEY REPRESENTATIVE POWER.
1. MANAGEMENT: internal process of taking decisions (business/organizational decisions)
2. AGENCY POWER OF ATTORNEY: that decisions become binding also for third parties (implementation
of those decisions)

 UK: all partners are involved in the decision process. Depending on the nature of decisions:
o ORDINARY DECISIONS: the way business is conducted-> MAJORITY (headcount)
o EXTRAORDINARY DECISIONS: UNANIMITY but is more for the way of interpreting the law
o CHARTER’S AMENDMENTS: 1)Change of business. 2)New partner -> UNANIMITY
DEFAULT REGIME

 GERMANY: all partners entitled to take part in the decision

o ORDINARY DECISIONS: each partner can decide by himself without the need to ask consent
(INDIVIDUAL POWER) but if partner doesn’t agree with that decision? -> (OPPOSITION
POWER/veto power)
o EXTRAORDINARY DECISIONS: UNANIMITY
o CHARTER’S AMENDMENTS: UNANIMITY
MOPEG: modernization of partnership law-> majority to be counted on a CAPITAL BASE, no more on
headcount (like in the UK)
DEFAULT SYSTEM-> possible to arrange power differently; in this sense is more complete than in the UK, since
Germany system gives also the optional regime.
OPTIONAL REGIME: only certain partners will be involved in the managerial field-> JOINT POWER. One
exception for this default provision is the RISK OF DELAY: if requesting all consenting partners takes too long,
with the risk of damaging the partnership, ONE partner is entitled to take that decision by himself.

 ITALY: all partners take part in the decision process: each partner has the power to take ANY decisions.
o ORDINARY/EXTRAORDINARY DECISIONS: no distinction. Still with the POWER OF OPPOSITION
by majority, based on a capitalist system: by the percentage of profits in the company
o CHARTER’S AMENDMENTS: UNANIMITY because we are modifying a contract. Also this one by
DEFAULT REGIME
OPTIONAL REGIME:
A. ALL PARTNERS are going to be JOINTLY MANAGERS (unanimous decision).
 B. ALL PARTNERS are going to be JOINTLY MANAGERS (but with the majority, based on profits shares),
in order to counterbalance the veto power of each other).
C. SOME PARTNERS are MANAGERS: 1)SEPARATELY
2)JOINTLY (unanimous way or majority)
The other partners MUST be informed about the conduct, and all these options are ONLY about
BUSINESS DECISIONS, not the charter’s amendments.
RISK OF DELAY: if decisions waste time, triggering damage, partners can act before having unanimous consent.

AGENCY
AGENCY POWER: act on behalf/ in the name of all partners and partnership.
How is agency power organized?
 UK: Default rule provides EACH PARTNER the POWER TO BIND all the group of the other partner. In
order to have a power of attorney, so a greater protection to creditors, giving that it’s binding, the agency
power of a partner is an AGENT ONLY FOR THE PURPOSE OF THE BUSINESS, in order to limit his power (limited
to that transaction with the usual way to conduct the business)
Partner has agency power if:
o ACTUAL AUTHORITY: by DEFAULT/by CHARTER
o IMPLIED AUTHORITY: power attorney derives by the fact that third parties believe that partners
REASONABLY APPEAR TO HAVE THE AUTHORITY

 GERMANY: EACH PARTNER has POWER TO BIND. Options:

o Give the ATTORNEY POWER only to CERTAIN PARTNERS, whose name is registered in the
COMPANY REGISTER, so third parties have possibility to check and be aware.
o Give the LIMITATION attorney power by SUBJECT MATTER, so attorney power can be limited by
subject matter (loan up to 1M, supply etc..)
In order to make effective the power of limitation: 1) REGISTRATION (legal knowledge)
2)KNOWN OR OUGHT TO BE KNOWN (actual
knowledge)

 ITALY: ALL PARTNERS (managing partners) have the POWER ATTONEY

DEFAULT RULE: whoever has a managerial power has an attorney power.
LIMITATION:
o All matters included into the business, listed into the charter-> so there can be a SELECTION of
the PARTNERS or by SUBJECT MATTER.
o In case of lack of registration: partners must demonstrate ACTUAL KNOLEDGE upon the third
party.

FINANCIAL RIGHTS OF PARTNERS

PARTNERS CONTROL:
 INVOLVED (management, charter amendments)
 FINANCIAL RIGHTS
1) SHARE PROFITS usually yearly (as long as profits exist)
2) RESIDUAL CLAIM in case of liquidation, claim to the reminder after full payment of all creditors
HOW ARE THEY DISTRIBUTED?
o UK: equally, no difference between partners
o GERMANY: equally but based on SHAREHOLDINGS; before Moped was equally, now it
doesn’t follow Default Rule, but is on the basis on how much shares you have.
o ITALY: proportionally to the contributions of each partner.
LEONILE RULE: partners get only profits without the risk of losing something.

TRANSFER OF INTEREST/CONTINUITY

 UK: most traditional

o ANY CHANGE = DISSOLUTION
o ADMISSION NEW PARTNER: possible but only with a variation of the charter and only with
UNANIMITY; if I sell without unanimity, the new partner will only have financial rights.
o WITHDRAWAL (unilateral termination): no such right, BUT it is possible to withdrawal if the
partnership is AT WILL, so each partner can withdrawal with an advanced notice (how in
advance is up to the partnership). If the partnership is at FIXED TERM, partners CANNOT
withdrawal unless everybody gives consent.
o EXPULSION of a partner: not possible by default, ONLY through an AMENDMENT.

 GERMANY:
o NO DISSOLUTION: event such DEATH, WITHDRAWAL, BANKRUPTCY do not cause dissolution.
Ex. Death of a partner-> automatically the heirs will be transferees and can have an unlimited
liability or also limited liability, it is a choice: if limited liability is not accepted, they can
withdrawal.

 ITALY:
o NO DISSOLUTION: so partners will continue but it’s different from Germany; heirs will be
LIQUIDATED even if they are outside the partnership-> right to obtain liquidation of dead partner-
> financial rights.

PARTNERSHIP ACTIVITIES
o INTELLECTUAL PROFESSIONS
o BUSINESS

 UK: law regulating partnership allow to run any kind of activity (also intellectual). Since 2000 there is a
specific statue regulating the LLP (more like an hybrid between a company and a partnership), conceived
MAINLY for PROFESSIONS, BUT NOT ONLY (UK system is pretty flexible).
o LIABILITY REGIME LLP: limited BUT such limitation doesn’t stand for partners who caused
malpractice, so full liability, but all others partners are protected.

 ITALY: there are certain restrictions; until 1997 there was a prohibition for intellectual activities, after
1997 they were allowed back (small acts addressing to specific activities, case by case). In 2010 accounting
partnerships were finally allowed. Since 2001 lawyers have been able to use partnerships, but law firms must
be organized as a particular partnership. Finally, in 2012, we had a general recognition for the use of
partnership and companies for intellectual professions. A way to ENSURE quality service is that the majority of
the board of directors has to have persons who are licensed to have this particular profession. ITALIAN
LEGISLATION: approach case by case, ensuring that service is given by one or specific persons and to
guarantee the qualification of participant in partnership.
 GERMANY: since 1994, the German system enacted 1 specific kind of partnership: PROFESSIONAL
PARTNERSHIP/PART G (reserved to professions)-> only by natural persons, with liability structured in a
peculiar way. General debt of PART G will be subject to limited liability, BUT, for obligations attached to
practice of professions or malpractice, the LIABILITY is ATTACHED to the PERSON WHO COMMITTED
MALPRACTICE, who will be held liable in an unlimited way; also the partnership will be liable, but other
partners will not be liable.
Professional partnership is a way to limit the liability of members of partnership in case of malpractice;
otherwise it won’t be possible to use the GP. Recently Mopeg law made available the commercial and
limited partnership available for professions as well.

LIMITED PARTNERSHIP
MINIMUM 2 PARTNERS:
o GENERAL PARTNER: (all decisions), has exclusive power to run the business and unlimited liability.
o LIMITED PARTNER: (an investor), has no say in management, and faces liability limited to the amount
of the contribution.

 UK: limited partnership is regulated by a specific act-> 1907 LIMITED PARTNERSHIP ACT: provides
specific rules for the LP, but it’s not complete, so in order to fill gaps we make reference to the GP rules.
The LP has to be REGISTERED, and can contribute only CASH or ASSETS, nevertheless may receive a
SPECIAL POWER OF ATTORNEY, without violating the rule of NOT A SAY in management. Limited
partner still doesn’t take part in the decision making process, he cannot change the decisions taken by
general partners + special power of attorney.

 GERMANY: limited partner cannot receive any form of power (managerial) but also any form of power
of attorney (different from UK). Stake of partnership is freely transferable, it’s irrelevant who the limited
partner is, but only that there is one.
The LP has to be registered and if there is any gap about LP, they must be filled making reference to
the GP.

 ITALY: LP has to be registered, also here there is a combination of LP and GP rules whenever there are
gaps.
Limited Partner has NO managerial powers BUT has POWER OF ATTORNEY. The charter can say, for a
specific transaction, if the limited partner has power to authorize it or not (way to give a little bit of say
without going against general principle); also he has the right to vote on the appointment of the
managing partners. Stake of limited partners: if limited partner dies, his shares are freely transferable,
or they can be sold: transfer is possible but majority by the percentage of capital.

COMPANY
 INCORPORATION: process of formation of a company, creation of a CORPUS BODY
o PUBLIC: PLC (UK), AG (Germany), SPA (Italy)
o PRIVATE: LTD (UK), GMBH (Germany), SRL (Italy)

UK
o PUBLIC COMPANIES: 50˙000 pounds
Limited
Offer to public
Listed (traded on stock exchange)
At least 2 directors
Company’s secretary
Can be formed also just by 1 person (1 shareholder)

o PRIVATE COMPANIES: No share capital, not even a minimum amount of that capital
No offer to public
Not listed
1 director is enough
No company’s secretary
1 shareholder

COMPANIES IN THE UK
 LIMITED: both public and private-> LIMITATION OF THE LIABILITY. How does this limitation work? 2
ways:
1) LIMITED BY SHARES: a member is liable only for amount unpaid on the shares; after payment,
no more liability for them
2) LIMITED BY GUARANTEE: each member acts as a guarantor of the company, so for a fixed
amount of money written in the charter, requested to pay in case of liquidation.

 UNLIMITED: mainly for non-profit organizations.

1) Members are liable in case of LIQUIDATION
2) Exception from publishing financial accounts; ONLY for PRIVATE COMPANIES

GERMANY
o PUBLIC COMPANIES: 50˙000 euros
Public offer shares
Listed
1 shareholder
Codetermination system (employees involved in running business)

o PRIVATE COMPANIES: 25˙000 euros/ 1 euro (mini GMBH)

No public offer shares
Not listed
1 shareholder
Codetermination system only with 500 or more employees

ITALY
o PUBLIC COMPANIES: 50˙000 euros
 Offer shares to public
Listed
3 options: 1) 1 tier system: BoD (board of directors)
2)2 tier system: Management Body and Supervisionary Body
3)Latin Model: BoD and Collegio Sindacale
Shareholder meetings must be taken in PRESENCE with certain rules

o PRIVATE COMPANIES: 10˙000 euros (but because of UK competition now from 1 to 9˙999)
No offer shares to public
Not listed
1 director (can be appointed with no time limit)
Shareholders retain power to take managerial decisions
Management can be arranged as a partnership

ITALIAN PUBLIC COMPANIES

 CLOSED/CLOSELY HELD: can be established by a few bunch of shareholders (ex. family) and they don’t
make a large recourse to capital market, because shareholders want to keep power in their hands (Ferrero,
Campari).

 WITH SHARES MATERIALLY or LARGELY DISTRIBUTED WITHIN THE PUBLIC: n° of shareholders 500,
other than controlling at least 5% shares, dimensional criteria, and shares are acquired by a public offer (not
too popular; Banca Popolare)

 LISTED: a way to raise capital (since shares are offered in a stock exchange). Interest to ensure
DISCLOSURE and TRANSPARENCY for the benefit of the general public; listed companies MUST share info with
the public.
REINFORCEMENT OF THE CONTROL by: EXTERNAL AUDITORS (outside the company, appointed by the
shareholders meeting) or AUTHORITY (ensure that disclosure and transparency are granted; doesn’t
intervene with the business)

The only difference between a closed company and one with shares is that agreements taken by shareholders
concerning the business: in the former can be secret, in the latter must be disclosed.

ITALIAN PRIVATE COMPANIES

 ORDINARY S.R.L.: 10˙000 euros

 S.R.L. REDUCED CAPITAL: 1-9˙999,99 euros (share capital)

Created by ANY PERSON (natural or artificial)
Contributions only in cash
Entirely paid
Payment of all fees
Negotiated charter

 SIMPLIFIED S.R.L.: 1-9˙999,99 euros

Shareholder has to be a NATURAL person
Contributions only in cash
Entirely paid (25% now, 75% future)
No payment registration/notary fees
 Charter-> template mandatory (cannot be changed ever)

HOW ARE PUBLIC COMPANIES CREATED?

EU DIRECTIVE N.1132/2017 or 2nd directive:

1) N. OF SHAREHOLDERS: the directive left room for the Member States to choose the minimum n. of
shareholders to form a company, so not directly harmonized by the EU.
In the UK/GERMANY/ITALY at least 1 person (can be natural or legal)

2) ACT/AGREEMENT: instruments to create a company.

ACT: when only 1 shareholder (unilateral act)
AGREEMENT: at least 2 shareholders, then we have a CONTRACT: charter in partnership, ARTICLES OF
ASSOCIATION or MEMORANDUM OF ASSOCIATION in a public company + ADDITIONAL DOCUMENTS
(minimum information requested by the EU)

WHAT KIND OF CONTROL DOES THE EU REQUEST? On the consistency in the provision agreement and the
law.
o JUDICIARY CONTROL (courts)
o ADMINISTRATIVE CONTROL (public entities)
o PUBLIC OFFICIAL (notary)
In ITALY, judiciary authority only if there is a dispute between notary and shareholders.

UK INCORPORATION
Documents needed:
1) MEMORANDUM OF ASSOCIATION: shareholders solemnly declare to create a company with a certain
name.
2) ARTICLES OF ASSOCIATION: all rules on the functioning of the company (organization)
3) STATEMENT OF CAPITAL AND SHAREHOLDING: piece of paper that states the initial capital, how many
shares each shareholder has. (in the UK is a easier process-> there’s a model article of association)
4) STATEMENT OF COMPLIANCE: bureaucratic document that states that all documents are in order.
5) APPLICATION FOR THE REGISTRATION: document requested for registration (bureaucratic document)
CERTIFICATE OF INCORPORATION: after that the company has been incorporated.

Even before Brexit, a company has to have a company’s goal/objective (MANDATORY PRESCRIPTION).
In a company, articles of association can be changed by a majority, BUT this majority cannot act to cause
damage to the minority, so it can’t abuse power.

ITALY INCORPORATION
2 constitutional documents needed:
1) ARTICLES = ATTO CONSTITUTIVO: (memorandum of association=articles of association)
2) BYLAWS: all information requested by the EU in these 2 documents.
NOTARY: not only cash his fees but also control respect of laws.
It is possible to change documents by means of MAJORITY: higher than 50+1-> QUALIFIED MAJORITY; so
it’s possible to change even identity and minority doesn’t have a say. Still majority cannot abuse power.
GERMANY INCORPORATION
German incorporation system: very similar to the Italian system, notarial deed is needed, including articles of
association.
1) ARTICLES OF ASSOCIATION
2) NOTARIAL DEED
Germany’s CONTROL is given not only to a Notary, but also to a COURT.
In a public company, constitutional documents can be changed with the CONSENT of a MAJORITY.

FEATURE OF GERMAN SYSTEM: strictness in reference to public company-> express provision of the law
governing the public company is MANDATORY; any provision has to be considered mandatory, UNLESS the
contrary is stated.
In the UK/ITALY provisions can be: OPTIONAL PROVISIONS/DEFAULT/MANDATORY.

WHAT IF A PROCEDURE OF INCORPORATION GOES WRONG?

If a CONTRACT violates law, it will be considered NULL and VOID (invalid). So if a public company is set up by
means of an agreement which results to be invalid, any activity before should be considered invalid as well.

This is NOT ACCEPTABLE because otherwise jeopardize trust people in the functioning of the companies.

There is the need to HAMONIZE “INVALIDITY” to limit consequences: the EU has intervened; HOW?
1) DECLARATION OF NULLITY OF PUBLIC COMPANY: can be given only by a court
2) ON AN EXCLUSIVE LIST OF GROUNDS: this list cannot be enlarged and is given by the EU directive
itself.
a) LACK OF FORMALITIES (consequence->invalidity)
b) UNLAWFUL OBJECT (illegal activity)
c) LACK OF CERTAIN INFORMATION IN THE CONSTITUTITONAL DOCUMENT (name of the
company, total amount of capital, object of the company, shareholding, lack of minimum share
capital, lack of capacity of ALL members, subject to national provision, lack of the minimum n.
of shareholders). This list is not valid for every country.
3) CONSEQUENCE OF NULLITY is the DISSOLUTION LIQUIDATION. From the moment the judge
recognizes existence of invalidity there is a liquidation. BUT every activity before is VALID, so NO
RETROACTIVE EFFECT OF INVALIDITY. (Previous activity remains valid and shareholders still have to pay
uncompleted contributions).

SHARE CAPITAL:
 MINIMUM AMOUNT
Formation of the share capital
 CONTRIBUTION REGIME
 DISTRIBUTION OF PROFITS Maintainence of the share capital
 TRANSACTION ON SHARE CAPITAL
(Increase, decrease, purchase of company’s own
shares/buy back)

HOW TO PAY FOR THAT SHARE CAPITAL?

CONTRIBUTION: payment by shareholders for subscribing the shares.
Share capital is indicated in:
o UK: statement of initial capital
o ITALY/GERMANY: articles of association

Ex: if share capital = €100˙000 (ideally divided in equal shares decided by shareholders)
n. of shares = €100˙000
par value/nominal value/face value of each share = €1

 ELIGIBILITY: EU limits the eligibility of assets

Eligible assets: cash, give an assets (movable, immovable, tangible…). NO work or service.
Beyond cash, the EU allows member states to contribute with any kind of assets, but not work or
services (in private companies this is possible).

 TIMING
1. CASH CONTRINUTIONS: no obligation to pay immediately the entire payment (only 25%)
2. INKIND CONTRIBUTIONS: EU is flexible; gives 5 years to complete the inkind contribution.

 INKIND CONTRIBUTION: assessment of the value of the inkind contribution.

How to make sure value inkind contribution = value of shares? REPORT INDEPENDENT VALUER.
It is possible to NOT REPORT if objects of contributions are:
1. FINANCIAL INSTRUMENTS/SECURITIES/BONDS/SHARES/MONETARY INSTITUTION listed on a
regular market.
2. ASSET->FAIR VALUE->FINANCIAL STATEMENT. Asset included in financial statement that have
been already values, so the financial statement is a source of reference.
3. PREVIOUS INDEPENDENT REPORT not older than 6 months.

The EU imposes a GENERAL RULE: SHARES CANNOT BE ISSUED “BELOW PAR”; the value of the asset cannot
be lower than the value of the share.

WATERED STOCK/SHARE: share beyond which we don’t have enough value to compensate share value.

HOW DOES SHARE CAPITAL WORKS FOR DISTRIBUTION OF PROFIT?

T0-> moment of incorporation, when amount of contribution=amount of share capital=€100˙000
T1-> a notary fee must be paid = - €1˙000. However share capital doesn’t change because it is just a number in
the constitutional document: only the equity/net-worth of the company changes.
Net-worth = Assets – Liability
T2-> need to buy equipment = - €5˙000.

DISTRIBUTION OF PROFITS: EU directive 2017, obligation provided on national law, a rule on HOW profits
must be distributed.

Before any distribution of profits, a DOUBLE TEST must be done, BASED ON 2 REFERENCES:
o BALANCE SHEET (where we expect assets > liabilities + share capital + restricted/not distributable
reserves)
o PROFIT AND LOSS ACCOUNT (cash flow): gives us a result of the current and previous year

Entire profits are available for distribution, but no all of them are distributed.
If we obtain from the DOUBLE TEST that 1million distributed-> shareholders are happy but this doesn’t mean
that they will receive something, because the 1st condition is that RESERVES are MANDATORY: (LEGAL
RESERVE (general principle in Italy/Germany, about 5%, until legal reserve reaches a threshold, a minimum
amount, set by the law). LEGAL RESERVES CANNOT BE DISTRIBUTED BETWEEN SHAREHOLDERS.
This legal reserve is simply an ACCOUNTING TECHNIQUE TO LIMIT THE DISTRIBUTION OF ASSETS, a sort of
BUFFER protecting the legal capital because in case losses exceed a certain threshold, forced to reduce the
share capital.
MANDATORY are also ARTICLES, because company’s shares distribution of profits is judicious.
OPTIONAL RESERVE: created by a decision of the shareholders meeting.

DISTRIBUTION OF SHARES
 SHAREHOLDER MEETING decide by MAJORITY, majority because even if they don’t obtain profit (no
distribution), they can obtain resources in other ways (limit abuse of power).
 BOARD OF DIRECTORS (U.S.A.) decide. Very restrictive policy of distribution.

Shareholders have the right to claim profit only if profits exist and if profit is available for distribution.

TRANSACTION OF SHARE CAPITAL

Articles of association or other constitutional document indicate the share capital amount.
1) INCREASE SHARE CAPITAL
 ACTUAL/EFFECTIVE INCREASE: need to increase resources; shareholder wants to obtain new shares in
exchange of new resources (new contributions, new shares, s.c. increase)-> modify constitutional document
(increase s.c. and increase net-worth).
DANGER: incoming new shareholder-> holder shareholder has less power, and less percentage.

 NOMINAL CAPITAL INCREASE: capitalization of resources and profits. Share capital will ben increased
(amendments of articles or other documents), and resources are the same quantity as new shares paid by
capitalism reserves.

WHEN SHARE CAPITAL INCREASES, the NEW SHARES ONLY GO TO CURRENT SHAREHOLDERS, not new
ones, since we are using company’s money, that belong to current shareholders.

PRE-EMPTION/EMPTIVE RIGHT-> CURRENT SHAREHOLDER, granted by EU directive 2017 in case of real

increase capital with real contribution (not nominal).
Sometimes this right can be an obstacle; if the company wants new shareholders, might want to
limit/exclude the pre-emption right-> WAIVER=GIVE UP. This decision must be reached by a majority in
the shareholder meeting (at least ¾, harmonization 2017).
In case of waiving the Pre-Emption right, new shares not only for a PAR VALUE but also A PREMIUM.
To ensure that new shareholders pay a fair price, they pay PAR VALUE + PREMIUM (percentage of the
net-worth)
PREMIUM RESERVE can be used exclusively to: cover losses and capitalization of the share capital)

If new shares offered to current shareholders are not accepted, they are offered to the market.

 POWER CAPITAL INCREASE: given to SHAREHOLDER MEETING; they can modify the contract, since they
made it.
∙ Italy/Germany: extraordinary meeting = qualified majority + notary
∙ UK: ordinary resolution = simplified majority + no notarial deed
2) DECREASE SHARE CAPITAL
 NOMINAL REDUCTION: occurrence of losses, such as net-worth diminished below the value of share
capital, share capital is going to be diminished (everybody has to be informed about this situation).
Another reason might be that the NET-WORTH GOES REALLY DOWN: 3 options
∙ LIQUIDATE/DISSOLVE
∙ PUT NEW RESOURCES
∙ CONVERT COMPANY INTO: PARTNERSHIP/ if a public company, into a PRIVATE COMPANY

 EFFECTIVE REDUCTION: made when a company does have capital. Shareholders give back their shares
to the company, which is going to pay them back; this will reduce the resources of the company, triggering the
creditors, the company must guarantee them (pays before reduction, demonstrates that company’s condition
is secure, offers some kind of security).

The EU states that CREDITORS could also go in front of court, having the RIGHT TO OBJECT THEDECISION OF
DECREASING SHARE CAPITAL; in general, creditors must have an amount of time, during which they can take
action and understand how to protect themselves, and they must be guaranteed that they suffer a
proportioned reduction, proportioned to the money the loaned to the company.
∙ In Italy/Germany there must be a majority (qualified majority + notarial deed + registration decision)
in order to go with a reduction, and there must be time given to creditors before actual reduction (Italy
= 90 days, Germany = 6 months).

∙ In the UK, the resolution needs a qualified majority + confirmation by a court (a way to protect
creditors)

o EFFECTIVE capital reduction: share capital diminished, smaller capital will allow a larger amount of
profit, reimbursement of resources in favor of current shareholders.

o NOMINAL capital reduction: net worth already diminished, instruction EU to Member States, triggering
system of alarm. If the LOSSES ARE SERIOUS, a SHAREHOLDER MEETING MUST BE ORGANIZED by the
Board of Directors to inform the shareholders.

EU directive in case of reduction: there’s no obligation to care about creditors, but some Member States
prefer to do so:
∙ UK: are formal-> COMPANY ACT: even nominal reduction must be confirmed by the court, but no
creditor is entitled to object.
∙ Germany: future distribution of profits will be limited, no necessity of the court to confirm the nominal
reduction
∙ Italy: if the losses are less than 1/3 of the share capital -> NOTHING must be done
If the are more than 1/3-> a shareholder meeting must be organized, but they are not obligated to do
something, until the SECOND FINANCIAL YEAR in which the situation is the same, then they must make
a decision on how to act.

PURCHASE OF THE COMPANY’S OWN SHARES (BUYBACK)

 Since a company has its own legal entity, which can make transactions with other entities, becoming a
shareholder of itself.
A. CREDITOR’S PROTECTION
B. SHAREHOLDERS’ EQUAL TREATMENT
C. EXERCISE OF THE SHARES’ RIGHT
D. NET WORTH VALUE

WHAT IS THE ADVANTAGE OF THE COMPANY TO DO A BUYBACK?

o TO INCREASE THE SHARE CAPITAL/IMPLEMENT A STOCK-OPTION PLAN
o A SPECIFIC CATHEGORY IS DESIGNED TO BE REEDEMABLE (if shareholder dies/serious losses occur).

1) PROHIBITION OF THE SUBSCRIPTION OF THE COMPANY’S OWN SHARES: NOT POSSIBLE TO LET
COMPANY SUBSCRIBE ITS OWN SHARES. A company can pay for its on shares with its net-worth.
2) SHARES PAID-UP ENTIRELY
3) SHAREHOLDERS’ MEETING TO DECIDE THE TRANSACTION
4) EQUAL TREATMENT OF SHAREHOLDERS
5) QUANTITY: UK: all 1, no capital, but implicity at least 1 share remain to shareholder
Germany: 10%
Italy: for listed companies = 20%, for not listed companies = no limit
6) SUSPENSIONS OF THE VOTING RIGHTS
7) ACCOUNTIN RULE: BoD is there to run the company, but CANNOT buy the company’s shares

FINANCING OF COMPANY
Shares are all equal, all with the same par value and rights (to vote, and financial rights) attached.

Being shareholder gives certain rights: right to profit, right to vote, right to the reminder in case of liquidation.

Company decides on PROFIT DISTRIBUTION, called DIVIDENT: actual part of profit that has to be distributed.
1 SHARE = 1 MINIMUM AMOUNT (qualified shareholder)
Share present itself as a UNIT.
Bylaws arrange are different from CLASSES OF SHARES

TO WHAT EXTENT BYLAWS TO DESIGN ARE DIFFERENT TO CLASSES OF SHARE?

Interest of a company-> meets different interests of shareholders. Some are interested in:
 INVESTMENT FUND: 2 kind:
1) Devices to pull savings from the public (invest on behalf of customers)
2) Edge funds: more aggressive. Highest amount of money=highest return possible.

 RETAIL INVESTOR: interested in FINANCIAL side rather than voting and administrative side
 ENTREPRENEUR: investor interested more in VOTING and DMINISTRATIVE side (but of course also
interested in the financial side)

HOW TO MODIFY FINANCIAL RIGHTS?

 1) MORE THAN PROPORTIONAL: grant a certain share PREFERENCE RIGHT; that can mean:
∙ PRIORITY of the CLAIM (before other classes)
∙ ADDITIONAL/INCREASED minimum amount of money: higher percentage
If financial statement reports existence of available profits, immediately/automatically can be
distributed (shareholder meeting) -> ARTICLES and BYLAWS

2) LESS THAN PROPORTIONAL: DEFERRED SHARES: treated only after other classes of shares. Still
possible to take participation, but less than proportional.

3) SHARES SUFFER LOSSES AFTER OTHER CLASSES: in case of losses which share is cancelled? So, 1st
cancel 10% of ordinary share, then other classes.

4) REDEEMABLE SHARES: can be redeemed at certain time by the company after a certain event;
participation with fixed time.

BOUNDARIES = LEONILE CLAUSE: provision which creates a participation of holder exclusively to losses or
profits.
∙ In UK/Germany this clause in NOT MANDATORY, much milder concept: you can’t create a class of
share participate only losses-> minimum profit
∙ In Italy it’s prohibited: balance in participation in different classes; so not only minimum amount, but
also balance of the different classes must be proportional participation to profits, sure overall balance ensures
a reasonable participation.

VOTING RIGHTS “1 SHARE = 1 VOTE”

Concentrating power in the hands of someone (few) having more shares.
The law applies to ensure the alignment of the interest at stake and the ones who are in power to decide.
If there are deviations from the 1 share = 1 vote system, we can have:
1) NON-VOTING CLASSES OF SHARE: no vote for the ones who have an insignificant amount of shares,
they participate only to profits.

2) LIMITED VOTING RIGHT to: certain topics, or competences in the shareholders’ meeting

3) CONDITIONAL VOTING RIGHT: only when specific/conditional events happen, they’re going to have
voting rights. These events are stated EX ANTE in the charter of each company.

 LIMIT CAP: quantitative cap: n. of shares that can be issued

∙ Germany/Italy: cap 50% share capital
∙ UK: no such thing

 LIMIT NON-VOTING CLASSES:

∙ UK: no indication
∙ Italy: since 2003
∙ Germany: non-voting shares must be PREFERENCE, there’s no obligation that non-voting shares
must be preferred.
“MORE THAN ONE SHARE = ONE VOTE”, MULTIPLE VOTING SHARES
 UK voting right: legal scholars say: multiple voting rights is possible, no indication on how many voting
rights: NO FORMAL PROHIBITION.

 GERMANY voting right: now multiple voting shares are prohibited: PROHIBITION.

 ITALY voting right: for a long time was prohibited; now NOT LISTED COMPANIES 3 VOTES; why this
change? With Renzi, when Fiat moved from Italy to the Netherlands, where it was allowed multiple voting
shares, Italy also allowed multiple voting shares. Only in not listed companies and for a maximum of voting
right is up to 3 votes.
LISTED COMPANIES can create similar concept but different: LOYALITY SHARES: doesn’t grant the right
to the share, but to the single person. (No way to detach the rights of shares from the share itself).

∙ LISTED COMPANIES: possible to grant multiple voting rights during PASSING OF TIME if shareholders
are LOYAL: they don’t sell/disperse shares for at least 24 months (max. 2 voting rights).
The technique to grant this privilege is PERSONAL BUT OBJECTIVE:
Personal: depends on personal condition of shareholders.
Objective: simply passing of time (linked t an objective event).

SHORT TERMINISM: short term investment, nowadays vast majority of investors are more short term, which
may cause instability.
HOW TO AVOID SHORT TERMINISM?
1) Increase voting right 24 months (reward those who remain)
2) More profits to those who remain.
Today short terminism is a lot because of EDGE FUNDS: gain in a short way a large amount of money.

This technique grants rights to shareholders in a public company.

o ITALY: more reluctant; this technique is unacceptable in public companies, BUT recently NOTARIES
stated that it’s acceptable to grant voting rights.
o GERMANY: only one: allow public companies to grant 1 or more shareholders the right to appoint a
certain n. of the supervisory board, no more than 1/3. (if I sell, new buyer does NOT receive right)

MODIFY CLASSES OF SHARES?

In traditional private law, it’s possible to modify classes of shares, BUT UNANIMITY is needed.
So, SHAREHOLDERS CAN MODIFY ARTICLES BY QUALIFIED MAJORITY.
 Holder of class share will modify his class (direct amendment). In order to modify class alone: DOUBLE
DECISION:
1) GENERAL SHAREHOLDER MEETING (all shareholders): MAJORITARIAN CONSENT
2) SPECIAL MEETING (only holders of shares included in the class will be amended): MAJORITARIAN
CONSENT
To amend articles, Italy/Germany also need a NOTARIZED DEED.

 New classes of share: (indirect amendment) super special when paid before, even before special class-
> special because they are paid before others.
Kind of amendment does not touch current class, but DE FACTO modified. Consent of class of share will be
indirectly harmed (DEBATED).
∙ Italy/UK: in favor of company (no need to obtain consent) rather than holder of shares.
∙ Germany: need double decision eve in indirect harm.

HOW ARE SHARES REPRESENTED?

Traditionally on PAPERS (1 certificate = 1 share)
3 techniques:
1) TRANSER TO THE BEARER: easiest way to transfer participation: you simply pass a piece of paper, BUT
it’s RISKIER (risk of money laundering, tax evasion) -> PROHIBITED IN ITALY

2) REGISTERED SHARES: registered twice (name of person, company’s book), and NOT ANONYMOUS:
transfer is possible with a certificate + update in company’s book. It’s the most common, avoids risks
of tax evasion and money laundering. BUT use paper very expensive because in order to arrange the
transfer, there’s the need to face additional costs. Therefore, specifically for listed companies, shares
do NOT exist on PAPER:

3) COMPUTER BASED: possible in Italy.

o SHARES ISSUED FROM LISTED COMPANY: limitation of transferability, shares will be distributed.
o SHARES ISSUED FROM NOT LISTED COMPANIES: can modify free transferability by providing in the
ARTICLES: limit transferability by requesting pre-emption right to limit; establish criteria that
shareholder satisfy in order to enter in the company, even if they’re qualified.
o PUBLIC COMPANY CLOSELY HELD: n. of shareholders is limited; existence of limits on transferability of
shares (diminishing chance to give shares to others).

BONDS
A company can issue bonds: FINANCIAL INSTRUMENT different from shares
A BOND HOLDER has the right to obtain a certain INTEREST RATE and is entitled to obtain FACE VALUE OF
BOND.

Bonds are issued in a serieS: LOAN DIVIDED IN UNITS = each unit is a BOND

Share/Bonds use the same technique, but BOND HOLDERS are FIXED CLAIMERS.

 NEW SHAREHOLDERS: current shareholders have less power; more equity->less debt/leverage
 NEW BOND HOLDERS: current shareholders don’t have problems; leverage/debt of the company
increases
LEVERAGE = NET-WORTH -DEBTS

In PUBLIC COMPANIES, the decision on HOW TO ISSUE BONDS is in the hand of BoD. (issue of shares =
shareholder meeting)
For classic bonds, directors decide (no CAP to do so)
∙ ITALY: for many reasons, YES CAP; yes limit
amount: can’t exceed 2 TIMES SHARE CAPITAL and
RESERVES. This to avoid imbalances between
resources from public and resources from
shareholders.
COPRORATE GOVERNANCE
Concept influenced nationally by different sources of law (especially for listed companies: special provision +
additional pieces of law + corporate governance code; AIM: to improve the perfect functioning of the system).

NO DEFAULT APPLICATION but we expect to accept (listed c.)

EU has NOT HARMONIZED CORPORATE GOVERNANCE: there isn’t any directive on how to issue public
companies: why? Since Member States not common tradition: corporate governance is very different one
with another. There exists only one directive for stakeholder right. Corporate governance is national, each
country has its own.

FOR WHOM CORPORATE COVERNANCE? 3 approaches:

1) SHAREHOLDERS
2) +STAKEHOLDERS (employees, suppliers, customers, creditors)
3) +COMMUNITY SOCIETY (also a stakeholder but wider: environment, current relationship between
state agency/authority and public company)

1) SHAREHOLDERS: considered ownership structure of company (1 reason because so different among

states-> n. of shareholders; kind of shareholders)
∙ UK:
PUBLIC COMPANY: n. of shareholders quite high, participation NOT relevant; significant distribution of
shares among a high n. of shareholders-> COI: rule to align directors and shareholders interest.
To overcome COI, should coordinate a common action; to reduce AGENCY PROBLEM (kind of COI):
directors act as an agency of shareholders, ensuring agency in doing the best for principles.

CLOSED COMPANY: we have a few shareholders, so much more cohesion, and COI among majority of
shareholders and minority of shareholders. Worries because minority position suffers decision of
majority: but there is NO possibility to react + minority doesn’t have the possibility to exit the company
(most frequent in ITALY).

2/3) STAKEHOLDERS + COMMUNITY: COI between firm (shareholders) and all stakeholders, because
of soundness (stability) and sustainability (green approach).

Before, the goal of public companies was only profit, now this has changed.
COPRORATE PURPOSE = PROFIT + PURPOSE OTHER THAN PROFIT (balance between many interests at
stake)

COPRORATE GOVERNANCE has many FUNCTIONS inside a firm:

 MANAGEMENT
 SUPERVISION on management
 ACCOUNTING SUPERVISION: granted safe from an exception STATUTORY ACCOUNTING AUDITORS
 “OWNERSHIP” DECISIONS: which include decisions on: PROFITS, ORGANIZATION (BYLAWS),
APPOINTMENTS OF CORPORATE BODIES: shareholder meeting.
MANAGEMENT and SUPERVISION changes a lot from state to state, because countries may choose between 3
corporate government systems (until 2003 there was only Latin):
1) 1 TIER (UK)
2) 2 TIER (Germany)
3) LATIN/TRADITIONAL SYSTEM (Italy)

1 TIER/2 TIER: shareholder meeting + external auditor

HOW MANY COPRORATE BODIES DO WE HAVE TO ARRANGE MANAGEMENT AND CONTROL?

 UK: only 1 DIRECTOR doing everything, supervises the entire board

2 tiers: management board and supervisory board are separate

Latin system: 2 bodies: management (Board of Directors) and supervision (Collegio Sindacale)->
statutory auditors. Latin is not a 2 tier, because different methods to appoint these bodies.

1 TIER: SHAREHOLDER MEETING APPOINTS BOARD OF DIRECTORS (BoD does both management and
control, at least 2 directors)

2 TIER: SHAREHOLDER MEETING APPOINTS only SUPERVISORY BOARD

SUPERVISORY BOARD APPOINTS only MANAGEMENT BOARD

LATIN MODEL: SHAREHOLDER MEETING APPOINT both BoD and COLLEGIO SINDACALE (board of
statutory auditors)

 ITALY: majority decide who runs company and who supervision those who run it. Here LATIN IS
DEFAULT, if company decides others, must declare it in the articles.

 GERMANY: 2 tier. Why? Historical reasons: codetermination system, also employees appoint.

Italy/UK no involvement of employees.

POSITION OF SHAREHOLDERS MEETING

 ONE TIER/LATIN SYSTEM: appointment/revoke the Board of Directors (in Italy Collegio Sindacale)
The DIRECTOR is chosen by the shareholder meeting, runs the company with the money of
shareholders: if shareholders are not happy, they can:
∙ REVOKE, but if for trivial reasons, they must restore damage, but he cannot regain his position
(majority can revoke).
∙ For Collegio Sindacale, revocation is not so easy because its goal is to CONTROL management board, to
limit risk of revocation. In Italy there’s the need for: shareholder meeting + good cause + confirmation of
tribunal of this good cause
 2 TIER: BoD appoints/revoke the supervisory board

REMUNERATION
 Italy: directors receive a fixed amount of money by the shareholder meeting. Then inside the BoD
there are different positions (chairman, CEO) who have specific charges (special appointment).
 UK: BoD decides by himself remuneration and its own members (not the shareholder meeting).

BOARD COMPOSITION
3rd kind of director: INDEPENDENT DIRECTOR: basically, free from influence of shareholders (will not put at
risk their reputation just to please shareholders).
In listed companies they CAN’T BE EXECUTIVE, but VOTE in BoD; a non-executive director is not necessary
independent.

SHAREHOLDERS’ MEETING

 ONE TIER/LATIN SYSTEM

1) APPOINTS BoD
2) REVOKES BoD
3) SETS BoD RENUMERATION
4) APPROVES/RECEIVES FINANCIAL STATEMENTS: BoD is responsible to draft financial statements, then
offered to the shareholders’ meeting for final say.
5) DISTRIBUTION OF PROFITS: made by shareholders meeting subject to a proposal of BoD. In the UK is
not possible to deviate from the proposal of BoD.
6) AMENDMENTS OF ARTICLES/BYLAWS
7) INCREASE/REDUCTION OF SHARE CAPITAL, WAIVER OF PRE-EMPTION RIGHT
8) SHARES BUYBACK: not Bod; but shareholders
9) APPOINTS AUDITORS, SETS REMUNERATION
10) FILES CLAIMS FOR LIABILITY AGAINST THE BoD: claiming restoration for damages that the director has
made, the company itself has this right.
11) MANAGERIAL DECISION: Italy-> clear distinction: managerial function BoD, shareholders advisor
position; UK-> possibility for articles to provide to shareholders to decide for certain topics

 TWO TIER
1) DOESN’T APPOINT BoD, APPOINTS ONLY SUPERVISORY BOARD
2) ONLY REVOKES SUPERVISORY BOARD
3) ONLY SETS SUPERVISORY BOARD REMUNARATION
4) APPROVAL TAKEN AWAY FROM SHAREHOLDERS, GIVEN TO S.B.
5) DISTRIBUTION OF PROFITS
6) AMENDMENTS OF ARTICLES/BYLAWS
7) INCREASE/REDUCTION OF SHARE CAPITAL, WAIVER OF PRE-EMPTION RIGHT
8) SHARES BUYBACK: not BoD, but shareholders
9) APPOINTS AUDITORS, SETS REMUNERATION
10) SHAREHOLDERS’ MEETING FILES CLAIM FOR LIABILITY AGAINST THE S.B.
11) In Itay: MANAGERIAL POWERS NOT to shareholders. In Germany certain power, only if management
board request so.

Shareholders’ meeting has 3 tools for PRESSURE:

 1) Director aligns shareholders meeting interest: THREAT: reappoint BoD
2) Possibility to REVOKE BoD
3) CLAIM against DIRECTOR: sometimes directors have insurance in case of claim, a way to protect
themselves

SUPERVISORY BOARD
In charge of:
1) APPOINTS/REVOKE SETS REMUNERATION OF MANAGEMENT BOARD
2) FILES CLAIM FOR LIABILITY OF MANAGEMENT BOARD
3) APPROVES FINANCIAL STATEMENT
4) SUPERVISES THE MANAGEMENT BOARD: supervision means: management board decides what to do
and S.B. verifies if decisions are properly taken. (compliance with law/articles, compliance with best
practice, appropriate and adequate organization)
5) APPROVES CERTAIN TRANSACTIONS: Germany-> S.B. will approve certain transactions, if it doesn’t
approve them, management board can try and skip and ask to shareholders
Italy-> default rule S.B. has no managerial competence, but it is possible to have articles stating
involvement in certain transactions.

2 TIER EFFECTS:

 DEEPER SEPARATION BETWEEN OWNERSHIP AND CONTROL: minority loses significant power, but also
majority loses its influence)
 MORE DIRECT CONTROL AND DIALOGUE BETWEEN SUPERVISION AND MANAGEMENT

RATIONALE: 2 TIERS WORKS WELL

o PARTICIPATION OF EMPLOYEES (Germany)
o LARGE MERGER: when you merge two companies, large n. of shareholders, so finding a compromise in
the shareholders’ meeting is difficult, power is therefore concentrated in the S.B.
o STATE PARTICIPATED COMPANY: concentrating power to S.B. -> balance between different classes of
shareholders.
o GENERATIONAL CHANGE

COLLEGIO SINDACALE
Supervises the management board, checks respect and compliance to law and best practice.
Collegio Sindacale is different from Supervisory Board, since it doesn’t have power to appoint the managerial
board.
In Italy, previously the Collegio Sindacale supervised accounting, nowadays has no such power.
1 TIER

 UK: NON-EXECUTIVE/EXECUTIVE
 ITALY: SPECIAL COMMITTEE inside BoD itself (a small group which runs supervision, for management
control), 2 or 3 members, selected by majority headcount among BoD.
In order to ensure that this SPECIAL COMMITTEE IS QUALIFIED:
∙ At least 1/3 of BoD to be INDEPENDENT
∙ Members of committee shall be NON-EXECUTIVE director (make sure not involved in running
business)
∙ Qualified in terms of INTEGRITY (non-guilty of criminal charges)
So members of committee can also be a member of the BoD, double role: normal active of
board, and supervise overall the action of the board

1 tier is less expensive (reduction cost), but lost detachment to actual management (supervision)

INDEPENDENT DIRECTORS
In 1 TIER and 2 TIER
In corporate governance, independent directors contribute to a better governance of a company.
Special role:
1) SET REMUNERATION OF BOARD: independent directors should avoid awarding themselves
2) INDEPENDENT DIRECTORS PAY ATTENTION TO TRANSACTION (has possible COI)
3) RELATED PARTIES TRANSACTION: transaction between companies and its directors or subsidiaries.

EXTERNAL AUDITORS -> topic heavily harmonized

 2 DIRECTIVES 2013/34 and 2006/44; auditors are there to run:

∙ ACCOUNTING RULE IS RESPECTED? they must verify it
OUTCOME: FINANCIAL STATEMENT/CONSOLIDATED STATEMENT: have to be sure and accurate

WHY HARMONIZE ACCOUNTING? (ensure financial statement are similar)

 POSSIBILITY OF COMPARISON (crucial for investors)

 MATERIAL FOR CREDITORS (external auditors make observations/challenges or even refuse release,
external auditors are independent, appointed by shareholders and not by BoD; shareholders’ meeting also set
remuneration, at the beginning of appointment, and it is fixed)

DURATION OF APPOINTMENT IS NOT HARMONIZED (different in each Member State)

∙ If too short: independent auditor not sufficient time to know the company.
∙ Short-term: threat not interested to remain in the company.
∙ If too long: external auditor will become lazy, will rely on long appointment
 1) COOLING OFF PERIOD: E.A. can be reappointed but some auditors can become your friend, so n. of
reappointment is limited and there is a period of waiting before the reappointment, so not
immediately; in the meantime, find another auditors.
2) REVOLVING DOORS: person working for auditing firm and then interested in getting hired to that firm
in the future, so for those entities revolving doors can’t be open, not possible making this change
3) OFFER OF RELATED SERVICE IS LIMITED: that auditors may offer to company
1-2-3 reinforce auditing independence in the EU

DIRECTORS’ LIABILITY
Exists when a BREACH/DAMANGE of directors’ duties.
Legal technique to describe directors’ duties can be made by:
o RULES: specific behaviors/duties, if breached, then breach exists
o STANDARD: other duties much more general since directors are agent to run the business; so we need
standard = fiduciary duties (matter of trust)
FIDUCIARY DUTIES:
∙ DUTY OF CARE: directors are requested to apply the due diligence, run the business avoiding
negligence
∙ DUTY OF LOYALTY: protect the interest of the company (not to exploit company’s resources for
own interest)

“BUSINESS JUDGMENT RULE”

Avoid court/tribunal is going to interfere in director decision; judge should control what has been done EX-
ANTE and not after decision has been taken, otherwise it will be too easy to say “you made a bad decision”.
JUDGE:
∙ See if info are all
∙ Preliminary investigation
∙ Adequate assessment of the choices of success

WHAT ARE THE ELEGIBLE PLANTIF?

Plantif = Claimant who is claimant? Company-> who represents it? shareholders
Defendant/directors = respondent
To whom are directors liable? Towards company but also creditors
Directors can directly damage shareholders

 GERMANY: company must be managed in the interest of the firm

DUTY OF CARE: an ordinary and scrumptious director, 2 options to measure it: BENCHMARK
(comparison with ordinary guy)
 DUTY OF LOYALTY: NO COI: duty of confidentiality, no unlawful distributions, violation of rules on
share capital increase. (more relevant than in others member states)

JUDGMENTAL RULE: exists. NO BREACH IF: appropriate info, reasonable basis, transaction in the
interest of the company.

WHO IS GOING TO BE PLAINTIFF? (Checked by the court)

∙ Shareholders’ meeting (majority) against M.B./S.B.
∙ Shareholders’: having €100.000 on 1/10; unsuccessfully request company to act; holding
unlawful misconduct
∙ No superior interest of the company
∙ Reasonable suspect of malpractice

 ITALY
DUTY OF CARE: duty to carry out the management of the firm in accordance with law, in accordance
with articles, with diligence in relation to their office and professional rules
DUTY OF LOYALITY: in case of personal interest

SKIP LIABILITY? 1 way: formally dissert from decision that is going to be taken, not just vote against it.

2 way decision by executive and I on non-executive, but every director cannot sleep while executive
runs the business (diligence), so supervise action of others.

WHO IS PLAINTIFF?
For Latin/1 Tier: a) shareholders, then 2 boards invested
b) qualified percentage of the shareholders: 1/5 closely held; 1/40 listed companies
c) collegio sindacale
for 2 tier: against S.B. (only by shareholder meeting)

 UK
They tried, in 2006: amended companies Act
Tried to translate 2 big categories of duty, to car and of loyalty.
Similar to the Italian system, use both parameters benchmark (subjective, objective)

WHO IS PLAINTIFF?
Only who suffered damage, so the COMPANY (decided in the Case Foss vs Harbottle 1843). Exceptions
allow shareholders to act especially if there is fraud, illegal act, act ultra vires.

2006 COMPANIES Act modified:

Derivative suit: now UK it is possible to act against director but it’s different from Italy and Germany.
Why can UK do that? (any shareholder can do that, regardless the holding shares) Judiciary system->
court verify if case can be admitted: 2 steps: prima facie, courts’ admission. Act by shareholder on
behalf of the company in relation to a breach of duty by directors.