Company Law and Company Law (Enforcement): Difference between pages

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by ''[[Andreas M Fleckner]]''
by ''[[Heribert Hirte]]''
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The enforcement of company law is characterized by the dual enforcement rights exercised by the company’s elected representatives and by its members (see 1. below). Moreover, there is also a public interest in the enforcement of company law which is usually achieved by several mechanisms of governmental supervision (see 2. below).


== 1. Function ==
== 1. Private enforcement of corporate law  ==


The law of business associations (hereinafter referred to as ‘company law’, see 2. below) governs the internal relationships and external affairs of partnerships, companies, corporations and other business entities that are, at least to some degree, separated from the person or persons that own them. Company law has an ''enabling'' function to the extent that it makes exceptions to general principles of contract and property law that would otherwise constrain the creation and organization of business associations. Where company law instead establishes new requirements or alters general rules that otherwise pose no problems for business associations, it has a ''regulating'' function. Rules of the latter type by far outnumber those of the former.
Company law is characterized by a variety of legal relationships. Besides the enforcement by the elected representatives of the company (see 1. a) below), its members also usually engage in the enforcement (see 1. b) below).


Lawyers will gain a first insight into the function of their national company law by exploring whether and in which respects its provisions offer options that the general rules fail to provide. This differs between countries. For one essential question, though—the allocation and attribution of assets—company law seems to have an ''enabling'' function in all European jurisdictions. Because contractually it is not possible, at least for larger business associations, to sufficiently separate the common (business) assets of the firm from the individual (private) assets of its owners (‘principle of two-sided asset separation’). Here, certain statutory provisions or comparable court decisions provide for remedies.
=== a) Enforcement by the representatives ===


Understanding the functions of company law has important implications both for its abstract conception and its concrete application, in particular when drawing the borderline between company law and neighbouring branches of law such as [[Capital Markets Law|capital markets law]] or insolvency law.
The enforcement of company law by the representatives of the company usually occurs in disputes between persons within a certain legal body of the company or between certain organs of the company, forcing each other to engage only in lawful conduct. Besides that, internal disputes can also occur between the company and a single member in order to expel it from the company, which usually requires a special kind of cause.


== 2. Terminology ==
=== b) Enforcement by the members ===


Unlike in French (''société'') and in German (''Gesellschaft''), there is no single English term that covers the wide range of business associations or entities that have emerged over the last centuries. Therefore, while French law knows a ''droit des sociétés ''and German law a ''Gesellschaftsrecht'', English lawyers would have to less succinctly refer to ‘company and partnership law’, the ‘law of business associations’ or ‘enterprise law’. To complicate matters further, in the United States the predominant terms (in addition to ‘partnership law’) are ‘corporate law’ and ‘corporation law’.
However, the enforcement of company law by the members of the company is far more relevant. This enforcement usually collides with the general power and duty of the management to administer and to represent the company in a lawful way in which the members of the company are generally not involved. The extent of the power to enforce company law by company members is usually governed differently for each type of company. While partners in a [[Partnership|partnership]] or shareholders in a closed corporation can easily enforce lawful behaviour of the management, this possibility does not exist for shareholders in [[Stock Corporation|stock corporations]]. The most significant exception in this context is the legal enforcement of claims of the company by its members (''actio pro socio or pro societate''/derivative action). In these cases, an individual member of the company can represent the company in the legal enforcement of certain claims despite the administrative and representative authority of the (other) representatives of the company. Legal action by company members for claims of the company have to be strictly distinguished from legal action of company members regarding their own claims which do not interfere with the organizational structure of the company.


The English terminology reveals that the business associations of today have two distinct roots: the corporation (''universitas'', ''association'', ''Körperschaft'') and the partnership (''societas'', ''société'', ''Sozietät''/''Gesellschaft im engeren Sinne''). Corporations pursue supra-individual goals and are, accordingly, independent from the current composition of their members. Partnerships, in contrast, advance the common interests of the specific partners and have, in principle, no isolated existence; in their purest form, partnerships are therefore dissolved if a partner dies (Inst 3,25,5), quits (Inst 3,25,4) or becomes insolvent (Inst 3,25,7/8).
In addition, the right of a company member to challenge resolutions of the member meetings is one of the central mechanisms of enforcement. This mechanism guarantees that almost every violation of company law can be challenged by the members as long as their individual rights to vote or to participate in company affairs are harmed. While severe violations lead to the invalidity of the resolution, less severe violations only have legal effect when they are determined by court. Within this context the shareholders’ right to information is of special importance since the right of a company member to challenge resolutions of the member meetings is the central mechanism to sanction incomplete or incorrect information provided to the members.


National and [[European Union]] law provide for a great variety of legal regimes under which business associations can be organized. These different forms cover a wide spectrum ranging from partnerships of a few businessmen to international conglomerates with several million shareholders. This Encyclopaedia has dedicated articles to the most important national types ([[Partnership|partnership]]; [[Gesellschaft mit beschränkter Haftung (GmbH)|''Gesellschaft mit beschränkter Haftung ''(GmbH)]]; [[Private Limited Company (England and Wales)|private limited company (England and Wales)]]; [[Stock Corporation|stock corporation]]) and to all supranational forms that have appeared on the European level ([[European Economic Interest Grouping (EEIG)]]; [[European Cooperative (Societas Cooperativa Europaea)|European Cooperative (''Societas Cooperativa Europaea'')]]; [[European Company (Societas Europaea)|European Company (''Societas Europaea'')]]). The [[European Private Company (Societas Privata Europaea)|European Private Company (''Societas Privata Europaea'')]] might follow next, at least in some Member States (see 5. b) below).
=== c) Influence of European private law ===


In the European context (see generally Art 54(2) TFEU/48(2) EC), the term ‘company’ is often used in a very broad sense to mean all private associations of persons that carry on a business in common (as well as, although not ‘common’ enterprises, distinct single-member entities). For instance, observers discuss both the European Economic Interest Grouping and the European Company under the heading of ‘European company law’, even though both are conceptually far apart: the European Economic Interest Grouping is an example of a partnership, the European Company of a (stock) corporation. For brevity and convenience, the remaining sections will follow this practice and use the term ‘company law’ in the broader sense that includes partnerships and similar business associations.
(i) Harmonization of national company law. Despite the considerable amount of harmonization of national company laws in the common market, the issue of enforcement of company law has hardly been addressed.


== 3. History ==
''Status quo of harmonization''. The most comprehensive provision is found in the First Council Directive 68/151 although it concerns only public enforcement by public authorities being in charge for the registration of a company in public registers (see 2. (b)(i)). However, the subsequently abandoned proposal for a Fifth Company Law Council Directive (Company Structure Directive) contained several provisions concerning the enforcement of company law by individual rights of company members. Finally, Dir 2007/36 had a severe impact on the enforcement of company law by shareholders of publicly traded corporations. The directive focused especially on the information of shareholders before the general meeting by stating an obligation of the corporation to publish certain documents on the internet for shareholders (Arts 4 ff). Moreover, the directive harmonizes the rights of shareholders to gather information from the management during the general meeting and to exercise voting rights by using modern communication devices (Arts 8 ff). However, the directive does not focus on sanctions for the violation of these shareholder rights. Consequently the possibilities of shareholders enforcing these rights are not governed by the directive, but only by the national laws of the Member States.  


Common business activities have been dealt with in texts dating as far back as the 18th century BC ''Codex Hammurabi'' (§§ 77+f, 100–107). Most detailed among the ancient laws and later the primary basis of European company law is the [[Roman Law|Roman law]] on the ''societas'', the ''ius societatis''. Both the Institutes of Gaius (Gai Inst 3,148–3,154b) and of Justinian (Inst 3,25) as well as the Digest (Dig 17,2) and the Code of Justinian (Cod Iust 4,37) devote a separate chapter to the ''societas''. A second basis of modern company law are the Germanic rules and customs of the Middle Ages (well known, but apparently partly influenced already by Roman law, is the ''Sachsenspiegel'' of the 13th century, ''Landrecht'' I 12). With the [[Reception|reception]] of [[Roman Law|Roman law]], Germanic and Roman rules became increasingly mixed and merged—at least locally (for example, the ''Frankfurter Reformation ''of 1578, part II, title XXIII)—into a largely homogeneous body of law, the ''ius commune societatis'', the common law of business associations. In some discussions, however, the different historic roots are still apparent, eg in the 19th century German dispute over the legal nature of the [[Stock Corporation|stock corporation]], or in many Romanic jurisdictions with regard to unequal shares and the exclusion of the famous ''societas leonina''. Mostly unnoticed is that today’s English law of partnerships appears to be closer to the Roman ''ius societatis'' than the legal regimes in France and Germany.
''Further developments''. In its actual development, the harmonization process focuses more on the responsibility of the management and/or supervisory bodies of companies listed on the stock exchanges. In particular, Art 50c Annual Account Directive (Dir 78/660/EEC) and Art 7 Transparency Directive (Dir 2004/109/EC) state a responsibility for the preparation and publication of certain financial reports.


The provisions of the [[Code Civil|''Code civil'']] (21 March 1804)'' du contrat de société ''(Arts 1832–1873) and the [[Code de Commerce|''Code de commerce'']] (15 September 1807) ''des sociétés'' (Arts 18–64) had the most significant impact on the development of modern company law in continental Europe. Many of these sections have been revised several times since, but the greater part of French company law is still codified in the ''Code civil ''(Arts 1832–1873) and the ''Code de commerce ''(Arts L 210-1–L 252-12). For the German legal system, the draft of a general German commercial code, the [[Allgemeines Deutsches Handelsgesetzbuch (ADHGB)|''Allgemeines Deutsches Handelsgesetzbuch ''(ADHGB)]] (12 March 1861) constituted the first codification of company law to come into force nationwide (Arts 85–270). Four decades later, these provisions were transferred—partly revised—to the new commercial code (§§ 105–342), the ''Handelsgesetzbuch ''(10 May 1897); at the same time, the [[Bürgerliches Gesetzbuch (BGB)|''Bürgerliches Gesetzbuch ''(BGB)]] (18 August 1896) dedicated a chapter to the civil partnership, the ''Gesellschaft'' (§§ 705–740). The rules on civil and commercial partnerships have seen only a few amendments since that time; the other company forms, however, were often reformed and are now codified outside of the commercial code. The [[Gesellschaft mit beschränkter Haftung (GmbH)|''Gesellschaft mit beschränkter Haftung'' (GmbH)]], an invention of the German legislature, received a statute of its own at its inception (20 April 1892); the law on [[Stock Corporation|stock corporations]] was transferred to a distinct codification (''Aktiengesetz ''of 30 January 1937) and has been kept separate to date (''Aktiengesetz'' of 6 September 1965). English company legislation was initially event-driven and therefore fragmentary and unsystematic. This changed with the Companies Act 1862 (7 August 1862), the first consolidation or codification, which was thereafter many times replaced, most recently by the Companies Act 1985 (11 March 1985) and the Companies Act 2006 (8 November 2006). Partnerships are governed by the Partnership Act 1890 (14 August 1890).
In contrast to antitrust law (White Paper of the [[European Commission]] on damages actions for breach of the EC antitrust rules, COM(2008) 165 final) and consumer protection law, company law so far is not addressed in the current discussion to increase the instruments of collective enforcement.


== 4. Legal comparisons ==
(ii) Supranational companies. The existing forms of supranational companies ([[Company Law|company law]]) such as the [[European Economic Interest Grouping (EEIG)]], the [[European Company (Societas Europaea)|European Company (SE —''Societas Europaea'')]], and the [[European Cooperative (Societas Cooperativa Europaea)|European Cooperative Society (SCE—''Societas Cooperativa Europaea'')]] contain only few (specific) provisions on the enforcement of company law. Consequently the national laws of the Member States have to be applied in this context (Art 2(1) Reg 2137/85; Art 9 Reg 2157/2001 on the European Company; Art 8 Reg 1435/2003 on the European Cooperative Society). Even the statute of the planned [[European Private Company (Societas Privata Europaea)|European Private Company (SPE —''Societas Privata Europaea'')]], following the idea of an exclusive application of supranational (European) law without reference to the national laws of the Member States, does not contain any provisions on the enforcement of company law by the management or the shareholders. So even for the European Private Company the national laws of the Member State will govern the enforcement.


From the very first days of company law, comparative study ([[Comparative Law|comparative law]]) has been one of the most important sources of knowledge. The [[Code de Commerce|''Code de commerce'']] (1807) in general and its provisions on business associations in particular functioned as a model for various other commercial codes in Europe, such as the Spanish'' Código de Comercio ''(1829), the Portuguese ''Código Commercial ''(1833) and the Dutch'' Wetboek van Koophandel ''(1838) as well as—to a lesser degree—the draft of the [[Allgemeines Deutsches Handelsgesetzbuch (ADHGB)|''Allgemeines Deutsches Handelsgesetzbuch ''(ADHGB)]] (12 March 1861).
(iii) European civil procedure and insolvency law. European civil procedure law addresses the issues of enforcement of corporate law in only a very minor way. The Brussels I Regulation (Reg 44/2001) ([[Recognition and Enforcement of Foreign Judgments|recognition and enforcement of foreign judgments]]) in particular contains only very few provisions on the different types of company law remedies. Only Art 22 no 2 Brussels I provides for an exclusive jurisdiction for the courts of the Member State in which the company, association, or legal person has its seat for proceedings regarding the validity of the constitution, the nullity or the dissolution of companies, associations or legal persons, or of the decisions of their organs. However, as early as in the course of determining the company’s or legal person’s seat, the court shall apply its own [[Private International Law (PIL)|private international law]]. Besides these incomplete provisions on jurisdiction, European civil procedure law does not contain any further company law related provisions; only the general provisions of the national laws of the Members States have to be applied, which unfortunately do not guarantee a concentration of all company law related proceedings at the court at the seat of the company.


In areas where the legislation has largely remained unchanged since the middle of the 19th century, comparative study has almost come to an end. The most striking example is the law of partnerships (see 2. above). Where legislatures, judges and scholars are still struggling for an adequate regulatory regime—ie especially for corporate entities ([[Stock Corporation|stock corporation]]; [[Private Limited Company (England and Wales)|private limited company (England and Wales)]]; [[Gesellschaft mit beschränkter Haftung (GmbH)|''Gesellschaft mit beschränkter Haftung ''(GmbH)]]) —comparative study has been continuously (though with differences in quality and quantity) influential (more in the respective articles of this Encyclopaedia that deal with the individual legal forms).
The same problem occurs in the context of European insolvency law ([[Insolvency, Cross-Border|insolvency, cross-border]]). Regulation 1346/2000 on insolvency proceedings does not contain any specific provisions for the insolvency of companies or legal persons. As a consequence, the national laws of the Member States have to be applied. Only Art 3(1) of the Regulation states the presumption that the Centre of Main Interest (COMI) as basis for the determination of jurisdiction is located at the registered office of the association or legal person. In its ''Eurofood'' case (Case C-341/04 [2006] ECR I-3813) the [[European Court of Justice (ECJ)]] held that the COMI has to be determined by objective criteria. Consequently the COMI of subsidiaries in company groups cannot automatically be assumed at the seat of the respective parent company.


== 5. Legal harmonization ==
(iv) Influence of the fundamental freedoms. The fundamental freedoms generally have no impact on the enforcement of company law. Only the [[Freedom of Establishment|freedom of establishment]] guarantees that limitations on general mobility in the laws of the Member States cannot be applied. This mobility, however, can lead to a lack of concentration of the jurisdiction for company law matters at the seat of the company (see 1. c)(i) above).


European legal harmonization is well advanced in some areas of company law. The reason is, as for [[Capital Markets Law|capital markets law]], that the harmonization of company law is believed to be important for the accomplishment of a [[European Internal Market|European internal market]].
== 2. Public enforcement ==


=== a) Harmonized national company law ===
Public enforcement of company law is provided by the administrative authorities responsible for public registers. Moreover, especially in capital market law ([[Capital Markets Law|capital markets law]]), other administrative authorities can also be in charge of the enforcement of special company law issues. Finally, accountants and their regulations and respective enforcement also provide public enforcement of company law ([[Auditor|auditor]]).


(i) Twelve main directives aim at harmonizing national company law (subsequently listed in order of adoption, not according to the sometimes differing and now abandoned official numbering): (1) First Council Directive (Dir 68/151 of 9 March 1968) on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies […] with a view to making such safeguards equivalent throughout the Community. (2) Second Council Directive (Dir 77/91 of 13 December 1976) on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies […] in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent. (3) Fourth Council Directive (Dir 78/660 of 25 July 1978) […] on the annual accounts of certain types of companies. (4) Third Council Directive (Dir 78/855 of 9 October 1978) […] concerning mergers of public limited liability companies. (5) Sixth Council Directive (Dir 82/891 of 17 December 1982) […] concerning the division of public limited liability companies. (6) Seventh Council Directive (83/349 of 13 June 1983) […] on consolidated accounts. (7) Eighth Council Directive (Dir 84/253 of 10 April 1984) […] on the approval of persons responsible for carrying out the statutory audits of accounting documents, replaced by Directive (Dir 2006/43 of 17 May 2006) on statutory audits of annual accounts and consolidated accounts […]. (8) Eleventh Council Directive (Dir 89/666 of 21 December 1989) concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State. (9) Twelfth Council Company Law Directive (Dir 89/667 of 21 December 1989) on single-member private limited-liability companies. (10) Directive (Dir 2004/25 of 21 April 2004) on takeover bids [originally proposed as the thirteenth company law directive]. (11) Directive (Dir 2005/56 of 26 October 2005) on cross-border mergers of limited liability companies [originally proposed as the tenth company law directive]. (12) Directive (Dir 2007/36 of 11 July 2007) on the exercise of certain rights of shareholders in listed companies.
=== a) Control by the public registers ===


(ii) Not further pursued or not yet adopted are the: (1) Proposal ([1991] OJ C 321/09 of 20 November 1991) for a fifth Council directive […] concerning the structure of public limited companies and the powers and obligations of their organs; (2) Draft (Doc No III/1639/84 of 1984) for a ninth company law directive [on groups of companies]. (3) Draft (Doc No XV/43/87 of 1987) for a company law directive [on the liquidation of companies]. (4) Draft (22 April 1997) for a fourteenth company law directive [on the transfer of seat].
Regarding the control of the administrative authorities responsible for the public registers, one has to distinguish between the legal effects the public registration of company law matters could have. Whereas some registrations have no influence on the validity of the respective legal act, several company law matters require a registration in the public register. Besides this distinction the administrative authorities responsible for the public registers exercise only a very limited control, usually referring especially to formal violations of the respective requirements.


(iii) The [[European Commission]] has also issued recommendations (under Art 288(5) TFEU/ 249(5) EC) in recent years: (1) Recommendation (2004/913 of 14 December 2004) of fostering an appropriate regime for the remuneration of directors of listed companies. (2) Recommendation (2005/162 of 15 February 2005) on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board. (3) Recommendation (C(2009) 3177 of 30 April 2009) complementing the former two recommendations as regards the regime for the remuneration of directors of listed companies.
However, even in cases where registration does not have an impact on the validity of the respective legal act, enforcement of company law is indirectly achieved by the impact false or missing registrations could have on the company. Nevertheless, the most important instrument for public enforcement of company law is the requirement for certain legal acts to be registered before they can have any legal effect and the respective supervision by the administrative authorities.


=== b) Supranational company law ===
=== b) Influence of European private law ===


In the area of company law, the European institutions have also created directly applicable supranational company law in addition to the aforementioned measures to harmonize national company laws.
(i) Harmonization of national company law. The public register is mainly addressed by the First Council Directive (Dir 68/151). The directive, however, only focuses on the effect registrations in the respective registers could have without determining to what extent administrative authorities will have to review these registrations. The other company law directives also only refer to the First Council Directive concerning the public registration of certain aspects without stating the applicable level of review of the administrative authorities.  


(i) All listed companies must, per virtue of a regulation (Reg 1606/2002 of 19 July 2002), prepare their financial statements according to International Accounting Standards (IAS) or, now, International Financial Reporting Standards (IFRS) ([[Accounting|accounting]]).
(ii) Supranational companies. Similarly, the regulations of the supranational companies refer only to a general review of several kinds of registration by administrative authorities without determining the exact level of review (regarding the European Company, see Art&nbsp;8(8) and (9), 15&nbsp;ff Reg&nbsp;2157/2001 on the SE ([[European Company (Societas Europaea)|European Company (''Societas Europaea'')]])<nowiki>; </nowiki>regarding the [[European Economic Interest Grouping (EEIG)]], see Art&nbsp;14(2) Reg&nbsp;2137/85 on the EEIG; regarding the [[European Cooperative (Societas Cooperativa Europaea)|European Cooperative (''Societas Cooperativa Europaea'')]], see Arts&nbsp;7(8), 11(2), 17&nbsp;ff Reg&nbsp;1435/ 2003 on the SCE). The same applies to the statute of the planned [[European Private Company (Societas Privata Europaea)|European Private Company (''Societas Privata Europaea'')]] according to its Arts&nbsp;10(4) lit&nbsp;a, 37.


(ii)&nbsp;Most perceptible as phenomena of supranational company law are the three European company forms: (1)&nbsp;The [[European Economic Interest Grouping (EEIG)|European Economic Interest Group (EEIG)]] was created in 1985 by means of a regulation (Reg&nbsp;2137/85 of 25&nbsp;July 1985) as well as by national implementation laws. The EEIG, which is modelled after the French'' groupement d'intérêt économique ''(Arts&nbsp;L&nbsp;251-1–L&nbsp;251-23 [[Code de Commerce|''Code de commerce'']]) is a not-for-profit partnership that allows the organization of ancillary cross-border services. The EEIG has, however, almost no practical relevance; in Germany, as the largest Member State of the European Union, there are no more than 256 such associations (as of January 2011, according to Udo Kornblum, 2011) and only 27 with significant activities (''Umsatzsteuerstatistik'' 2008; the ''Unternehmensregister'' shows for 2010 a total of 74 releases by 65 firms). (2)&nbsp;The [[European Company (Societas Europaea)|European Company (''Societas Europaea'')]] (SE) is the ‘flagship’ of European company law (Klaus J Hopt). The SE is, despite its confusing name, functionally and structurally a [[Stock Corporation|stock corporation]], created a decade ago through a regulation (Reg&nbsp;2157/2001 of 8&nbsp;October 2001) and a supplementing directive (Dir&nbsp;2001/86 of 8&nbsp;October 2001) as well as through national implementation laws. Although expectations were frequently reduced over the slow course of its development, the success of the SE has nonetheless surprised many observers. Two years ago (as of April&nbsp;2009), there were 389 such companies across Europe: in Germany 115, in France 14, in the United Kingdom also 14 (according to Horst Eidenmüller, Andreas Engert and Lars Hornuf, 2009); in the meantime, Germany has witnessed a rise of almost 50&nbsp;per cent to 159 companies (as of January 2011, according to Kornblum, 2011). (3)&nbsp;The [[European Cooperative (Societas Cooperativa Europaea)|European Cooperative Society (''Societas'' ''Cooperativa'' ''Europaea'')]] (SCE) is based, like the SE, on a regulation (Reg&nbsp;1435/2003 of 22&nbsp;July 2003) and a directive (Dir&nbsp;2003/72 of 22&nbsp;July 2003) as well as national implementation laws. So far the SCE has not proved to be a practical success.
(iii) European civil procedure law. The procedure for the registration of company law matters at public registers is not governed by Brussels&nbsp;I. Consequently these aspects are only addressed by the national laws of the Member States.


(iii)&nbsp;There have been and still are plans to create additional supranational forms: (1)&nbsp;The Commission has put forward a proposal (COM (2008) 396 final of 25&nbsp;June 2008) for a [[European Private Company (Societas Privata Europaea)|European Private Company (''Societas'' ''Privata'' ''Europaea'')]] (SPE). The key difference between the SPE and the SE (see (ii) above) is that the shares of the SPE cannot be publicly traded; the SPE is meant to be a close corporation, a sort of European private limited company or [[Gesellschaft mit beschränkter Haftung (GmbH)|''Gesellschaft mit beschränkter Haftung ''(GmbH)]]. The proposal failed mainly due to Germany’s opposition (in June 2011), but other Member States might, through the mechanism of ‘enhanced cooperation’, move forward and adopt the proposal regardless of other countries’ reluctance. (2)&nbsp;The drafts of a directive (most recently [1993] OJ C 236/05 of 6&nbsp;July 1993) and a regulation (most recently [1993] OJ C&nbsp;236/06 of 6&nbsp;July 1993) to create a European Mutual Society were withdrawn by the Commission in spring 2006 ([2006] OJ C&nbsp;64/03). (3)&nbsp;A similar fate was met by the idea of a European Association which, notwithstanding drafts for a directive (most recently [1993] OJ C&nbsp;236/01 of 6&nbsp;July 1993) and a regulation (most recently [1993] OJ C&nbsp;236/02 of 6&nbsp;July 1993), was also abandoned ([2006] OJ C&nbsp;64/03). (4)&nbsp;In the context of European legal forms, one should also mention the initiatives for a [[European Foundation]].
Finally, there is one particular characteristic in the context of preliminary rulings under Art&nbsp;201 TFEU/234 EC. According to the ECJ, courts administering public registers do not constitute courts within the meaning of Art&nbsp;201 TFEU/ 234&nbsp;EC, but only administrative authorities. As a consequence these courts cannot refer to the ECJ concerning preliminary rulings (ECJ Case C-86/00 – ''HSB-Wohnbau GmbH'' [2001] ECR I-5353, 5360; ECJ Case C-447/00 – ''Holto Ltd'' [2002] ECR I-735, 744). This restriction constitutes a severe obstacle to the effective enforcement of European company law as a significant number of questions regarding the interpretation and application of harmonized European law are often addressed in registration procedures.
 
=== c) Fundamental freedoms ===
 
Another central component of European company law is the jurisdiction of the [[European Court of Justice (ECJ)]] on the [[Freedom of Establishment|freedom of establishment]] (Arts&nbsp;49–55 TFEU/43–48 EC) and the [[Free Movement of Capital and Payments|free movement of capital and payments]] (Arts&nbsp;63–66, 75 TFEU/56–60 EC).
 
(i)&nbsp;The six most important decisions on the freedom of establishment, which the treaty expressly extends to companies (Art&nbsp;54 TFEU/48 EC), are: ECJ Case 81/87 – ''Daily Mail'' [1988] ECR&nbsp;5483; ECJ Case C-212/97 – ''Centros'' [1999] ECR I-1459; ECJ Case C-208/00 – ''Überseering'' [2002] ECR I-9919; ECJ Case C-167/01 – ''Inspire Art&nbsp;''[2003] ECR&nbsp;I-10155; ECJ Case C-411/03 – ''SEVIC'' [2005] ECR I-10805; and ECJ Case C-210/06 – ''Cartesio'' [2008] ECR I-9641. These judgments have both a legal and a political dimension. Legally, they deal with the question of whether and under what circumstances business associations that have been founded according to the laws of one Member State can focus their activities on another Member State or completely ‘move’ to it; this can pose problems in both the first and the second state. Politically, the decisions are of relevance because a broad interpretation of the freedom of establishment may lead to legal competition for the ‘better’ (often from the founders’ perspective) law (in general: [[Competition between Legal Systems|competition between legal systems]]).
 
(ii)&nbsp;For investments in business associations, the free movement of capital and payments overlaps with the freedom of establishment (seen, but not resolved by Art&nbsp;49(2) TFEU/43(2) EC). All of the Court’s rulings in this area so far have involved measures to prevent takeovers. Eight times the Court had to decide on so-called ‘golden shares’. These are special rights granted to public bodies making it more difficult to take over (previously privatized) companies. The relevant judgments concerned provisions in Portugal (ECJ Case C-367/98 [2002] ECR&nbsp;I-4731; ECJ Case C-171/08 of 8&nbsp;July 2010, nyr; ECJ Case C-543/08 of 11&nbsp;November 2010, nyr); in France (ECJ Case C-483/99 [2002] ECR&nbsp;I-4781); in Belgium (ECJ Case C-503/99 [2002] ECR&nbsp;I-4809); in Spain (ECJ Case C-463/00 [2003] ECR I-4581); in the United Kingdom (ECJ Case C-98/01 [2003] ECR I-4641); and in the Netherlands (ECJ Joined Cases C-282/04 and C-283/04 [2006] ECR I-9141). On related issues, the Court had to decide in two proceedings brought against Italy (ECJ Case C-174/04 [2005] ECR&nbsp;I-4933 and ECJ Joined Cases C-463/04 and C-464/04 [2007] ECR&nbsp;I-10419). Not only a ‘golden share’, but some provisions of a ‘golden act’, the so-called ''Volkswagen-Gesetz ''(Act of 21&nbsp;July 1960), were reviewed in the ''Volkswagen'' case (ECJ Case C-112/05 [2007] ECR I-8995). Whether the deletions made by the German legislature in the aftermath of the decision (Act of 8&nbsp;December 2008) are sufficient to bring the law in accordance with European requirements remains to be seen.
 
== 6. Current challenges ==
 
Most of the challenges for today’s company law are confined to certain forms of business associations; these challenges are discussed in the respective articles of this Encyclopaedia (for an overview, see 2. above). Only a few problems are understood as those of European company law in general and not of particular legal forms.
 
The question of [[Co-Determination|co-determination]], ie the participation of employees in the decision-making process of the (supervisory) [[Board|board]] has been highly controversial for decades, but is not a genuine issue of company law. Germany, the country that has become (in)famous for giving employees seats on the supervisory board in larger firms (a system known as ''Mitbestimmung''), has been blocking numerous efforts to harmonize European company law or create European legal forms, most recently the [[European Private Company (Societas Privata Europaea)|European Private Company (''Societas'' ''Privata'' ''Europaea'')]] (SPE), because of fears that the position of German employees might suffer. To discuss this issue at length is somewhat futile because empirical data or other objective arguments have received little political attention so far.
 
A general problem at the borderline of company law and insolvency law (see 1. above) is the question of which provisions that protect creditors are to be classified under company law and which under insolvency law. In Germany, the legislature (''Insolvenzantragspflicht'', duty to file for insolvency proceedings, §&nbsp;15a ''Insolvenzordnung'') and the Federal Supreme Court (''Existenzvernichtungshaftung'', existence destruction liability, §&nbsp;826 [[Bürgerliches Gesetzbuch (BGB)|''Bürgerliches Gesetzbuch'' (BGB)]]) have recently reclassified two issues from company law to insolvency and tort law, respectively. It is likely that both adjustments are tacit attempts to remove these matters from the scope of the freedom of establishment (Arts&nbsp;49–55 TFEU/43–48 EC) in order to make foreign companies, despite recent rulings by the ECJ, subject to the same provisions as those established in Germany. In the European context, however, it is very probable that the functional content of the law, not the site, will be central to the qualification under company or insolvency law. From this perspective, the duty to file for insolvency proceedings might indeed belong to insolvency law, while existence destruction liability might have to be classified as company law.
 
Another issue of general importance is the power that the European institutions have or should have to harmonize national company law and to create supranational company law. The treaty authorizes the European Parliament, the Council and the Commission only to coordinate ‘to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms […] with a view to making such safeguards equivalent throughout the Union’ (Art&nbsp;50(2)(g) TFEU/44(2)(g) EC). This mandate is quite narrow, perhaps narrower than the numerous directives (see 5.&nbsp;a) above) in the area of company law might suggest.
 
== 7. Outlook ==
 
European company law is facing a number of major policy decisions. The first phase of harmonizing national company law and of creating uniform European law has almost come to an end—not because all of the original objectives have been achieved, but because only, if at all, the Transfer of Seat Directive and the European Private Company seem politically feasible at present. Whether existing measures are sound and whether further initiatives should follow requires careful investigation. Legal scholarship could contribute to this discussion with a more thorough comparison of the national legal systems. This input will be most helpful if legal scholars compare more than the current statutes.
 
First, a great gap in historical research should be closed by meticulously exploring to what extent modern company laws follow a common model and where they follow separate paths. Contrary to widespread belief and the frequently repeated stereotype of the common law’s distinctiveness and uniqueness, the English law on business associations seems, in many regards—at least based on a cursory review of its historical foundations and a preliminary appraisal of its current shape—closer to Roman law than to French or German law. For the rise of a new European company law, this common foundation is a great opportunity because it gives the political discussion a starting point that might seem agreeable to all parties involved. Secondly, legal scholarship should team up with the social sciences and conduct empirical studies to better understand the practice of European business associations. A French ''société anonyme'' and a German ''Aktiengesellschaft'' differ in more ways than name and legal framework.
 
Therefore, in light of the policy decisions ahead and the wide areas that legal scholarship has so far left unexplored, more functional research, with vertical and horizontal legal comparisons as well as interdisciplinary studies, appears as the current desideratum in the area of European company law. While such work might be helpful in assessing calls for centralized harmonization, it might itself prove a nucleus for a decentralized development of European company law towards a ''novum ius commune societatis''.


==Literature==
==Literature==
Marcus Lutter, ''Europäisches Unternehmensrecht'' (4th&nbsp;edn, 1996); António Menezes Cordeiro, ''Direito europeu das sociedades'' (2005); Marco Cassottana and Antonio Nuzzo, ''Diritto commerciale comunitario'', ''part&nbsp;I'' (2nd&nbsp;edn, 2006); Klaus J Hopt, ‘Comparative Company Law’ in Mathias Reimann and Reinhard Zimmermann (eds), ''The Oxford Handbook of Comparative Law'' (2006, corrected paperback edition 2008) 1161; Stefan Grundmann (with Florian Möslein), ''European Company Law'' (2007); Paul L Davies (with Sarah Worthington'' ''and Eva Micheler), ''Gower and Davies’ Principles of Modern Company Law'' (8th&nbsp;edn, 2008); Michel Menjucq, ''Droit international et européen des sociétés'' (2nd&nbsp;edn, 2008); Mads Andenas and Frank Wooldridge, ''European Comparative Company Law'' (2009); Reinier H Kraakman and others, ''The Anatomy of Corporate Law'' (2nd&nbsp;edn, 2009); Michel Germain, ''Traité de droit commercial'','' vol&nbsp;I''/''2'': ''Les sociétés commerciales'' (19th&nbsp;edn, 2009); Andreas M Fleckner, ‘Europäisches Gesellschaftsrecht’ in ''Festschrift Klaus J Hopt'', ''vol&nbsp;I'' (2010) 659; John Armour and Wolf-Georg Ringe, ‘European Company Law 1999-2010: Renaissance and Crisis’ (2011) 48 CMLR 125.</div>
For a comparative overview see the contributions on the ECFR Symposium ‘Shareholder Suits’ Vienna, 10&nbsp;October 2008, reprinted in ECFR 2009, 161–357;'' ''in addition see Wolfgang Fikentscher and Bernhard Großfeld, ‘The Proposed Directive on Company Law’ (1964) 2 CMLR 259; James Cox, ‘Searching for the Corporation’s Voice in Derivative Suit Litigation: A Critique of Zapata and the ALI Project’ (1982) Duke Law Journal 959; John C Coffee, ‘Understanding the Plaintiff’s Attorney: The implication of Private Enforcement of Law through Class and Derivative Actions’ (1986) 86 Columbia LR 669; Roberta Romano, ‘The Shareholder Suit: Litigation without Foundation?’ (1991) 7 J L Econ & Org 55; John C Coffee Jr, ‘New Myths and Old Realities: The American Law Institute Faces the Derivative Action’ (1993) 48 Business Lawyer 1407; Ralph C Ferrara, Kevin T Abikoff and Laura Leedy Gansler, ''Shareholder Derivative Litigation. Besieging the Board'' (1995).</div>
 
==Sources==
Codex Hammurabi (18th&nbsp;century BC), cited according to the edition of Mervyn EJ Richardson, ''Hammurabi’s Laws'' (2000); Sachsenspiegel (13th&nbsp;century AD), cited according to the edition of Karl August Eckhardt, ''Sachsenspiegel—Landrecht'' (2nd&nbsp;edn, 1955); ''Der Statt Franckenfurt erneuwerte Reformation'' (1578); Code de commerce (10–15&nbsp;September 1807), Bulletin des lois No&nbsp;164, 161&nbsp;ff; Código de Comercio (30&nbsp;May 1829), edicion oficial (1829); Código Commercial Portuguez (18&nbsp;September 1833) (1833); Wetboek van Koophandel: Officiële uitgave (1838); Entwurf eines allgemeinen deutschen Handelsgesetz-Buchs (12&nbsp;March 1861): [[Allgemeines Deutsches Handelsgesetzbuch (ADHGB)|''Allgemeines Deutsches Handelsgesetzbuch'' (ADHGB)]]; An Act for the Incorporation, Regulation, and Winding-up of Trading Companies and other Associations (7&nbsp;August 1862), 25 & 26 Vict ch&nbsp;89.</div>




[[Category:A–Z]]
[[Category:A–Z]]
[[de:Gesellschaftsrecht]]
[[de:Rechtsdurchsetzung_im_Gesellschaftsrecht]]

Latest revision as of 18:39, 5 June 2025

by Heribert Hirte

The enforcement of company law is characterized by the dual enforcement rights exercised by the company’s elected representatives and by its members (see 1. below). Moreover, there is also a public interest in the enforcement of company law which is usually achieved by several mechanisms of governmental supervision (see 2. below).

1. Private enforcement of corporate law

Company law is characterized by a variety of legal relationships. Besides the enforcement by the elected representatives of the company (see 1. a) below), its members also usually engage in the enforcement (see 1. b) below).

a) Enforcement by the representatives

The enforcement of company law by the representatives of the company usually occurs in disputes between persons within a certain legal body of the company or between certain organs of the company, forcing each other to engage only in lawful conduct. Besides that, internal disputes can also occur between the company and a single member in order to expel it from the company, which usually requires a special kind of cause.

b) Enforcement by the members

However, the enforcement of company law by the members of the company is far more relevant. This enforcement usually collides with the general power and duty of the management to administer and to represent the company in a lawful way in which the members of the company are generally not involved. The extent of the power to enforce company law by company members is usually governed differently for each type of company. While partners in a partnership or shareholders in a closed corporation can easily enforce lawful behaviour of the management, this possibility does not exist for shareholders in stock corporations. The most significant exception in this context is the legal enforcement of claims of the company by its members (actio pro socio or pro societate/derivative action). In these cases, an individual member of the company can represent the company in the legal enforcement of certain claims despite the administrative and representative authority of the (other) representatives of the company. Legal action by company members for claims of the company have to be strictly distinguished from legal action of company members regarding their own claims which do not interfere with the organizational structure of the company.

In addition, the right of a company member to challenge resolutions of the member meetings is one of the central mechanisms of enforcement. This mechanism guarantees that almost every violation of company law can be challenged by the members as long as their individual rights to vote or to participate in company affairs are harmed. While severe violations lead to the invalidity of the resolution, less severe violations only have legal effect when they are determined by court. Within this context the shareholders’ right to information is of special importance since the right of a company member to challenge resolutions of the member meetings is the central mechanism to sanction incomplete or incorrect information provided to the members.

c) Influence of European private law

(i) Harmonization of national company law. Despite the considerable amount of harmonization of national company laws in the common market, the issue of enforcement of company law has hardly been addressed.

Status quo of harmonization. The most comprehensive provision is found in the First Council Directive 68/151 although it concerns only public enforcement by public authorities being in charge for the registration of a company in public registers (see 2. (b)(i)). However, the subsequently abandoned proposal for a Fifth Company Law Council Directive (Company Structure Directive) contained several provisions concerning the enforcement of company law by individual rights of company members. Finally, Dir 2007/36 had a severe impact on the enforcement of company law by shareholders of publicly traded corporations. The directive focused especially on the information of shareholders before the general meeting by stating an obligation of the corporation to publish certain documents on the internet for shareholders (Arts 4 ff). Moreover, the directive harmonizes the rights of shareholders to gather information from the management during the general meeting and to exercise voting rights by using modern communication devices (Arts 8 ff). However, the directive does not focus on sanctions for the violation of these shareholder rights. Consequently the possibilities of shareholders enforcing these rights are not governed by the directive, but only by the national laws of the Member States.

Further developments. In its actual development, the harmonization process focuses more on the responsibility of the management and/or supervisory bodies of companies listed on the stock exchanges. In particular, Art 50c Annual Account Directive (Dir 78/660/EEC) and Art 7 Transparency Directive (Dir 2004/109/EC) state a responsibility for the preparation and publication of certain financial reports.

In contrast to antitrust law (White Paper of the European Commission on damages actions for breach of the EC antitrust rules, COM(2008) 165 final) and consumer protection law, company law so far is not addressed in the current discussion to increase the instruments of collective enforcement.

(ii) Supranational companies. The existing forms of supranational companies (company law) such as the European Economic Interest Grouping (EEIG), the European Company (SE —Societas Europaea), and the European Cooperative Society (SCE—Societas Cooperativa Europaea) contain only few (specific) provisions on the enforcement of company law. Consequently the national laws of the Member States have to be applied in this context (Art 2(1) Reg 2137/85; Art 9 Reg 2157/2001 on the European Company; Art 8 Reg 1435/2003 on the European Cooperative Society). Even the statute of the planned European Private Company (SPE —Societas Privata Europaea), following the idea of an exclusive application of supranational (European) law without reference to the national laws of the Member States, does not contain any provisions on the enforcement of company law by the management or the shareholders. So even for the European Private Company the national laws of the Member State will govern the enforcement.

(iii) European civil procedure and insolvency law. European civil procedure law addresses the issues of enforcement of corporate law in only a very minor way. The Brussels I Regulation (Reg 44/2001) (recognition and enforcement of foreign judgments) in particular contains only very few provisions on the different types of company law remedies. Only Art 22 no 2 Brussels I provides for an exclusive jurisdiction for the courts of the Member State in which the company, association, or legal person has its seat for proceedings regarding the validity of the constitution, the nullity or the dissolution of companies, associations or legal persons, or of the decisions of their organs. However, as early as in the course of determining the company’s or legal person’s seat, the court shall apply its own private international law. Besides these incomplete provisions on jurisdiction, European civil procedure law does not contain any further company law related provisions; only the general provisions of the national laws of the Members States have to be applied, which unfortunately do not guarantee a concentration of all company law related proceedings at the court at the seat of the company.

The same problem occurs in the context of European insolvency law (insolvency, cross-border). Regulation 1346/2000 on insolvency proceedings does not contain any specific provisions for the insolvency of companies or legal persons. As a consequence, the national laws of the Member States have to be applied. Only Art 3(1) of the Regulation states the presumption that the Centre of Main Interest (COMI) as basis for the determination of jurisdiction is located at the registered office of the association or legal person. In its Eurofood case (Case C-341/04 [2006] ECR I-3813) the European Court of Justice (ECJ) held that the COMI has to be determined by objective criteria. Consequently the COMI of subsidiaries in company groups cannot automatically be assumed at the seat of the respective parent company. 

(iv) Influence of the fundamental freedoms. The fundamental freedoms generally have no impact on the enforcement of company law. Only the freedom of establishment guarantees that limitations on general mobility in the laws of the Member States cannot be applied. This mobility, however, can lead to a lack of concentration of the jurisdiction for company law matters at the seat of the company (see 1. c)(i) above).

2. Public enforcement

Public enforcement of company law is provided by the administrative authorities responsible for public registers. Moreover, especially in capital market law (capital markets law), other administrative authorities can also be in charge of the enforcement of special company law issues. Finally, accountants and their regulations and respective enforcement also provide public enforcement of company law (auditor).

a) Control by the public registers

Regarding the control of the administrative authorities responsible for the public registers, one has to distinguish between the legal effects the public registration of company law matters could have. Whereas some registrations have no influence on the validity of the respective legal act, several company law matters require a registration in the public register. Besides this distinction the administrative authorities responsible for the public registers exercise only a very limited control, usually referring especially to formal violations of the respective requirements.

However, even in cases where registration does not have an impact on the validity of the respective legal act, enforcement of company law is indirectly achieved by the impact false or missing registrations could have on the company. Nevertheless, the most important instrument for public enforcement of company law is the requirement for certain legal acts to be registered before they can have any legal effect and the respective supervision by the administrative authorities.

b) Influence of European private law

(i) Harmonization of national company law. The public register is mainly addressed by the First Council Directive (Dir 68/151). The directive, however, only focuses on the effect registrations in the respective registers could have without determining to what extent administrative authorities will have to review these registrations. The other company law directives also only refer to the First Council Directive concerning the public registration of certain aspects without stating the applicable level of review of the administrative authorities.

(ii) Supranational companies. Similarly, the regulations of the supranational companies refer only to a general review of several kinds of registration by administrative authorities without determining the exact level of review (regarding the European Company, see Art 8(8) and (9), 15 ff Reg 2157/2001 on the SE (European Company (Societas Europaea)); regarding the European Economic Interest Grouping (EEIG), see Art 14(2) Reg 2137/85 on the EEIG; regarding the European Cooperative (Societas Cooperativa Europaea), see Arts 7(8), 11(2), 17 ff Reg 1435/ 2003 on the SCE). The same applies to the statute of the planned European Private Company (Societas Privata Europaea) according to its Arts 10(4) lit a, 37.

(iii) European civil procedure law. The procedure for the registration of company law matters at public registers is not governed by Brussels I. Consequently these aspects are only addressed by the national laws of the Member States.

Finally, there is one particular characteristic in the context of preliminary rulings under Art 201 TFEU/234 EC. According to the ECJ, courts administering public registers do not constitute courts within the meaning of Art 201 TFEU/ 234 EC, but only administrative authorities. As a consequence these courts cannot refer to the ECJ concerning preliminary rulings (ECJ Case C-86/00 – HSB-Wohnbau GmbH [2001] ECR I-5353, 5360; ECJ Case C-447/00 – Holto Ltd [2002] ECR I-735, 744). This restriction constitutes a severe obstacle to the effective enforcement of European company law as a significant number of questions regarding the interpretation and application of harmonized European law are often addressed in registration procedures.

Literature

For a comparative overview see the contributions on the ECFR Symposium ‘Shareholder Suits’ Vienna, 10 October 2008, reprinted in ECFR 2009, 161–357; in addition see Wolfgang Fikentscher and Bernhard Großfeld, ‘The Proposed Directive on Company Law’ (1964) 2 CMLR 259; James Cox, ‘Searching for the Corporation’s Voice in Derivative Suit Litigation: A Critique of Zapata and the ALI Project’ (1982) Duke Law Journal 959; John C Coffee, ‘Understanding the Plaintiff’s Attorney: The implication of Private Enforcement of Law through Class and Derivative Actions’ (1986) 86 Columbia LR 669; Roberta Romano, ‘The Shareholder Suit: Litigation without Foundation?’ (1991) 7 J L Econ & Org 55; John C Coffee Jr, ‘New Myths and Old Realities: The American Law Institute Faces the Derivative Action’ (1993) 48 Business Lawyer 1407; Ralph C Ferrara, Kevin T Abikoff and Laura Leedy Gansler, Shareholder Derivative Litigation. Besieging the Board (1995).

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