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 – German Law cover company and partnerships
Corporate (company) law and Partnership law are in America. The are separated.

You can’t invent a new type of company type (partnership, gmbh, ag).

General partnership

Every participant is responsible for actions, debts. You can e. g. loose a house of a company will be a bankrupt. You can’t transfer shares – 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

Limited partnership

Partners are not active managers

Silent partnership

Limited liabilities of silent partner
Partner can be hidden, be anonymous. In a register, silent partner can be not written.
Downside – 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

Not registered.
Joint and several debts of all partner
E.g. go to holiday together and rent a house together.

Criteria for a company

  • Legal personality – legal fiction to take debts and responsibilities.
  • Members not personally liable for company debts – and everything belongs to legal personality
  • Delegate management to third parties. Most of the times – 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.

Types of companies

PLC – Public Limited Company
AG – AktienGesellschaft

Can be listed in stock market, but not mandatory.
More regulations
Usually managers and stakeholders are different people

LTD – Private Limited Company
GmbH – Gesellschaft mit beschränkter Haftunng

Less members (usually 1 member)
More flexibility
managers are usually the owners of a company.

difference between PLC and LTD

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
  • cooperatives
  • associations
  • foundations

difference between PLC and LTD

Quotas – ?....?


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’t give a credit of a cost of assets in case that there will be the same situation as it 2008. Margin of 15% – 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 – affects PLC, majority and minority problem
  • Insolvency law – if a company can’t meet the debts, (e. g. bankruptcy). Laws help business and banks to survive and get benefits.

Sources of Law

European Company Law

  • Primary law – freedom of establishment, freedom of capital
  • [Bonus] Century law – 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)

Principals and Agents

Principal’s welfare depends on agent’s actions

Principals – Shareholders. They bring assets and money in heads of Agents.
Agents – Managers. They have to work in interest of Principal

How can Principal control if Agent plays in interests of Principal?
If agent Doesn’t work properly- what to do?

Principal-agents conflicts in company law

Shareholders – management

  • Third party managers
  • agency costs, freeriding
  • importance depends on corporate ownership
    • Widely-held companies vs. concentrated ownership
    • Austria vs. UK

Majority shareholders – minority shareholders

  • more important in Austria
  • salient issue In corporate groups (transfer pricing, corporate opportunities)

Shareholders – creditors

  • creditors have claims (e. g. for loans) but can’t influence running of business
  • important if company is in crisis

Shareholders – employees

  • Employees invest human capital but can’t make any decisions
  • labor law + board level representation