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Company Law

Concept of Company

Company: Contract established between 2 or more people to allocate resources to a joint entreprise with a view to sharing the profits or taking advantage of the economy that could result from it.

CIVIL CODE:

  • Company IS A CONTRACT but sometimes can be established by a act (ex: will) => INSTITUTION
  • Can be a company even without a contract
  • Legal Entity by LAW: same rights & obligations as a person but is represented by its management.

Types of Companies

Contract

  • Founding act: manifestation of will of the partners
  • Free will of the content
  • Dissolution: can happen by the will of the partners
  • For the company to be valid => all elements of validity in the general contract law.

Institution

  • possibility to create a company by a unilateral act (ex: will)
  • Commercial Code: multiple corporate forms regulated by law
  • Different obligations when drafting the articles of association

Joint Limited Companies => Publicly Traded Company => Stock holders are the partners => No need for a contract

Purpose of a Company

Create and Share profit (financial purpose)

  • Association can be a company but not always
  • Commercial code, tax code => What assets are considered profit

Civil or Commercial Law Civil or Commercial Law

De Facto Company

De Facto Company: Gathering of people. NO CONTRACT => NO LEGAL ENTITY BUT HAS ECONOMIC ACTIVITY

Issue if:

  • company creates more debt and use absence of legal entity to not pay

If the company gives the impression of being a company: => Court can decide to consider it as a company and apply Commercial Code. => needs to be proven and IN GOOD FAITH

De Facto Company De Facto Company

De Facto Company vs Company in Preparation

Company in Preparation: Company that has not yet been registered => NO LEGAL ENTITY

During the period where the company is in preparation, contracts must be signed.

  • Contracts must be necessary to the company
  • Must be signed with: "Representation of company X under creation".

If a natural person signed the contract => He is responsible for the contract and LIABLE.

Debt Obligation vs Contribution to Losses

Unlimited Risk Company

Unlimited Risk Company: Partners are liable for the company's debts.
Company's debts = partners' debts

  • Examples: Civil Companies, Real Estates.

Parnters are bound to the debt according to their contribution to capital.

Limited Risk Company

Limited Risk Company: Partners are not liable for the company's debts.
Company's debts = nothing to do with partners' assets

  • Examples: Publicly Traded Company

LOSS = shareholders participate in regards of the value of stock

Conditions of formation

Fictitious Company

Fictious companyDe Facto company
Fictious company: Company that does not exist but pretends to exist.

  • Fictious company = FRAUD
  • Contract is hiding donations or employments in order to avoid taxes

If there is an Affectio Societatis => Company is valid and legal obligations to complete company => assimilated to full company If no Affectio Societatis => Company is not valid and no legal obligations to complete company.

In case of fraud, contract is voidable with penal sanctions.

Consent needs to be valid:

  • Affectio Societatis: acted consent to cooperate & be part of the company
  • Not a product of
  • Not a product of
  • Not a product of

Error

Reasons to cancel the contract:

  • error on the nature of the company
  • error on the type of the company
  • error on the identities of the partners

Error on the success of the company ARE NOT REASONS TO CANCEL

Fraud

  • Material element of the contract: hidden or false
  • Psychological/intentional element: motivational, intent, why?

Very frequent in contract law but very rare in company law.
Fraud that impacts the viability of the company => reason to cancel

Economic Violence

  • Economic Coercion => Supreme Court to decide
  • Natural person: 18 years old and not under guardianship
    • Minor? => ability to participate through a representative. Can contribute private assets on court decisions (limited liability) but can never be qualified as trader.
  • Spouses?: both partners in limited liability company BUT NEVER IN UNLIMITED LIABILITY COMPANY in order to balance the risk.

Company Purpose

  • Civil Company (social) vs Commercial (corporate)
  • Can be pure civil company or civil associated with commercial

Social Object

Must be:

  • Legal: not against the law and the public interests
  • Possible: can be done

If not possible: Company is void and no legal obligations to complete company.

Economic Purpose

Obligation to contribute to the capital of the company.

Defines the economic activites of the company

  • Defines the power of the management
  • Defines the extend of the company's capacity as a legal entity

If company does other activites that declared => Company is void and no legal obligations to complete company.

  • If article's object is legal & real life's object is illegal: Company is void and no legal obligations to complete company.
  • If article's object is different from real life's object: Company is valid but company is liable for the debts of the company.

Constituents of company

Constituents of company Constituents of company

Plurality of Partners

(Except for 1-person company)

  • Plurality is needed at the time of the contract
  • Plurality is needed during social life:
    • If only 1 partner left => Company is dissolved or Company is transformed into a 1-person company
  • Threshold of capacity: LIMIT BY LAW (minimum and maximum)
    • Limited liability company: minimum 2 partners & maximum 100 partners
    • SA Limited Company: 2 partners minimum & 7 maximum (most common)
    • Publicly Traded Company: 2 partners minimum & Max: Limited by shares (at least 3% of the capital)
Types of 1-person company
  • EURL: Limited liability company with 1 partner (mix between commercial & civil companies) => MINIMUM 1€ OF CAPITAL)
    • Flexibility in management, taxation and administrative & Limited risk liability

If no plurality:

  • a) in case of death of a partner => LIMITED: successor, UNLIMITED: no successor
  • b) in case of transfer, sale or withdrawal: dissolution(asked by partner OR asked by 3rd party => LEGAL ENTITY IS OF PUBLIC INTEREST) or change of type

Contribution to Capital

At least minimum capital under LAW

Amount of capital contribution = amount of contribution = amount of rights/obligations/ownership.

  • In cash: intellectual properties
  • In nature: assets (displacement of property or evaluation of property) => ONLY IN UNLIMITED COMPANIES
  • In industry: work & know-how

Contribution MUST BE PROPRTIONAL TO THE RIGHTS
Contribution MUST BE REAL
Contribution MUST BE DEFINED IN THE ARTICLES OF ASSOCIATION

Contribution:

  • property rights: receive dividends, share corporate assets, etc...
  • management rights: right to information, participate in management, contest social management, access meetings, etc...

Rule = Percentage of contribution = Percentage of rights & bligations
Percentage of contribution = ± Percentage rights & obligations

Example:

  • 50% of contribution = 50% of rights & obligations
  • 10% of contribution = 15% of rights & obligations BUT EVERY PARTNER MUST AGREE & WRITTEN IN CONTRACT
Lion's Share Stipulation

Toutefois, la stipulation attribuant à un associé la totalité du profit procuré par la société ou l'exonérant de la totalité des pertes, celle excluant un associé totalement du profit ou mettant à sa charge la totalité des pertes sont réputées non écrites.

Lion's Share Stipulation: Partner with 100% of the profit but 0% of the losses

Lion's Share Stipulation is UNALLOWED / UNWRITTEN but CONTRACT IS STILL VALID.

Lion's Share Stipulation Lion's Share Stipulation

Stipulation that doesn't allow voting/decision-making = risk of nullity.

NOT ALLOWED:

  • Stipulation of promise to sell participation in the company at a minimum price before the sale => PRICE CANNOT BE SET BEFORE THE SALE

Liabilities of partners/managers

Director responsibility/accountability:

  • Civil
  • Criminal:
Civil Liability
  • Towards company & partners
  • Towards 3rd parties => OBEY EUROPEAN LAW (ex: GDPR)
  • Behavior of a commercial parnter (outsourcing) => OBEY EUROPEAN LAW (ex: GDPR)
Criminal Liability
  • Financial Crimes: money laundering, corruption, etc...
  • Tax Fraud: tax evasion, etc...(Liabilities toward partners)
  • Insider trading: trading with insider information

Manager = person who exerts an important influence * has legal

If there is a difference between managers on papers and managers in real life:

  • De Facto Managers => Act like a real-manager => Liabilities

Management can access all :

  • Partners
  • Employees
  • 3rd parties
Management of Company vs Control of Company
  • Management: Outside control of the company
  • Control: Inside control of the company (internal control, compliance obligations, internal audit compliance, etc.)

LIABILITIY IS ALWAYS PERSONAL => NOT TRANSFERABLE Should be proven by:

  • Proof of damage (**needs to be evaluated)
  • Proof of fault/mistake (to a signifiance degree / degree of gravity) => Legal or regulatory breach or violation of contract OR material mistake
  • Link between fault and damage

TRAP: Mistake must be because of the management. If not part of the management decision => NO LIABILITY

If the damage is done TO THE COMPANY => partners can ask for compensation FROM THE MANAGEMENT If the damage is done TO SHAREHOLDERS => minotiry shareholders get spcial protection (CIVIL + PENAL liability for Limited & only CIVIL for Unlimited)

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