Private Company Law in Europe – Time for Reform?
All'interno dell'Unione europea, le politiche degli Stati membri nei confronti delle società non quotate in borsa sono meno restrittive. La dipendenza dal percorso è molto ridotta e i legislatori si sono impegnati, sebbene a vari livelli, a garantire la libertà contrattuale. La giurisprudenza della Corte di giustizia europea ha aperto le porte alla mobilità delle società private. In questo contesto, le società private sono diventate la forma preferita di organizzazione aziendale per le start-up e i fondi di private equity. Apparentemente, la società inglese a responsabilità limitata diventerà il principale beneficiario della liberalizzazione nel diritto societario. La concorrenza normativa ha scatenato attività legislative in alcuni Stati membri. Questo documento esamina gli statuti inglesi, olandesi, francesi e tedeschi sulle società private al fine di valutare la competitività dei sistemi nazionali di diritto societario. Approfondimenti sull'economia politica vengono aggiunti al dibattito in corso sullo statuto di una società privata europea.
Parole chiave: diritto societario europeo, concorrenza normativa, riforma del diritto societario privato
Within the European Union, Member State policies on companies not listed at a stock exchange are less restrictive. There is very little path dependence, and lawmakers have pledged, albeit with varying degrees, to assure freedom of contract. The jurisprudence of the European Court of Justice has opened the floodgates for private company mobility. Against this background, private companies have come to be the preferred form of corporate organisation for start-up businesses and private equity funds. Apparently, the English Private Limited Company stands to become the major beneficiary of liberalisation in company law. Regulatory competition has unleashed legislative activities in some Member States. This paper surveys English, Dutch, French and German statutes on private companies in order to assess the competitiveness of national corporate law systems. Insights from political economy are added to the current debate on a European Private Company Statute.
Keywords: European company law, regulatory competition, private company law reform
I. Introduction - II. Regulatory Competition as Defined by the European Court of Justice - III. Private Companies in Europe - IV. Regulatory Challenges in the Age of Private Company Law Reform - V. The European Private Company Statute - NOTE
1. Why Focus on Private Company Law Reform? – Choosing a business organisation from a menu of various corporate law options requires a careful cost-benefit analysis []. The enabling character of a national corporate law system is as important as the agency costs which may arise under certain organisational settings []. In this context, private companies have come to be the preferred organisational form for start-up businesses [] and private equity funds []. Within the corporate governance community, the private company is a latecomer. The short term priorities of EU Action Plan for ‘Modernising Company Law and Enhancing Corporate Governance’ focus on (non-)regulatory measures applicable to listed corporations []: A more stringent regulatory framework is suggested for listed companies whereas private companies should enjoy a greater amount of flexibility []. Conversely, one of the leading international treatises on corporate law devotes most of its attention to public companies as their shares trade freely in a public market []. Only recently, private companies have begun to attract the interest of both, scholars and politicians []. Member States of the European Union are amending their laws on private companies [] and, in February 2007, the European Parliament urged the Commission to study the prospects of a European Private Company [continua ..]
II. Regulatory Competition as Defined by the European Court of Justice
1. Basics. – Company mobility has both, entry and exit aspects. Under artt. 43, 48 of the EC Treaty companies duly established under the laws of one Member State have an actionable right to move freely within the EU (and to invest wherever they please). In determining the scope of the freedom of establishment from an entry perspective, the ECJ has attacked private international law rules and unduly restrictive creditor protection rules []. A non-domestic European company may not be denied access to justice for the sole fact that it has been incorporated under the laws of another Member State. Creditor protection is a valid purpose of Member State company laws. But the commencement of business activities may not be conditioned upon the deposit of funds to satisfy potential creditor claims. Moreover, it is illegal to impose specific liability rules on the director of a non-domestic company which is no longer operative in its country of incorporation. Pseudo-foreign companies are part and parcel of corporate Europe []: Absent fraud, it is a legitimate aim of corporate planning to circumvent the restrictive laws of one Member State and resort to the more liberal company law regime of another []. This includes the freedom to demonstrate mobility by consummating a cross-border merger []. The ECJ’s holdings intuitively invoke an informational model that balances the interests of [continua ..]
III. Private Companies in Europe
1. The United Kingdom. – a. The Private Limited Company. – English 19th century company law did not make a distinction between private and public companies []. Victorian legislative politics attempted to relegate businesses of small numbers of people to partnerships, but ultimately failed []. Private companies became increasingly popular after the House of Lords had recognised the choice of small numbers of people to organise their business in a corporate form []: Converting a privately-owned business into a small private company with limited liability is not illegal per se []. But important differences in the governance structure of public and private companies remain. aa. A Lighter Regulatory Approach under the Companies Act of 2006[]. – Under section 4 (1) of the 2006 Companies Act[] registered limited companies which do not fulfil the statutory requirements for public limited companies, are private limited companies. Private limited companies may either register as companies limited by shares or a legal entities limited by guarantee. Part 20 of the 2006 Companies Act makes it illegal for private limited companies to offer to the public any securities of the company, or to allot or to agree to allot any securities of the company with a view to their offering to the public. Private limited companies are not subject to a statutory minimum capital requirement []. [continua ..]
IV. Regulatory Challenges in the Age of Private Company Law Reform
1. Imperative National Policy Reasons?. – Reforming national laws on private companies against the background of regulatory competition is a policy strategy based on general welfare considerations. Such considerations betray a penchant for self-defence. It is assumed that a more attractive company law regime will offer sufficient incentives to investors to stay in the country, foregoing the benefits of the laws of other Member States. A closer reading of the ECJ’s jurisprudence on company mobility suggests that company law reform in the age of regulatory competition is more complicated. Member States may restrict mobility within the European Union on imperative grounds of public interest. This is an argument of both, macroeconomic and microeconomic dimensions []. It leaves sufficient leeway for Member States to pursue their own national policies. But it also invites microeconomic analysis on how regulatory competition affects creditors and workers. ‘Foreign’ companies benefiting from intra-European mobility are operating in a different legal environment, producing externalities which the host country is unable to contain. The microeconomic effects of regulatory competition may therefore provoke regulatory action, guided by macroeconomic considerations. 2. Some Practical Experiences – Germany. – Under the influence of the ECJ’s jurisprudence, it [continua ..]
V. The European Private Company Statute
1. Regulatory Thrust. – Regulatory competition among the various national private company statutes does not come without a cost. Operating a private company in another member state requires a carefully drafted charter and an open-minded judiciary in the host state who is capable of balancing national policy imperatives against the ECJ’s jurisprudence on company mobility. This has given raise to a debate on which companies stand to benefit most from the current state of regulatory competition and, as some would claim, to a lack of legal certainty. There are also political overtones in this debate as the regulatory climate in the Member States oscillates between a liberal approach and rigorous law-making[]. When the European Commission had launched a public consultation on future priorities for the implementation of its action plan many[], many respondents argued for a European Private Company (EPC) Statute, creating more choice for companies without creating any new burdens on them []. Closer examination suggests that the plea for an EPC Statute is motivated by a concern about transaction costs from cross-border operations. Respondents suggested that a statute would create a truly European company which would operate under the same set of rules in every Member State, facilitating joint-ventures and the establishment of foreign subsidiaries. According to the supporters of the EPC, the regulatory thrust of the statute [continua ..]