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
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 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 company ≠ De 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
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
Legal Capacity of Partners
- 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
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.
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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