International Business Law (International Trade Degree-ULE). Lesson 2 (1). Notes for non jurists.

el 19 septiembre, 2018 en Sin categoría

Lesson 2, IBL. International and EU perspectives of Companies. (2.1)

To be completed by classroom notes

Lincoln. Library Tower. High Street. OX

1.- General aspects
  • The concept of «empresa» enterprise, as a multidisciplinary idea. At the head of the «empresa» we find either private individuals or egal persons.
  • Natural person/ private individuals as business entities
  • The concept of «legal person». An «intellectual fiction» with legal consequences
    • Foundations. No «Members». No shareholding. Foundations are legal persons, made up of assets whose objective/s are set up by its «Founder». Article 34.1 Spanish Constitution says: «The right of Foundation is recognized for purposes of general interest, in accordance with the law»
    • Trust (Common Law Institution, deeply rooted in anglosaxon tradicion and  nowadays useful for investment and similar purposes).
    • Associations.-  Members. No shareholdig. Article 22 of Spanish Constitution: «The right of association is recognized. Associations must register in a public registry for the sole purpose of transparency»
    • Companies
      • Non incorporated- non perfect legal personality as its members are liable for debts of the legal person
      • Incorporated (capital companies) ie: SA, SL, SAE, etc.
      • Registration in Company’s House (Registro Mercantil) as a requisite for incorporation in Europe
  • Incorporated «capital» companies
    • Nationality and domicile may be defined in acordance with different criteria: a) «Real Seat Theory», whereby Nationality is linked to the administration of  the company’s business. ie, German Legal System. b) Incorporation Theory, whereby the place of incorporation determines the Nationality, ie UK’s Legal System
      • Spanish System. Arts 8  to 10 LSC:
        • A Spanish Company is a company that has its registered domicile in Spanish territory
        • Companies  with domicile within the Spanish territory, must  fix their domicile  in the place where they have their center of administration and management. Or, where they have their main operations and establishment. If Spanish companies set their domicile in a different place, any third party can take both domiciles (the «set» domicile and the place of administration and  main operations) as valid
    • Branches (sucursales). Art 11 LSC.-  Capital companies may open branches anywhere in the national territory or abroad. Unless otherwise provided in the statutes, the administrative body shall have the power to agree on the setting-up, removal or transfer of branches
    • Website. Art 11 bis LSC. Capital companies may have a corporate website. This website will be mandatory for listed companies.
  • Foreign Companies (and private individuals) Art 15 Cco:  Foreign natural persons and companies incorporated abroad may trade in Spain. When they do so, they are subject to the laws of their country with regard to their ability to contract (legal capacity to act). They are subject to the laws of Spain in all matters relating to the creation of their establishments within Spanish territory, their operations and jurisdiction of Spanish Courts (without prejudice to what may be applicable in individual cases by the International Treaties and Agreements).
  • Groups of Companies. In general terms, and within the different jurisdictions and legal systems, a group of companies exists when several companies are legally independent are subject to a relationship of dependence and centralized economic decision making (governance) by means of a variety of contractual mechanisms and/ or shareholdings.  They retain their formal legal independence, but they act in the market with the logic of a single business. Therefore, two elements characterize, in general terms, the group of companies:
    1. The direct or indirect relationship of dependence of one or several companies with respect to another; and
    2. The exercise of a unitary or centralized economic governance, that is, the unity of decision.

This, there are various comparative legal concepts of Group of Companies.

  • The English System relies on the existence and /or on the possibility of control. Such Groups are known as vertical groups or subordination groups
  • The Germanic concept is broader and it is based on the notion of unity of decision. They do not only include “vertical groups”, but also “coordination groups” where the group is made up of companies acting jointly by means of agreements  and / or through clauses in the Articles of Association. Here the Group is controlled by any means (not only via shareholdings or appointments of Directors) by one or more natural or legal persons.

In Spain, article 4 of The Spanish Securities Law (Ley del Mercado de Valores) and article 42 of Cco. , (this latter is related to the obligation to “consolidate annual accounts by groups of companies”) refer to Groups of Companies: A Group exists when a company holds or may hold, directly or indirectly, control over one or more other companies. In particular, control will be presumed to exist when a company (parent / dominant), is in relation to another company (dependent/ subsidiary), in any of the following situations:

  • a) It holds the majority of voting rights.
  • b) It has the power to appoint or dismiss the majority of the members of the administration body (such as the Board of Directors).
  • c)It may, by virtue of agreements with third parties, hold a majority of the voting rights.
  • d) It has already  appointed with its votes the majority of the members of the administration body at the time when the consolidated accounts are to be drawn up and during the two immediately preceding financial years. In particular, this circumstance shall be presumed when the majority of the members of the administration body of the dominated company are members of the administration body or senior executives of the dominant company, or of another company dominated by it

For these purposes, the voting rights can be direct votes of the parent company or indirect voting power (votes held through other subsidiaries or through persons acting in their own name but on behalf of the parent company or other subsidiaries or other voting rights held in concert with any other person).

Today, in Spain «coordination groups» are excluded from the duty to “consolidate accounts” (duty to draft accounts for the Group as well as individual accounts).

  • A few Comparative Law Ideas on Company Law and Securities Markets: USA v EU
    • USA. Tradition of popular capitalism. Company Law is mainly regulated by States. Company Law follows Model Laws (Model Business Corporation Act), as well as the laws of the very influential State of Delaware. Soft Law under the movement of «Corporate Covernance » is very influential particularly from 1994 with the American Law Institute Principles of Good Corporate Governance. Secutities Laws are federalised, mainly with the Securities Act (1933) and the Securities Exchange Act of 1934. Both have been modified in many occassions (for instance with the Sarbanes-Oxley Act of 2002 and the Dodd Frank Act of 2010.
    • Europe. Tradition of blockholders (shareholders with great stakes and  long term interest in the companies). Differences in governance in different countries, ie: one board of directors of big companies (UK, SP), two boards if big companies (Germany). Reforms to allow for choice (1 or 2) in board of directors : Italy, France, Portugal. The movement of «Corporate Governance has also been very influential, since 1992, with the Cadbury Code (UK

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