general principles - corp

Company

A juridical organisational instrument that can carry on an enterprise

Enterprise (Undertaking)

Professional economic activity organised to produce or exchange goods or services

Business (Assets)

Set of tangible and intangible assets used to carry out an enterprise

Legal Personality

Company is a separate legal subject with rights and obligations

Limited Liability

Shareholders are not personally liable for company debts

Transferable Shares

Shares that can be transferred, with possible restrictions

Delegated Management

Management power is delegated to a board or management body

Investor Ownership

Residual control and profits belong to investors

Agency Problem

Conflicts of interest between company stakeholders

Shareholder vs Manager Conflict

Conflict between owners and management over control and performance

Shareholder vs Shareholder Conflict

Conflict between controlling and minority or short-term and long-term shareholders

Shareholder vs Stakeholder Conflict

Conflict between shareholders and creditors, employees, or society

Contractualism (Shareholderism)

View that company interest equals shareholder interest

Institutionalism (Stakeholderism)

View that company interest includes all stakeholders

Legal Capital

The formal amount stated in the company’s statutes. Fixed number in the incorporation documents. Serves as a creditor protection figure

Capital Maintenance Rules

Rules ensuring company capital is preserved and not improperly distributed

Capital Increase

Increase in company capital through contributions or reserves

Capital Reduction

Decrease in company capital through repayment or restructuring

Share

Fraction of company capital representing ownership rights

Nominal Value

The base monetary value assigned to a share of stock when it is issued and serves as a legal baseline.

Real Value

Value of a share based on net assets

Market Value

Price of a share determined by market trading (Ex. Stock Market)

Corporate Governance

System by which companies are directed and controlled

General Meeting (GM)

Shareholders’ meeting for major company decisions

Board of Directors

Body responsible for company management and decision-making

Partnership

Business form with personal liability of members and high contractual freedom

Company (Legal Form)

Organisational structure with legal personality and limited liability

Private Limited Liability Company

Company form with limited liability and restricted share transferability

Public Company (PLC)

Company form with transferable shares and access to capital markets

Private Company

Company form typically used by SMEs (Small and Medium-sized Enterprises) with restricted share transfer

Pre-incorporation Liability

Liability for acts done before company registration

Incorporation

Process of legally forming a company through registration

Articles of Association

Document setting internal rules of the company

Instrument of Incorporation

Legal document used to create a company

Shareholder Agreement

Private contract regulating relations between shareholders

Dividend

Distribution of profits to shareholders

Financial Statements

Annual accounts showing company financial position and performance

Annual Accounts

Official financial records used to determine profits and losses

Capital Maintenance Doctrine

Principle requiring preservation of company capital for creditor protection

Creditor Protection

Rules designed to protect company creditors from insolvency risk

Pre-emption Rights

Give existing shareholders the first opportunity to buy new shares issued by a company before they are offered to the public.

One-tier System

Governance structure where a single, unitary board of directors consists of both executive managers and independent outsiders who jointly run and oversee the company.

Two-tier System

Governance structure that legally separates management and oversight into two distinct bodies: an executive management board and an independent supervisory board.

Hybrid Governance System

Mixed governance model combining elements of one-tier and two-tier systems

Ownership Structure

Distribution of company shares among shareholders. (Who owns company & how concentrated is ownership?)

Insider System

Ownership structure with controlling & concentrated shareholders (Small group of powerful insiders)

Outsider System

Ownership structure with dispersed shareholders and no dominant controller (Many small shareholders)

Institutional Investor

Large professional investor with significant shareholdings

Stewardship

Active monitoring and engagement by institutional investors

Market for Corporate Control

Disciplinary mechanism through takeovers and acquisitions

Gatekeepers

External actors such as auditors and analysts that monitor companies to help prevent misconduct

Disclosure

Obligation to provide financial and governance information publicly

Minority Protection

Rules safeguarding shareholders without control rights from potential abuse by majority shareholder

Control Rights

Power to make decisions in the company. Mainly belong to majority shareholders (“controlling group) through the GM (General Meeting)

Exit Right

Right of shareholder to leave company and receive value of shares

Merger

Combination of companies into one legal entity

Division

Splitting a company into multiple entities

Conversion

Change of legal form while maintaining legal personality

Insolvency

Inability of a company to pay debts as they become due

Dissolution

End of company existence followed by liquidation process

Liquidation

Process of winding up company and distributing remaining assets

European Company Law

EU harmonised framework regulating company law across Member States

Directive 2017/1132

EU directive consolidating key company law rules

Freedom of Establishment

EU principle allowing companies to operate across Member States

CSRD (Corporate Sustainability Reporting Directive)

EU directive on sustainability and non-financial reporting

CSDDD (Corporate Sustainability Due Diligence Directive)

EU directive on corporate due diligence in value chains

ESG

Environmental, Social, and Governance framework for companies

Due Diligence

Obligation to identify and manage risks in operations and supply chains