Company Law

Concept of Company

CIVIL CODE:

• Company IS A CONTRACT but sometimes can be established by a unilateral 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

Purpose of a Company

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

De Facto Company

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

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

• Examples: Civil Companies, Real Estates.

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

Limited Risk Company

• Examples: Publicly Traded Company

LOSS = shareholders participate in regards of the value of stock

Conditions of formation

Fictitious Company

• 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 error
• Not a product of fraud
• Not a product of economic violence

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?

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

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:

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

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 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

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 written documentation:

• 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

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)