Legal Challenges 2

What is capital raising

Capital raising is the operation of increasing the share capital of a company

What is are the objectives of capital raising

Capital raising brings new shareholders finances future investments increases credibility with stakeholders strengthens financial structure and purchasing power

What are the two main capital raising mechanisms

Issuing new shares or increasing nominal value of shares

What happens when new shares are issued

The number of shares increases

Who may subscribe new shares

Existing shareholders or new shareholders

What is the initial capital in the example of share issuance

The initial capital is 500.000 euros at

What is the initial number of shares and how does it evolve in the example

We have 5000 shares at 100 each the company then issues 1000 new shares at 100 each

What is the new capital after issuing 1.000 shares in the example

The new capital is 600.000 euros

When is approval of new shareholders required

It is required if the Articles of Association demand it

What is share dilution

Share dilution is reduction of ownership percentage when new shares are issued

What is the initial ownership percentage in the dilution example

It is 25 %

What is the new ownership percentage after dilution in the example

It becomes 12.5% since they created 100 new shares but nobody subscribed to it

How can shareholders avoid dilution

Shareholders avoid dilution using pre emptive rights

What are pre emptive rights

Pre emptive rights give priority to buy new shares

What happens when nominal value of shares is increased

The number of shares stays the same and each share value increases

What is the new capital when share value increases from 100 to 130 in the example

The new capital is 650.000 euros

What are the three types of contributions in capital increases

Cash contributions contributions in kind and incorporation of reserves

What are cash contributions

Cash contributions are monetary payments made by shareholders

Where must cash contributions be deposited

They must be deposited within 8 days at a notary or bank

Can third parties become shareholders through cash contributions

Yes third parties may become shareholders

When is a capital increase invalid in relation to rights

It is invalid if pre emptive rights are ignored

Are shareholders obliged to subscribe during a cash increase

Shareholders are not obliged to subscribe

What are contributions in kind

Contributions in kind are tangible or intangible assets

Who evaluates contributions in kind

A contribution auditor evaluates them

Who appoints the contribution auditor

Shareholders unanimously or the president of the Commercial Court

What happens if no auditor is appointed

Shareholders become jointly and severally liable for 5 years

What is incorporation of reserves

It converts reserves into share capital without new funds

What types of reserves may be incorporated

Share premium legal reserve and undistributed profits

What meeting approves capital increases

An extraordinary general meeting approves them

What majority is usually required for capital increases

A 75 % majority is usually required

What majority is required when nominal value increases

Unanimity is required

What must the capital increase resolution specify amount

It must specify the total amount of the increase

What must the resolution specify shares

It must specify number of new shares or new nominal value

What must the resolution specify rights

It must specify preferential rights

What is the minimum subscription period

Minimum subscription is 5 days

What is required regarding initial capital before a cash increase

Initial capital must be fully paid

What must be published after approval

A legal announcement must be published

What must be amended after capital increase

The Articles of Association must be amended

What must be included in amended articles capital

The new capital amount must be included

What must be included in amended articles distribution

The new share distribution must be included

Where must the capital increase be filed

It must be filed with the French National Institute of Industrial Property

What are examples of large companies

SA in France corporation in US and PLC in UK

What are examples of SMEs

SARL (Gérant) or SAS (Président) in France LTD in UK and LLC in US

What is the reminder about corporations

All corporations are companies but not all companies are corporations

Who elects directors in corporations

Shareholders elect directors

Who oversees major decisions in corporations

The board of directors oversees them

Who manages day to day operations

Officers manage daily operations

What is the role of the board of directors

The board makes major policy and business decisions

What is the role of officers

Officers implement policies and run operations

Who are directors in general context

Directors manage daily operations of the company

Must directors be shareholders

Directors are not required to be shareholders

Do shareholders automatically become directors

Shareholders do not have automatic right to be directors

What is a common director title in large companies

CEO is a common title

What is a common director title in SMEs

Managing Director is common

What is the director title in SAS

The title is President

What is the director title in SARL

The title is Gerant

Who amends Articles of Association in the role table

Shareholders amend Articles

Who manages the company in the role table

Directors manage the company

Who changes company name in the role table

Shareholders change the name

Who authorizes acquisition of another company in the role table

Shareholders authorize it

Who supports business relationships in the role table

Directors support them

Who acts in company best interest in the role table

Directors act in company interest

What types of liability can directors incur

They incur civil criminal or administrative liability

What is one EU obligation for directors legal compliance

Directors must comply with legal requirements

What is one example of EU breach hiding losses

Hiding losses is a breach

What is one example of EU breach false statements

Approving false statements is a breach

What is one example of EU breach insolvency risks

Ignoring insolvency risks is a breach

What is one example of EU breach transparency

Violating transparency rules is a breach

What is the second EU obligation

Directors must act in the company best interest

What is an example of acting against interest

Making reckless decisions harming shareholders or creditors

What is duty of care under BJR

Duty of care requires informed decisions and proper monitoring

What is good faith under BJR

Good faith means conscious choice when deciding actions or inaction

What is reasonable belief under BJR

It requires honest belief the decision benefits the corporation

What happened in Smith v Van Gorkom facts

A director approved a merger without proper review

Why was the director found negligent

The decision was rushed and uninformed

Was the director protected by BJR

The director was not protected by the Business Judgment Rule

What duty was breached in Smith v Van Gorkom

The duty of care was breached