Company Law 4 PDF

Legal forms of business organisations Session 4 2023/2024 Types of companies and business structures Legal challenges of companies Types of companies Form of entity A business has to be structured within a defined legal framework. In every jurisdiction, the law provides a number of options from whic...

Legal forms of business organisations Session 4 2023/2024 Types of companies and business structures Legal challenges of companies Types of companies Form of entity A business has to be structured within a defined legal framework. In every jurisdiction, the law provides a number of options from which to choose The proprietors of the business will select the form best suited to their particular needs. These may relate to issues such as limitation of liability, flexibility of management structures, privacy of financial data, taxation, and sources of finance. Legal challenges of companies Types of companies Form of entity While no two countries’ laws will be the same, at a general level it is possible to identify forms of business organisation in most jurisdictions that possess broadly similar characteristics (UK, USA, France). The laws of most countries recognise forms of business organisation, which can broadly be categorised as follows: 1. the sole proprietorship 2. partnerships 3. various types of company with limited liability Legal challenges of companies Types of companies Form of entity In civil law countries the term ‘company’ tends to be employed for both partnerships and limited companies (for example, in the case of French law, the term ‘société’ is used in connection with both the société en nom collectif (the general partnership) and the société a responsabilité limitée (the limited liability company). In common law jurisdictions the term ‘company’ usually being reserved for an organisation having a separate legal identity from its members (e.g. public limited company , private limited company, etc.) Legal challenges of companies Business Organizations The sole proprietorship The sole proprietorship is the simplest form of business organisation. No separation between the identity of the business and that of the proprietor unlimited personal liability The proprietor will be fully liable on contracts and other legal obligations undertaken on behalf of the business. Legal challenges of companies France Enterprise individuelle UK Sole trader US Sole proprietorship Business organizations: sole proprietorship  Simplest form of business organization  No legal distinction between owner and the business Advantages:   Proprietor owns the business and has the right to receive all profits Easy and cost effective + simple formalities  Personal income tax only Business organizations: sole proprietorship Disadvantages  The proprietor is the one that will burden all losses and lawsuits Creditors can go after the owner’s personal assets (personal liability)  Limited capacity to raise funds   It lacks continuity (if the owner dies or becomes incapacitated, the business may cease to exist)  Small businesses Legal challenges of companies Business Organizations The general partnership The general partnership is recognised in both common law and civil law jurisdictions. This form of organisation involves two or more persons jointly pursuing a business purpose and agreeing to share both profits and losses. FRANCE Société en nom collectif (SNC) Legal challenges of companies Business organizations The general partnership Advantages Unlike companies, generally partnerships do not require any special formalities in order to be created Partners are generally free to determine for themselves exactly how the business should be run Unlimited liability of the partners for the debts and other legal obligations of the business Disadvantages Legal challenges of companies Not in France General partnership UK and US Under UK and US law a partnership agreement can be expressed or implied. Hence, partnerships in the UK / US can be created orally or as is usual, by writing or even by conduct. Example (partnership by conduct) X and Y agree to purchase a quantity of goods from the liquidator of a bankrupt business, sell the goods and divide the profits between themselves. The fact that they both contribute towards the cost of the project, jointly manage the sale and agree to divide the profits would probably indicate a partnership. The fact that it was a business venture limited to one project would be irrelevant. From a practical point of view, a written partnership agreement is advisable (under French law a written contract is mandatory (“statuts”). Legal challenges of companies Business organizations Business organizations The company with limited liability In most jurisdictions, the most widely used form of business organisation is a company with limited liability. There are various types of limited company, but they all have two central features in common. 1. The company has a legal personality distinct from that of the human members who control and administer it. The consequence of this is that a company: 1.1 2.2 3.3 4.4 has rights and obligations under the law; has contractual capacity and can make contracts on its own behalf; can own property in its own right; can sue and be sued in its own name. Legal challenges of companies Business organizations The company with limited liability 2. The second principal feature of the limited company is the fact that the personal liability of its members is limited to the amount they have invested. Therefore, if the assets of the company are insufficient to meet its liabilities, individual members who have paid for their shares in full will face no further liability. Legal challenges of companies SMALL TO MEDIUM SIZED BUSINESSES SARL / SAS (France) Private Limited Company (LTD) (UK) Limited Liability Company (LLC) (US) Legal challenges of companies LARGE BUSINESSES SOCIÉTÉ ANONYME (SA) (France) Public Limited Company (PLC) (UK) Corporations (US) Legal challenges of companies FORM OF ENTITY SAS (Société par Actions Simplifiée) ✅ Equivalent to a British Private Limited Company (LTD) and a US Limited Liability Company (LLC) ✅ An increasingly used type of company, mainly because of its great flexibility and low capital requirements (no minimum capital required). ✅ More flexible than the SARL which is a more binding vehicle. ✅ The SAS is essentially a simplified form of the SA. ✅ It does not have access to the capital markets and its shares cannot be listed on a stock exchange Legal challenges of companies FORM OF ENTITY SAS Advantages (due to its flexibility): The law does not impose a particular management structure for the SAS (the president is the only compulsory corporate body and it does not need a board) The president can be a person or another company The SAS entity is often used for wholly owned subsidiaries Unlimited number of shareholders No minimum capital (1 Euro) Legal challenges of companies FORM OF ENTITY SARL - Société à Responsabilité Limitée Equivalent to a British Private Limited Company (LTD) and a US Limited Liability Company (LLC) ☺ Easy to set up and operate (simple rules and regulations) ☺ Relevant for small and medium-sized companies ☺ There is no minimum share capital (1Euro) ☺ Liability is limited to the individual’s investment. Legal challenges of companies FORM OF ENTITY SARL - Société à Responsabilité Limitée ☹ Up to 100 shareholders ☹ The SARL does not have access to the capital markets and its shares cannot be listed on a stock exchange. ☹ It is more restrictive and less flexible than the SAS. ☹ The director (“gérant”) must be an individual Legal challenges of companies Corporations FORM OF ENTITY SA (Société Anonyme)  A French SA is broadly equivalent to a UK Public Limited Company and US Corporation.  Mainly used by large corporations, as it enables public offering of shares.  It is a very complex form of company, not commonly appropriate for a first incorporation.  An SA’s founders can be individuals or legal entities.  Minimum of seven shareholders and initial share capital of 37,000 EUR  Shareholders’ liability is limited to the value of their share contribution. Legal challenges of companies FORM OF ENTITY SA SA can be incorporated in accordance with 2 different management structures: Either with a board of directors (Conseil d'Administration) or With an executive board (Directoire) and a supervisory board (Conseil de Surveillance). Legal challenges of companies Branch of a foreign company Branch Vs subsidiary A branch is not a separate legal entity and is therefore deemed to be the same legal entity as the foreign company, which remains solely responsible for the operation of its branch. The main difference between a branch and a subsidiary is that: A branch is a mere emanation of the parent company, with no legal existence or distinct assets or liabilities and A subsidiary is an independent entity with its own legal existence, bylaws and capital contributions. As a consequence, the parent company: Has unlimited liability for any debts and liabilities incurred by the branch and Has limited liability for the debts and liabilities incurred by its subsidiary in case it becomes insolvent Legal challenges of companies TRANSFER OF SHARES SAS – SARL –SA SAS SARL Shares are freely transferable, unless otherwise provided in the bylaws The transfer of shares to a third party is subject to the prior approval of the majority of the shareholders representing at least half of the shares comprising the share capital, unless a stronger majority provided for the bylaws. SA Shares are freely transferable, unless otherwise provided in the bylaws Legal challenges of companies SHAREHOLDERS MEETINGS REQUIREMENTS SAS – SARL –SA SAS SARL SA Obligation to hold an annual meeting each year to approve the annual accounts. Obligation to hold an annual meeting each year to approve the annual accounts. Obligation to hold an annual meeting each year to approve the annual accounts. Thank you for your attention! 