European company law
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European company law is the part of
European Union law European Union law is a system of Supranational union, supranational Law, laws operating within the 27 member states of the European Union (EU). It has grown over time since the 1952 founding of the European Coal and Steel Community, to promote ...
which concerns the formation, operation and insolvency of companies (or corporations) in the
European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...
. The EU creates minimum standards for companies throughout the EU, and has its own corporate forms. All member states continue to operate separate companies acts, which are amended from time to time to comply with EU Directives and Regulations. There is, however, also the option of businesses to incorporate as a (SE), which allows a company to operate across all member states.


History

There have been, since the European Community was founded in 1957, a series of directives creating minimum standards for business across the European Union. A central aim restated in each Directive is to reduce the barriers to freedom of establishment of businesses in the European Union through a process of harmonising the basic laws. The object is that when laws are harmonised, business will not be deterred by different or more onerous laws, but at the same time harmonisation provides a basic level of protection for investors in each member state, none of which are forced into regulatory competition.


Formations and civil law


Registration rules

*First Company Law Directive 68/151/EEC, on co-ordination of safeguards (...) for the protection of the interests of members and others, repealed by 2009/101/EC. This concerned company registrations, transactional validity, the effect of ''ultra vires'' transactions, or transactions by improperly incorporated businesses. Now replaced by Directiv
2017/1132
*Eleventh Company Law Directive 89/666/EEC, on disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State *Twelfth Company Law Directive 89/667/EEC, on single-member private limited-liability companies, repealed b
2009/102/EC
*Draft Fourteenth Company Law Directiv

*Directive (EU) 2017/1132 replaced Directive 68/151/EEC and laid down rules concerning the disclosure and interconnection of central, commercial and companies registers of Member States EUR-Lex
Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 as regards the use of digital tools and processes in company law (Text with EEA relevance)
accessed 14 August 2023
*Directive (EU) 2019/1151 amended Directive (EU) 2017/1132 as regards the use of digital tools and processes in company law, adopted 20 June 2019, requiring member state transposition, in most respects, by 1 August 2021, but at a later date if agreed by the Commission where there were "particular difficulties" with national implementation.


European company forms

Since 2002, a " European Company" (or , abbreviated to " SE") has been available for incorporation in the Statute for a European Company Regulation 2001. This sets out basic provisions on the method of registration (e.g. by merger or reincorporation of an existing company) but then states that wherever the SE has its registered office, the law of that member state supplements the rules of the Statute. The
Employee Involvement Directive 2001 The Employee Involvement Directive 2001/86/EC is an EU Directive A directive is a legal act of the European Union that requires Member state of the European Union, member states to achieve particular goals without dictating how the member sta ...
also adds that, when an SE is incorporated, employees have the default right to retain all existing representation on the board of directors that they have, unless the negotiate by collective agreement a different or better plan than is provided for in existing member state law.


Conflicts of law and free movement

The Court of Justice held in '' Centros'' that freedom of establishment requires companies operate in any member state they choose. This has been argued to risk a "
race to the bottom Race to the bottom is a Socioeconomics, socio-economic concept describing a scenario in which individuals or companies compete in a manner that incrementally reduces the utility of a product or service in response to perverse incentives. This pheno ...
" in standards, although the Court of Justice soon affirmed in '' Inspire Art'' that companies must still comply with proportionate requirements that are in the "public interest". *'' Gebhard v Consiglio dell'Ordine degli Avvocati e Procuratori di Milano''
995 Year 995 (Roman numerals, CMXCV) was a common year starting on Tuesday of the Julian calendar. Events By place Japan * 17 May - Fujiwara no Michitaka (imperial regent) dies. * 3 June: Fujiwara no Michikane gains power and becomes Rege ...
ECR I-4165 (C-55/94) *'' Überseering BV v Nordic Construction Company Baumanagement GmbH'' (C-208/00)


Corporate governance

Among the most important governance standards are rights to
vote Voting is the process of choosing officials or policies by casting a ballot, a document used by people to formally express their preferences. Republics and representative democracies are governments where the population chooses representative ...
for who is on the board of directors for investors of labour and capital.


Shareholder rights

The Shareholder Rights Directive 2007 requires
shareholders A shareholder (in the United States often referred to as stockholder) of corporate stock refers to an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the ...
be able to make proposals, ask questions at meetings, vote by proxy and vote through intermediaries. This has become increasingly important as most company shares are held by
institutional investors An institutional investor is an entity that pools money to purchase security (finance), securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, s ...
(primarily asset managers or banks, depending on the member state) who are holding "other people's money". A large proportion of this money comes from employees and other people saving for retirement, but who do not have an effective voice. Unlike Switzerland after a 2013 people's initiative, or the U.S. Dodd-Frank Act 2010 in relation to brokers, the EU has not yet prevented intermediaries casting votes without express instructions of beneficiaries. *Draft Ninth Company Law Directive, on corporate groups


Employee rights

A
Draft Fifth Company Law Directive The Draft Fifth Company Law Directive (1972–2001) was a European Union proposed directive (European Union), directive for a right of co-determination in large companies, i.e. for employees to vote for boards of directors. The draft went through se ...
proposed in 1972, which would have required EU-wide rights for employees to vote for boards stalled mainly because it attempted to require two-tier board structures, although most EU member states have
codetermination Worker representation on corporate boards of directors, also known as board-level employee representation (BLER), refers to the right of workers to vote for representatives on a board of directors in corporate law. In 2018, a majority of Organisatio ...
today with unified boards.


Investor rights

A series of rights for ultimate investors exist in the Institutions for Occupational Retirement Provision Directive 2003. This requires duties of disclosure in how a retirement fund is run, funding and insurance to guard against insolvency, but not yet that voting rights are only cast on the instructions of investors. By contrast, the Undertakings for Collective Investment in Transferable Securities Directive 2009 does suggest that investors in a
mutual fund A mutual fund is an investment fund that pools money from many investors to purchase Security (finance), securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in ...
or ("
collective investment scheme An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These ad ...
") should control the voting rights. The UCITS Directive 2009 is primarily concerned with creating a "passport". If a firm complies with rules on authorisation, and governance of the management and investment companies in an overall fund structure, it can sell its shares in a collective investment scheme across the EU. This forms a broader package of Directives on securities and financial market regulation, much of which has been shaped by experience in the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
. Additional rules on remuneration practices, separating depositary bodies in firms from management and investment companies, and more penalties for violations were inserted in 2014. These measures are meant to decrease the risk to investors that an investment goes insolvent. The
Markets in Financial Instruments Directive 2004 Markets in Financial Instruments Directive 20142014/65/EU commonly known as MiFID 2), is a directive (European Union), directive of the European Union (EU). Together with Regulation No 600/2014 it provides a legal framework for securities marke ...
applies to other businesses selling
financial instruments Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership, interest in an entity or a contractual right to receive or deliver in the form ...
. It requires similar authorisation procedures to have a "passport" to sell in any EU country, and transparency of financial contracts through duties to disclose material information about products being sold, including disclosure of potential conflicts of interest with clients. The Alternative Investment Fund Managers Directive 2011 applies to firms with massive quantities of capital, over €100 million, essentially
hedge fund A hedge fund is a Pooling (resource management), pooled investment fund that holds Market liquidity, liquid assets and that makes use of complex trader (finance), trading and risk management techniques to aim to improve investment performance and ...
s and
private equity Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...
firms. Similarly, it requires authorisation to sell products EU wide, and then basic transparency requirements on products being sold, requirements in remuneration policies for fund managers that are perceived to reduce "risk" or make pay "performance" related. They do not, however, require limits to pay. There are general prohibitions on conflicts of interest, and specialised prohibitions on asset stripping. The Solvency II Directive 2009 is directed particularly at insurance firms, requiring minimum capital and best practices in valuation of assets, again to avoid insolvency. The Capital Requirements Directives contain analogous rules, with a similar goals, for banks. To administer the new rules, the
European System of Financial Supervision The European System of Financial Supervision (ESFS) is the framework for financial supervision in the European Union that has been in operation since 2011. The system consists of the European Supervisory Authorities (ESAs), the European Systemi ...
was established in 2011, and consists of three main branches: the
European Securities and Markets Authority The European Securities and Markets Authority (ESMA) is an agency of the European Union located in Paris. ESMA replaced the Committee of European Securities Regulators (CESR) on 1 January 2011. It is one of three European Supervisory Authori ...
in Paris, the European Banking Authority in London and the European Insurance and Occupational Pensions Authority in Frankfurt.


Corporate finance


Capital maintenance

* Second Company Law Directive 77/91/EEC, on formation of public companies and the maintenance and alteration of capital, updated by 2006/68/EC and 2009/109/EC, repealed b
2012/30/EU


Mergers and acquisitions

*Third Company Law Directive 78/855/EEC, on
merger Mergers and acquisitions (M&A) are business transactions in which the ownership of a company, business organization, or one of their operating units is transferred to or consolidated with another entity. They may happen through direct absorpt ...
s of public limited liability companies, repealed b
2011/35/EU
*Sixth Company Law Directive 82/891/EEC, on division of public companies, amended b
2007/63/EC
*Tenth Company Law Directive 2005/56/EC, on cross-border
merger Mergers and acquisitions (M&A) are business transactions in which the ownership of a company, business organization, or one of their operating units is transferred to or consolidated with another entity. They may happen through direct absorpt ...
s of limited liability companies *Thirteenth Company Law Directive 2004/25/EC, on takeover bids *Merger Tax Directive 90/434/EEC, on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States, repealed b
2009/133/EC


Accounting and audit

*Fourth Company Law Directive 78/660/EEC, on accounting standards, repealed by the EU Accounting Directiv
2013/34/EU
*Seventh Company Law Directive 83/349/EEC, on group accounts, repealed by the EU Accounting Directiv
2013/34/EU
*Eighth Company Law Directive 84/253/EEC, on the approval of persons responsible for carrying out the statutory
audits An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon." Auditing al ...
of accounting document, repealed by 2006/43/EC, on statutory
audits An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon." Auditing al ...
of annual accounts and consolidated accounts


Market regulation

*Market Abuse Directiv
2003/6/EC
*Transparency of Listed Companies Directiv
2004/109/EC


Insolvency

Europe Insolvency Law governs the rules and procedures related to insolvency and bankruptcy in European countries. It includes the EU Insolvency Regulation, which coordinates cross-border insolvency cases within the EU, except for Denmark. The regulation determines the jurisdiction and applicable law based on the debtor's center of main interests (COMI) and ensures automatic recognition of insolvency proceedings across member states. It promotes cooperation among administrators, courts, and creditors from different jurisdictions to streamline processes and protect the interests of all parties involved. In addition to the EU framework, individual countries have their own national insolvency laws that complement the European regulations.


See also

*
UK company law British company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directive (European Union), Directives and court cases, the company is th ...
* European Union shipping law * German company law *
US corporate law United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governa ...
*
List of company registers This is a list of official business registers around the world. There are many types of official business registers, usually maintained for various purposes by a state authority, such as a government agency, or a court of law. In some cases, ...
* Swiss referendum "against corporate Rip-offs" of 2013


Notes


References

;Books *S Grundmann, ''European Company Law'' (Intersentia 2006) *M Habersack and D Verse, ''Europäisches Gesellschaftsrecht'' (CH Beck 2011) *Lutter, M/Bayer, W/Schmidt, J, ''Europäisches Unternehmens- und Kapitalmarktrecht'' (De Gruyter 2017) *Jung, S/Krebs, P/Stiegler, S, ''Gesellschaftsrecht in Europa'' (Nomos 2019) ;Articles *M Andenas, 'Free Movement of Companies' (2003) 119 LQR 221 *P Dyrberg, 'Full Free Movement of Companies in the European Community at Last' 003ELR 528


External links


EU internal market page on company law
{{DEFAULTSORT:European Company Law *