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Company Law and Corporate Governance in the Enlarged Europe

Company Law and Corporate Governance in the Enlarged Europe. Prof . dr. sc. Hana Horak. I. Legal history, foreign inspirations and recent development in Croatian company law. Croatian legislation took over German company law in its entirety. There are only a few contents that were changed :.

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Company Law and Corporate Governance in the Enlarged Europe

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  1. Company Law and Corporate Governance in the Enlarged Europe Prof. dr. sc. Hana Horak

  2. I. Legal history, foreign inspirations and recent development in Croatian company law • Croatian legislation took over German company law in its entirety

  3. There are only a few contents that were changed: • not accepting limited partnership as a stock company • permitting one founder, that is, member of a joint stock company • the establishment of each type of company requires different minimum capital • optional participation of union representatives in the management

  4. Legislative framework

  5. The Croatian Companies Act entered into force in 1995, andwas amended on several occasions • The most recent amendments were introduced in 2010 & 2011

  6. The most important accompanying legislation in the field of company law are the following: • The Court Register Act (1995, amendments in 1996, 1999, 2003, 2005, 2007, 2010, 2011) • Bankruptcy Act (1996, amendments in 1999, 2000, 2003, 2004, 2006, 2010, 2012) • Capital Market Act (2008, 2009) • The Act on the Takeover of Joint-Stock Companies (2007, 2009) • Insurance Act (2005, 2008, 2009) • Investment Funds Act (2005)

  7. The most important accompanying legislation in the field of company law are the following: • Crafts Act (1993, amended in 1995, 1996, 2001, 2003, 2007) • Associations Act (2001, amended in 2002) • Cooperatives Act (1995, amended in 2001, 2002, 2011) • Institutions Act (1993, amended in 1997, 1999, 2008) • The Competition Protection Act (2003, amended in 2009) • Banking Act (2002, amended in 2006) • Audit Act (2005,amended in 2008)

  8. Alignment of the national law with the EC-Directives • The screening of the company law with EU legislationstarted in 2006 • It presupposes the analysis of EU directives relating to company law

  9. EU common law secondary sources

  10. The First Directive on company law includes: • safeguards prescribing the conditions for obligatory disclosure of information, • limiting the reasons for the nullity of obligations entered into by companies and limiting the reasons for nullity of joint stock companies and limited liability companies

  11. The Second Directiveconcerning company law specifies rights about the formation of public limited liability companies and maintenance and alteration of their capital

  12. The Thirdand Sixth Directivesconcerning company law harmonise national rules for the protection of stockholders and trustees in the context of domestic mergers and divisions of public limited liability companies

  13. The acquiscommunautaire provides for certain European legal formationsregulation, in particular the European Economic Interest Grouping(EEIG) and the European Company (SocietasEuropaea or SE) but Member States may regulate in their national legislation some aspects of their internal organisation and business operations

  14. Regulatoryframeworkincludes rules for the evaluation and appearance of balance sheets and profit and loss accounts for annual (Fourth Directive concerning company law) and consolidated (Seventh Directive concerning company law) financial statements of joint stock and limited liability companies

  15. Croatia stated in its report that it is prepared to take over the acquis communautaire relating to company law and that no difficulties are expected in the implementation of the acquis communautaire until the accession to the European Union

  16. The system of Croatian company law I. Structure of company law and its legal environment

  17. Who is a merchant? 1. A merchant is a legal or natural person. 2. A merchant must perform an economic activity independently, in his name and for his account. 3. A merchant must perform an activity continuously. 4. A merchant must be engaged in an economic activity. 5. This activity must be carried out with the aim of making profit. 6. The economic activity and the making of profit may result from production, trade in goods or provision of services on the market

  18. General partnership

  19. a company into which two or more persons are joined with the aim of continuous performance of activities under a common firm name • each member of the company has unlimited and joint liability to creditors of the company with all his assets • any natural or legal person may be a member of the company

  20. The main characteristics of the general partnership are the following: • it must have at least two members • members of the company may be natural and legal persons • the company’s activity must be permanent • the activity must be carried out under the joint firm name • it is based on a contract • all members of the company share unlimited liability for the company’s debits, jointly with all their assets

  21. the application for entry into the court register is accompanied by the contract on the establishment of the company – the company agreement • members regulated their relations on the basis of their own willand such application of the CompaniesAct confirms the principle of OPTIONALITY

  22. The Companies Act contents: 1. name, surname and personal identification number of a citizen and residence, that is, firm name and seat of each member of the company who was the founder of the company at the moment of its establishment 2. firm name 3. company seat 4. subject of business activities 5. contribution that members of the company are obliged to make in order to achieve the company’s goal

  23. A company member who does not pay his contribution in due time or does not deliver the money received for the company to the company in a timely manner, or unjustifiably takes money belonging to the company or is in delay with making other contributions, shall pay the statutory default interest to the company • Every member of the company has the right and the obligation to manage company business

  24. Each company memberis entitled to be informed about the company business • The profit and loss account is prepared at the end of each financial year • One-third of profits made in the current year shall be divided among company members in such a way that each member receives the part corresponding to his share in the company capital(CAPITAL PRINCIPLE) • Two parts of profits is divided in equal parts among members of the company regardless of their share in the company(PERSONAL PRINCIPLE )

  25. Reasons for the dissolution of the company: • expiry of the time for which it has been established • decision of company members • bankruptcy of the company • final court decision establishing that the entry of the company in the commercial register was unlawful • death or dissolution of a company member, unless otherwise provided for in the company agreement

  26. Reasons for the dissolution of the company: • initiation of bankruptcy proceedings over one of the company members • rescission of one of the company members, or of his creditor • final court decision

  27. Liquidation • is initiated upon the occurrence of a reason to dissolve the company unless the company members have agreed upon a different manner of settling accounts and division or unless a bankruptcy procedure is instituted • it shall be carried out by all members of the company as liquidators

  28. Limited partnership

  29. a company in which two or more persons are joined with the aim to permanently conduct activities under the common firm name • it is formed by an COMPANY AGREEMENT

  30. Characteristics of a limited partnership: • the company is a person, a legal person and a merchant • at least two persons are joined • members have different liability for the company’s obligations • the objective of the company is to permanently perform activities under the common firm name • the basis of association is the agreement • the company is a person

  31. it has two kinds of members whose position differs in proportion to their responsibility • GENERAL PARTNER (at least one) • LIMITED PARTNER

  32. Limited partners responsability: • a limited partner is not authorised to manage the company but has the right of supervision over the company business • a limited partner may not oppose decisions or actions of general partners, except for decisions or actions which go beyond the scope of the ordinary scope of business activities of the company • a limited partnership is represented exclusively by general partners(a limited partner is not authorised to represent the company)

  33. Limited partners responsability: • profit is paid out to a limited partner if he has paid his capital contribution in full • limited partner shall participate in the compensation of loss incurred by company’s business, but only up to the amount of his share in the company’s capital

  34. Economic interest grouping

  35. a legal person established by two or more natural or legal persons with the aim of facilitating and promoting the economic activities which form the objects of their business activities, and to improve or increase their effect, but in such a way that legal person does not acquire profit for itself • the grouping is not established for the purpose of acquisition of profit

  36. Important characteristics of economic interest groupings: a) at least two persons are joined b) its goal is strictly prescribed by the Act and is different from all other companies c) the basis is the agreement d) it is a legal person and a company e) members are liable for the groupings' obligations

  37. The grouping shall have this bodies: • members acting jointly • management board of the grouping • other bodies that must be provided for in the contract on the establishment of the grouping

  38. the management board is the obligatory body of the grouping consisting of one or more members • members of the management board do not have to be the members of the grouping • management board shall perform the MANAGEMENT ANDREPRESENTATIONtasks

  39. In all cases of dissolution of the grouping, except in case of bankruptcy, liquidation must be carried out

  40. Joint Stock Company

  41. Joint stock companies are regulated in Title IV of the Companies Act which has 225 Articles out of which almost all are very detailed and regulate separate issue under their own headings. • The provisions about joint stock companies make up one third of the total Act

  42. Establishment of a company: • SIMULTANEOUS ESTABLISHMENT • SUCCESSIVE ESTABLISHMENT

  43. Share capital • the smallest initial amount of company’s capital defined in the Articles of Association • a sum of nominal amounts of shares The share capital is divided into shares and it must be made out to nominal amounts expressed in HRK. -The lowest amount of share capital of a joint stock company is HRK 200.000,00

  44. The meaning of the concept of a share is threefold: • PART OF THE SHARE CAPITAL OF THE COMPANY • COLLECTION OF MEMBERSHIP RIGHTS AND OBLIGATIONS BELONGNIG TO A SHARE’S OWNER • SECURITIES

  45. Bearer shares or registered shares • bearer shares do not specify the name of their owner and they are transferred on the basis of transfer of ownership (tradition). • registered shares specify the name of the shareholder. They are transferred by endorsement or in the manner prescribed by the law regulating non-materialised securities (cession).

  46. Three classes of shares: • ordinary • preferred* • non-voting shares Each share gives the right to vote at the general meeting of the company. *only preferred shares may be issued without the right to vote

  47. Limited liability company

  48. a company into which one or several legal or natural persons have invested their capital contributions, participating in the share capital which was agreed upon earlier so that the members are not liable for the company's obligations

  49. A limited liability company • a company • a legal person • a company of capital • a commercial company • members are not held liable for company's obligations • has share capital

  50. A limited liability company may be established only simultaneously.

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