The Second Directive

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              European Company Law Coursework, Q. 1 – The Second Directive

              The EC Commission transmitted original Second Council Directive proposal to Council in March 1970. ECOSOC and European Parliament Opinions followed in May and October 1971 respectively under consultation procedure, European Parliament exercising little influence. It was amended in October 1972 to accommodate acceding UK, Ireland and Denmark and adopted on 13 December 1976 within European Company Law harmonisation program, art. 54(3)(g) EC Treaty, to coordinate protection of members and others’ interests in companies. British lawyers influenced drafting significantly. Provisions on financial assistance for company’s purchase of own shares and their redemption were modelled on Companies Act 1948, while some capital maintenance provisions experienced UK caselaw influence. Many provisions originated from continental legal systems, particularly German AktienGesetz 1965 – disclosure for creditors’ confidence, employee participation facilitation. Controversial UK common law necessitated amendment to rules on minimum capital, public/private company distinction, consideration for shares, distribution, pre-emption rights. Commission’s suggestion to assimilate British private companies with continental public companies, as with accounting, was ultimately dropped. Villiers argues that not covering private companies – majority enterprises in Europe – achieved little harmony in whole business environment.

              The Second Directive’s subject is public limited company and equivalents – German Aktiengesellschaft – which art. 1(1) requires to identify itself in its name as plc. or AG; art. 1(2) permits investment companies and co-operatives’ exclusion from Directive’s application, the latter accommodating French/Italian practice. A 1992 proposal to extend Directive to private companies and limited partnerships with shares encounters strict public company provisions’ inappropriateness for private companies

needing flexibility. The Second Directive sets minimum standards, so states may impose stricter standards where relevant article expressly authorises. Art. 42 requires member states to have laws treating shareholders in same position equally to ensure Directive’s effective implementation; UK company law provides non-discrimination principle, while Germany has equivalent ‘Gleichsbehandlung’ principle.

              The Second Directive has no headings, but provisions can be categorised into: disclosure requirements, minimum capital requirements, payment for shares, profit distribution, capital loss, capital maintenance, capital increase, capital reduction, redemption of shares. General provisions include: no performing work or supplying services in consideration for shares and no shares at discount. Art. 17(1) requires general meeting in event of serious loss of capital (1/2 of capital) to consider company’s winding up, inspired by art. 92 AktG 1965. UK implementing s. 142 CA 1985 has been criticised for not demanding consideration of specific measures, while art. 260 Spanish Ley de Sociedades Anonimas 1989 imposes stricter automatic dissolution.  

              On formation, art. 2 requires statutes or incorporation instrument to disclose minimum information: (i) company’s type and name; (ii) objects; (iii) amount of subscribed or authorised capital; (iv) rules for appointing bodies with supervisory functions (supervisory board); (v) company duration. This has been implemented in CA 1985, ss. 1 and 2, while AktG 1965 provides it in art. 23(3). Art. 3 requires disclosure of: (i) registered office; (ii) details of issued share capital/classes of shares; (iii) identity of subscribers to company instruments; (iv) formation costs; (v) any special advantages to promoters. Optionally, under pragmatic German influence, this may be disclosed in separate document published accordingly to avoid troublesome amendment. These provisions have been implemented in CA 1985, ss. 1, 10, 88, 117 and LSA 1989 substantially.

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              Addressing previous widely diverging national standards endangering competition, art. 6 requires minimum capital before incorporation/business commencement to be at least 25,000 ECU. The figure, fitting small and medium-sized companies, was compromised; France wanted lesser, while Italy bigger amount.

Nevertheless, divergence persists. UK, having had no statutory minimum, implemented a much higher 50,000 sterling standard (ss. 117-8 CA 1985), while Spain introduced identical 10,000,000 pesetas. AktG 1965, art. 7 maintained only 100,000 DM. This lack of harmonisation makes certain states more attractive for business establishment.

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