Private - Commercial & Corporate Law

Commercial law

part of private law that applies to legal relationships between merchants (persons engaged in trade & commerce, defined through an exhaustive list of “commercial acts”)

The origins of commercial law

it began as many specific rules to regulate merchants in absence of Roman law / rejection of civil law (general private law)
only trading of goods were considered commercial acts - activities to do with liberal professions (doctor, lawyer, accountant) not included

Company law

part of private law that provides the legal structure for companies

Company

a business organisation with:

• 2+ people (shareholders)

• investment

• project / objective / activity

  • traditional distinction between commercial companies and non-commercial (“civil”) ones based on the activity (trading goods v. other)

• purpose is to generate value to distribute to shareholders

Association

a business organisation with:

• two or more people, not shareholders

• no investment

• project / objective / activity

• purpose is a “noble goal”, not to generate value to distribute to shareholders

Corporate law

a subfield of company law applicable to corporations

Corporation

a company with “legal personality”, separate and distinct from its shareholders. By “incorporating” a company (through notarial deed &/pr registration), it gains the following features:

• exists independently of its shareholders and depends on capital resources

• can have property rights, non/contractual rights & obligations, can sue & be sued

• acts through third parties representing it (directors as its organs)

Agency conflicts

roles in the company between which there can arise conflicts of interest

• directors v. shareholders

• majority v. minority shareholders

• shareholders v. creditors

Corporations with limited v. unlimited liability

in the case the corporation fails to fulfill obligations to creditors:

• unlimited liability: creditors can claim shareholders’ assets

• limited liability: creditors can claim corporation’s assets

Business forms

natural person with an economic activity

• no distinction between business or personal (public v. private) assets, liabilities, obligations

legal person (corporation or association) with an economic activity

• the personal/private assets, liabilities, obligations of those who run the company are distinct from the company’s

Every natural and legal person has…

every natural and legal person has one balance sheet:

• one set of assets (patrimonium)

• one set of liabilities

• one set of obligations

so, creating a legal person creates a separate patrimonium

Three subtypes of company

• “simple partnership” / “personal company”: company without legal personality

• “continental general partnership” / “limited partnership”: corporation with unlimited liability of partners

• “private limited / “public limited”: corporation with limited liability of shareholders

Simple partnership / personal company

company without legal personality
partners’ assets, liabilities, & obligations are the company’s, and vice versa
for tax purposes, the company does not exist
not subject to EU harmonisation

Continental general partnership

a corporation with unlimited liability
it has its assets, liabilities, obligations distinct from its shareholders, but partners are also personally liable for its debts (creditors can seize partners’ assets)

Limited partnerships

a corporation with a degree unlimited liability
there are two types of partners

• limited partners: not personally liable for debts, no management rights

• general / managing partners: personally liable for debts, have management rights

Private limited / public limited

a corporation with limited liability
the reason people do not always protect their assets with a limited liability corporation is because these have more obligations (taxes, minimum capital requirements, etc…)

Public limited

generally, only public companies are allowed to be listed on a stock exchange
intuitu pecuniae “in the interests of money”
large number of shareholders, free transfer of shares to outsiders
stricter rules apply so larger conflicts of interest can be regulated

Private limiteds

limited number of shareholders, transfer of shares to outsiders is restricted or barred outright
intuitu personae" “in the interests of persons”
better suited to be a close company than public limiteds
targeted EU harmonisation
tendency toward deregulation and increased flexibility, as there are smaller conflicts of interest

Ransom

Two main forms of financing a company

equity financing:

• selling shares

• must pay shareholders dividends (not fixed, dependent on profit)

• in bankruptcy,

• governance rights - what does this mean?

debt financing:

• taking out loans

• must pay creditors interest (fixed, not dependent on profit)

• in bankruptcy, business assets are liquidated and go to creditors, leftover divided among shareholders

• only contractual rights / insolvency - what does this mean?

Sophisticated v. unsophisticated creditor

sophisticated creditors: large corporations experienced in conducting financial transactions
unsophisticated creditors: individuals or small businesses with limited experience

Subsidiary v. branch

a corporation can extend operations into another country through a subsidiary or a branch

• a subsidiary is a new legal person

• a branch is the same legal person