Government and¬†Legal Environment 2
purpose of¬†a¬†company law
- Maximizing welfare of¬†shareholders, creditors, employees
- Enabling law and¬†protective measures
- Broader social objectives:
- reporting on¬†sustainability (long term influence on¬†environment)
- sustainability as¬†corporate goal
- gender and¬†race quotas for¬†corporate boards (in¬†AT¬†>40% of¬†same gender required)
Gesellschaftsrecht¬†‚Äď German Law cover company and¬†partnerships
Corporate (company) law and¬†Partnership law are in¬†America. The¬†are separated.
You can‚Äôt invent a¬†new type of¬†company type (partnership, gmbh, ag).
Every participant is responsible for¬†actions, debts. You can e.¬†g. loose a¬†house of¬†a¬†company will be a¬†bankrupt. You can‚Äôt transfer shares¬†‚Äď if someone could have a¬†higher pie, then this guy can do stupid thing and¬†then everyone will be responsible for¬†this. Everyone will be dependable on¬†the¬†human more
Partners are not¬†active managers
Limited liabilities of¬†silent partner
Partner can be hidden, be anonymous. In¬†a¬†register, silent partner can be not¬†written.
Downside¬†‚Äď silent partner can loose a¬†control and¬†will not¬†be reliable for¬†debts of¬†entrepreneur
Account documents are not¬†available for¬†a¬†public.
Partnership under civil law
Joint and¬†several debts of¬†all partner
E.g. go to¬†holiday together and¬†rent a¬†house together.
- Legal personality¬†‚Äď legal fiction to¬†take debts and¬†responsibilities.
- Members not¬†personally liable for¬†company debts¬†‚Äď and¬†everything belongs to¬†legal personality
- Delegate management to¬†third parties. Most of¬†the¬†times¬†‚Äď not¬†shareholders. So, you can invest money, but¬†you will not¬†be a¬†manager
- Transferable shares
- Investor control / ownership
most of¬†the¬†banks need a¬†human to¬†be a¬†debt taker with your assets to¬†be sure that you will bring the¬†money back.
PLC¬†‚Äď Public Limited Company
Can be listed in¬†stock market, but¬†not¬†mandatory.
Usually managers and¬†stakeholders are different people
LTD¬†‚Äď Private Limited Company
GmbH¬†‚Äď Gesellschaft mit beschr√§nkter Haftunng
Less members (usually 1 member)
managers are usually the¬†owners of¬†a¬†company.
Companies can own the¬†other companies. And¬†they are going to¬†be enterprises. But¬†an¬†owner-company is not¬†responsible of¬†a¬†company which is controlled by¬†her. So it is not¬†a¬†big deal if a¬†company will be a¬†bankrupt.
Tax depends on¬†the¬†type of¬†company
- hybrids of¬†PLC and¬†LTD
If a¬†gov will give an¬†insurance to¬†companies, the¬†, taxpayers will pay for¬†that. Creditors will be less responsible, because they know that if they will be bankrupts, then government will help to¬†pay debt.
Banks don‚Äôt give a¬†credit of¬†a¬†cost of¬†assets in¬†case that there will be the¬†same situation as¬†it 2008. Margin of¬†15%¬†‚Äď if a¬†immobile property will loose 15% from the¬†moment the¬†debt was given, then still bank will still have a¬†profit, even if a¬†creditor will not¬†be able to¬†pay for¬†debt. Of¬†course, after selling a¬†property, creditor will get the¬†money above the¬†indebtedness, if a¬†property cost more.
Company as¬†a¬†national law
- We will use Austrian law as¬†a¬†starting point
- codified law
- court decisions as¬†results of¬†private enforcement
- Soft law
- Security law¬†‚Äď affects PLC, majority and¬†minority problem
- Insolvency law¬†‚Äď if a¬†company can‚Äôt meet the¬†debts, (e.¬†g. bankruptcy). Laws help business and¬†banks to¬†survive and¬†get benefits.
European Company Law
- Primary law¬†‚Äď freedom of¬†establishment, freedom of¬†capital
- [Bonus] Century law¬†‚Äď freedom to¬†incorporate any company in¬†Europe
Harmonisation via Secondary Law
- Only selected issues
- important in¬†securities legislation
Separate Company Forms
- Societas Europaea
- nothing for¬†SMEs (small, medium enterprises)
Principal‚Äôs welfare depends on¬†agent‚Äôs actions
Principals¬†‚Äď Shareholders. They bring assets and¬†money in¬†heads of¬†Agents.
Agents¬†‚Äď Managers. They have to¬†work in¬†interest of¬†Principal
How can Principal control if Agent plays in¬†interests of¬†Principal?
If agent Doesn‚Äôt work properly- what to¬†do?
Principal-agents conflicts in¬†company law
- Third party managers
- agency costs, freeriding
- importance depends on¬†corporate ownership
- Widely-held companies vs. concentrated ownership
- Austria vs. UK
Majority shareholders¬†‚Äď minority shareholders
- more important in¬†Austria
- salient issue In¬†corporate groups (transfer pricing, corporate opportunities)
- creditors have claims (e.¬†g. for¬†loans) but¬†can‚Äôt influence running of¬†business
- important if company is in¬†crisis
- Employees invest human capital but¬†can‚Äôt make any decisions
- labor law + board level representation