Company Law Program Overview

Overall Aims of the Company Law Program

• Understand the rationale and strategic application of company law.
• Recognize the variations and commonalities among diverse business structures in Europe and Common Law countries like the UK and USA.
• Evaluate each business structure's advantages and disadvantages.
• Comprehend company law’s terminology.
• Understand liability principles and pinpoint all stakeholders.
• Adopt a global perspective in the legal approach to company selection.

Assessment Details

• Final Exam: Makes up 40% of the final grade and lasts for 2 hours; it is an open-ended question that assesses the comprehension and the ability to link various topics.
• MCQ: Makes up 30% of the final grade; 20 questions to be answered in 1 hour.
• Group Video Project: Makes up 30% and is to completed in groups of 4 or 5.
  • The video aims to answer the posed question, accurately, originally and appropriately.
  • Video length: 5 minutes, tolerance of 1 minute
  • Exceeding tolerance:
    • From 7 minutes: -2 points
    • From 8 minutes: -5 points
    • From 9 minutes: -10 points
    • From 10 minutes: 0/20

Group Video Project Topics: Sessions 4, 5, 6, 7, and 8

• Keep the French acronyms SARL, SAS, and SCA when talking in English.
• Session 4:
  • Discussion regarding Polène or Tiffany's acquisition by LVMH, highlighting the legal process (key legal procedures, due diligence, shareholder approval, and antitrust regulations).
  • What role do trade unions play in corporate decision-making and employee rights in France, especially in large corps? Examine the trade unions' impact on corporate decisions in large companies like Renault or Air France.
• Session 5:
  • Sociétés civiles: What are they? Who uses them? Explain the pros and cons of a Societe Civile Professionnelle (SCP) and a Societe Civile Immobilière (SCI).
  • Sociétés en Commandites par Actions: Hermes International & Michelin, the 2 SCA of French CAC40 - 2) SCA the preferred choice of private equity? Explain what private equity is and how it works.
• Session 6:
  • How has Brexit changed how French companies conduct business with the UK, especially for corporate governance, regulations, and cross-border transactions? How does a French retail company (pick one) adapt its operations after Brexit to follow new laws?
  • Which legal structures are most commonly used for startups in France, and why? What are advantages and disadvantages for entrepreneurs? Analyze a successful French startup and discuss how its legal structure has helped it.
• Session 7:
  • How do shareholders control companies? What is their influence on company decisions? Discuss the shareholder rights in an S.A.S. vs an S.A.R.L. in France.
  • Emmanuel Faber served as CEO of Danone. He was dismissed by shareholders in 2021 after he made Danone a "société à mission". Discuss the strength and limits of the new French company status to reach ambitious environmental change.
• Session 8:
  • How do French companies raise capital? Discuss the benefits and drawbacks of the sources of finance debt (loans) versus equity (shares)? Analyze the financing strategies of a well-known French business and how they balance debt and equity.
  • State of Delaware, why it is so big in the corporate incorporation world? What are the pros and cons? Discuss these considering if the actual business is operated mainly in the USA.
  • Topics surrounding opening a company and how to do it; what taxes need to be paid where? Take the example of a company based in the United Arab Emirates.

Lesson 1: General Notions of Company Law

• Company law covers the formation, operation, and termination (dissolution) of companies.
• It describes how entities are formed, including their obligations and rights, and also how they engage with external stakeholders.
• Company law aims for order, accountability, and fairness in operations.
• Stakeholders, referred to as "Partie prenante," play a role in this context.
• An enterprise is an entity using material, monetary and human resources.
• The aims of an enterprise are manufacturing or delivery of goods and services.
• Enterprises usually exist to exchange or sell in markets.
• The goals are oriented towards achievement of profits or meeting particular outcomes.
  • Profit enterprises: They aim to generate wealth and reinvest into the business or distribute it to contributors.
  • Non-profit enterprises: The pursuit is social, humanitarian or cultural objectives.

Private vs. Public Companies

• Ownership:
  • Private: Owned by groups, families, or individuals.
  • Public: Owned and controlled by the government or local authorities.
• Objective:
  • Private: Operate for profit.
  • Public: Provides goods or services with public interest at heart.
• Funding:
  • Private: Equity investors, personal savings, and/or loans.
  • Public: Government budgets, taxes, and/or specific public subsidies.
• Transparency:
  • Private: Limited financial disclosure.
  • Public: Public accountability and full transparency.
• Pricing Policy:
  • Private: Determined by market competition.
  • Public: Regulated to ensure public accessibility and/or affordability.
• Control and Bankruptcy:
  • Private: Owners or directors control operations, can be liquidated and/or declare bankruptcy.
  • Public: Government or regulatory controls.
    • Rarely experience bankruptcy because state financial support is provided to continue operations.
• Examples:
  • Private: Decathlon, Carrefour, or LVMH.
  • Public: La Poste, SNCF, or EDF.

Company Classifications

• Natural Person
  • A business is being done directly by a natural person is when a separate legal entity is being formed to perform the business i.e. Freelance web developer.
    • Characteristics include no legal separation between the business and individual.
    • Advantages = simplicity in organization/creation, direct access to profits, cost-effective, and the owner has full control.
    • Disadvantages = Limited lifespan for business, difficulty in raising capital.
• Corporation WITHOUT legal personality
  • Business through corporation lacking separate legal status from its owners i.e. Partnerships in UK or US Law.
    • Characteristics include no distinct legal personality, owners are personally reliable for debt and obligations, and lacks the protection and benefits of a legal entity.
    • The contract is entered by the owners directly.
• Corporation WITH legal personality
  • Business through corporation has its own legal status, distinct from owners/shareholders.
    • Common in France.
    • Advantages: limited liability; able to raise capital, perpetual succession.
    • Disadvantages: Costly and complex to setup and maintain.

Exercises

• A technology startup raising funds from investors and planning to expand globally: A business done through a corporation with legal personality.
• A photographer who owns his photography studio: A business done directly by a natural person.
• Two friends pooling resources to buy a place and start a bakery straight away: A business done through a corporation without legal personality.
• Lucas is a freelance photographer; he continues to work independently and is registered as an auto-entrepreneur; he partnered with a friend for a big event and gave him a part of the profits. Which kind of company is the big event: Business by natural person.
• Software developers create an app, no registration, division of revenue based on contributions. A developer deals with clients and represents the group in contracts: Without legal Personality.
• Husband and wife run clothing line; structured as a SARL but don't follow those procedures i.e. keeping financial records, holding meetings etc; personally guarantee a loan for the business: With Legal Personality.

Exercise: Organic Farm Run by Friends

• Three friends start a small organic farm but have not registered it as a corporation.
• Split profits/losses equally.
• Occasionally use personal funds.
• One friend signs a large contract without consulting other members.
• Company Type:
  • Operation as a corporation but without legal personality.
    • Three friends sharing responsibilities and ownership without incorporating.
  • Partnership = acting together and sharing benefits or losses of the business.
• Risk:
  • Potential liability (personally) for contract signed by one friend.
  • All partners are responsible, and share responsibility for each other.

Exercise: Hair Salon Run by Marie

• Marie initially operates as an auto-entrepreneur then partners with her cousin to expand.
• Structure and conditions include shared expenses and profits, no structure and a single business name.
• Company Type:
  • Business done through without legal structure.
• Risks:
  • Informally sharing profits/expenses creates an informal partnership.
  • Because they don't have a formal legal structure, the partnership does not have legal personality.
  • Risks include personal liability for business debts/obligations & no legal distinction or separation between personal assets and business.

Exercise: Co-working space run by a group of Friends

• A group of friends builds a co-working space registered as a SARL (Société à responsabilité limitée).
• One member does not contribute financially yet participates in decisions about management.
• This member signs a contract in his name and is then sued.
• Risks identified / Company type?
  • Is a business done through a corporation, with legal personality
  • SARL = Separate entity from its members
  • Non-contributor is not a financial contributor
• The member who signed is liable for financial decisions since they acted in a personal capacity. The protection granted by the SARL does not apply here. Blurring roles can cause liability confusion.

Company Law: Worldwide View and Similarities

• Having similar company laws may benefit international businesses.
• Differences in company laws might cause issues.
• There exist differences in company law worldwide stemming from legal traditions such as codified statutes VS case law in common law.
• The goal is to achieve worldwide uniformity by international organizations (ONU, OMC, OCDE) to facilitate cross-border trade.
• EU's company law directives ensure a uniform framework across member states as well as the formation of corporate governance and shareholder rights.
• According to "The End of History for Corporate Law", uniformity should be contemplated.

Common Features in Company Law

• Legal personality
• Limited liability
• Transferable shares
• Management with a board structure
• Investor ownership

Understanding and Importance of Legal Personality

• Legal personality is the business viewed as its own 'person'; a separate and distinct legal entity from its owners or shareholders.
• It helps it to own property, contracts, sue or be sued.
• Attributes of the legal person name, domicile (address/head office), a nationality.
  • Holder of obligations and rights of the members who compose it.
• The importance of having legal personality is that it allows the company to act independently and ensures continuity, even when ownership changes. It also shields shareholders (the company has debts/owns without involving property of owners)

Benefits of Separate Patrimony

• Company assets are distinct from the owner’s personal assets.
• Creditors cannot seize the bakery's ovens because those belong to the company,
• Creditor handling of the company’s assets if the company is unable to pay its debts to its creditors.
• Personal creditors of company's owners cannot access company's assets.

Defining Limited Liability

• When shareholders of a company are only responsible for the financial amount that they invested, it means they have limited liability.
• Personal assets cannot be used to pay for the company’s debts
• Liability can be limited depending on company
  • General Liability = Unlimited Liability Companies which include SNC and UK ordinary partners
  • French SAS, Company and UK Limited companies are also Liability Companies.

Advantages and Limits of Limited Liability

• Benefits:

  • Encourages investors because of the safety associated with the investment being limited if the business fails.
    • When a company is taking out financing, they can use their equipment and/or buildings as a guarantee; companies can secure financing.
  • It simplifies risk management, creating subsidiaries and isolating activities so single problems don’t spread.
  • It allows share tradability because you can buy shares easily.

• Limits:

  • The type of creditors who have a contractual agreement are banks, employees, and suppliers.
  • It's more difficult to negotiate, and choose the level of risk. Third parties harmed by the company
  • An example is when a factory that is polluting a river is responsible for shareholder actions.

Transferable shares

• Ownership can be transferred sold, inheritance or company without effecting the business.
• Shares can be not or not according to the kind of company selected.

Freely tradable shares

• Open-public corporations can be readily available
• Stock exchange purchase and buying anyone by an individual.
• Business where only money matters example include Google or Apple

Restricted shares

• Close of a private cooperation
• Can only be sold to someone that is approved by shareholders
• Identity and the conditions of the sale can only happen if all the family approval.

Transferable shares

• Companies continue to operate no matter what is of the shares

• Shareholders can liquidity the shares

• Shareholders can spread money across the investments

• Shares and attracting investor without worried about the structure.

• Shareholders can use and control the control and the profit sharing, they depend on the invest you invest.

• People that can own shares because of the contributed their services In a consumer cooperative, control and profit-sharing depend on how much you buy from the The company

Board Member Structure and Ownership

• Companies are run with a board of directors or appointed managers rather than every shareholder daily. Shareholders elect the board to express their interests for the company.
• The Board oversees new line products with new CEO handle every day.
• Decision-making and checks in balance protect the shareholders.
• Benefits are time-saving.

Investor Ownership

• Investors have the right to make decisions on vote on company matter as well as the right to earn profits.
• The money invested in a company can be used by share profits.
• The increase of money can increase the investor control.