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Company Law and Corporate Governance in the Enlarged Europe Prof. dr. sc. Hana Horak.

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Presentation on theme: "Company Law and Corporate Governance in the Enlarged Europe Prof. dr. sc. Hana Horak."— Presentation transcript:

1 Company Law and Corporate Governance in the Enlarged Europe Prof. dr. sc. Hana Horak

2 I. Legal history, foreign inspirations and recent development in Croatian company law Croatian legislation took over German company law in its entirety Croatian legislation took over German company law in its entirety

3 There are only a few contents that were changed: not accepting limited partnership as a stock company not accepting limited partnership as a stock company permitting one founder, that is, member of a joint stock company permitting one founder, that is, member of a joint stock company the establishment of each type of company requires different minimum capital the establishment of each type of company requires different minimum capital optional participation of union representatives in the management optional participation of union representatives in the management

4 Legislative framework

5 The Croatian Companies Act entered into force in 1995, and was amended on several occasions The Croatian Companies Act entered into force in 1995, and was amended on several occasions The most recent amendments were introduced in 2010 & 2011 The most recent amendments were introduced in 2010 & 2011

6 The most important accompanying legislation in the field of company law are the following: The Court Register Act (1995, amendments in 1996, 1999, 2003, 2005, 2007, 2010, 2011) The Court Register Act (1995, amendments in 1996, 1999, 2003, 2005, 2007, 2010, 2011) Bankruptcy Act (1996, amendments in 1999, 2000, 2003, 2004, 2006, 2010, 2012) Bankruptcy Act (1996, amendments in 1999, 2000, 2003, 2004, 2006, 2010, 2012) Capital Market Act (2008, 2009) Capital Market Act (2008, 2009) The Act on the Takeover of Joint-Stock Companies (2007, 2009) The Act on the Takeover of Joint-Stock Companies (2007, 2009) Insurance Act (2005, 2008, 2009) Insurance Act (2005, 2008, 2009) Investment Funds Act (2005) Investment Funds Act (2005)

7 The most important accompanying legislation in the field of company law are the following: Crafts Act (1993, amended in 1995, 1996, 2001, 2003, 2007) Crafts Act (1993, amended in 1995, 1996, 2001, 2003, 2007) Associations Act (2001, amended in 2002) Associations Act (2001, amended in 2002) Cooperatives Act (1995, amended in 2001, 2002, 2011) Cooperatives Act (1995, amended in 2001, 2002, 2011) Institutions Act (1993, amended in 1997, 1999, 2008) Institutions Act (1993, amended in 1997, 1999, 2008) The Competition Protection Act (2003, amended in 2009) The Competition Protection Act (2003, amended in 2009) Banking Act (2002, amended in 2006) Banking Act (2002, amended in 2006) Audit Act (2005, amended in 2008) Audit Act (2005, amended in 2008)

8 Alignment of the national law with the EC- Directives The screening of the company law with EU legislation started in 2006 The screening of the company law with EU legislation started in 2006 It presupposes the analysis of EU directives relating to company law It presupposes the analysis of EU directives relating to company law

9 EU common law secondary sources

10 The First Directive on company law includes: safeguards prescribing the conditions for obligatory disclosure of information, safeguards prescribing the conditions for obligatory disclosure of information, limiting the reasons for the nullity of obligations entered into by companies and limiting the reasons for nullity of joint stock companies and limited liability companies limiting the reasons for the nullity of obligations entered into by companies and limiting the reasons for nullity of joint stock companies and limited liability companies

11 The Second Directive concerning company law specifies rights about the formation of public limited liability companies and maintenance and alteration of their capital The Second Directive concerning company law specifies rights about the formation of public limited liability companies and maintenance and alteration of their capital

12 The Third and Sixth Directives concerning company law harmonise national rules for the protection of stockholders and trustees in the context of domestic mergers and divisions of public limited liability companies The Third and Sixth Directives concerning company law harmonise national rules for the protection of stockholders and trustees in the context of domestic mergers and divisions of public limited liability companies

13 The acquis communautaire provides for certain European legal formations regulation, in particular the European Economic Interest Grouping (EEIG) and the European Company (Societas Europaea or SE) but Member States may regulate in their national legislation some aspects of their internal organisation and business operations The acquis communautaire provides for certain European legal formations regulation, in particular the European Economic Interest Grouping (EEIG) and the European Company (Societas Europaea or SE) but Member States may regulate in their national legislation some aspects of their internal organisation and business operations

14 Regulatory framework includes rules for the evaluation and appearance of balance sheets and profit and loss accounts for annual (Fourth Directive concerning company law) and consolidated (Seventh Directive concerning company law) financial statements of joint stock and limited liability companies Regulatory framework includes rules for the evaluation and appearance of balance sheets and profit and loss accounts for annual (Fourth Directive concerning company law) and consolidated (Seventh Directive concerning company law) financial statements of joint stock and limited liability companies

15 Croatia stated in its report that it is prepared to take over the acquis communautaire relating to company law and that no difficulties are expected in the implementation of the acquis communautaire until the accession to the European Union Croatia stated in its report that it is prepared to take over the acquis communautaire relating to company law and that no difficulties are expected in the implementation of the acquis communautaire until the accession to the European Union

16 The system of Croatian company law I. Structure of company law and its legal environment

17 Who is a merchant? 1. A merchant is a legal or natural person. 2. A merchant must perform an economic activity independently, in his name and for his account. 3. A merchant must perform an activity continuously. 4. A merchant must be engaged in an economic activity. 5. This activity must be carried out with the aim of making profit. 6. The economic activity and the making of profit may result from production, trade in goods or provision of services on the market

18 General partnership

19 a company into which two or more persons are joined with the aim of continuous performance of activities under a common firm name a company into which two or more persons are joined with the aim of continuous performance of activities under a common firm name each member of the company has unlimited and joint liability to creditors of the company with all his assets each member of the company has unlimited and joint liability to creditors of the company with all his assets any natural or legal person may be a member of the company any natural or legal person may be a member of the company

20 The main characteristics of the general partnership are the following: it must have at least two members it must have at least two members members of the company may be natural and legal persons members of the company may be natural and legal persons the company’s activity must be permanent the company’s activity must be permanent the activity must be carried out under the joint firm name the activity must be carried out under the joint firm name it is based on a contract it is based on a contract all members of the company share unlimited liability for the company’s debits, jointly with all their assets all members of the company share unlimited liability for the company’s debits, jointly with all their assets

21 the application for entry into the court register is accompanied by the contract on the establishment of the company – the company agreement the application for entry into the court register is accompanied by the contract on the establishment of the company – the company agreement members regulated their relations on the basis of their own will and such application of the Companies Act confirms the principle of OPTIONALITY members regulated their relations on the basis of their own will and such application of the Companies Act confirms the principle of OPTIONALITY

22 The Companies Act contents: 1. name, surname and personal identification number of a citizen and residence, that is, firm name and seat of each member of the company who was the founder of the company at the moment of its establishment 2. firm name 3. company seat 4. subject of business activities 5. contribution that members of the company are obliged to make in order to achieve the company’s goal

23 A company member who does not pay his contribution in due time or does not deliver the money received for the company to the company in a timely manner, or unjustifiably takes money belonging to the company or is in delay with making other contributions, shall pay the statutory default interest to the company A company member who does not pay his contribution in due time or does not deliver the money received for the company to the company in a timely manner, or unjustifiably takes money belonging to the company or is in delay with making other contributions, shall pay the statutory default interest to the company Every member of the company has the right and the obligation to manage company business Every member of the company has the right and the obligation to manage company business

24 Each company member is entitled to be informed about the company business Each company member is entitled to be informed about the company business The profit and loss account is prepared at the end of each financial year The profit and loss account is prepared at the end of each financial year One-third of profits made in the current year shall be divided among company members in such a way that each member receives the part corresponding to his share in the company capital (CAPITAL PRINCIPLE ) One-third of profits made in the current year shall be divided among company members in such a way that each member receives the part corresponding to his share in the company capital (CAPITAL PRINCIPLE ) Two parts of profits is divided in equal parts among members of the company regardless of their share in the company (PERSONAL PRINCIPLE ) Two parts of profits is divided in equal parts among members of the company regardless of their share in the company (PERSONAL PRINCIPLE )

25 Reasons for the dissolution of the company: expiry of the time for which it has been established expiry of the time for which it has been established decision of company members decision of company members bankruptcy of the company bankruptcy of the company final court decision establishing that the entry of the company in the commercial register was unlawful final court decision establishing that the entry of the company in the commercial register was unlawful death or dissolution of a company member, unless otherwise provided for in the company agreement death or dissolution of a company member, unless otherwise provided for in the company agreement

26 Reasons for the dissolution of the company: initiation of bankruptcy proceedings over one of the company members initiation of bankruptcy proceedings over one of the company members rescission of one of the company members, or of his creditor rescission of one of the company members, or of his creditor final court decision final court decision

27 Liquidation is initiated upon the occurrence of a reason to dissolve the company unless the company members have agreed upon a different manner of settling accounts and division or unless a bankruptcy procedure is instituted is initiated upon the occurrence of a reason to dissolve the company unless the company members have agreed upon a different manner of settling accounts and division or unless a bankruptcy procedure is instituted it shall be carried out by all members of the company as liquidators it shall be carried out by all members of the company as liquidators

28 Limited partnership

29 a company in which two or more persons are joined with the aim to permanently conduct activities under the common firm name a company in which two or more persons are joined with the aim to permanently conduct activities under the common firm name it is formed by an COMPANY AGREEMENT it is formed by an COMPANY AGREEMENT

30 Characteristics of a limited partnership: the company is a person, a legal person and a merchant the company is a person, a legal person and a merchant at least two persons are joined at least two persons are joined members have different liability for the company’s obligations members have different liability for the company’s obligations the objective of the company is to permanently perform activities under the common firm name the objective of the company is to permanently perform activities under the common firm name the basis of association is the agreement the basis of association is the agreement the company is a person the company is a person

31 it has two kinds of members whose position differs in proportion to their responsibility it has two kinds of members whose position differs in proportion to their responsibility GENERAL PARTNER (at least one) GENERAL PARTNER (at least one) LIMITED PARTNER LIMITED PARTNER

32 Limited partners responsability: a limited partner is not authorised to manage the company but has the right of supervision over the company business a limited partner is not authorised to manage the company but has the right of supervision over the company business a limited partner may not oppose decisions or actions of general partners, except for decisions or actions which go beyond the scope of the ordinary scope of business activities of the company a limited partner may not oppose decisions or actions of general partners, except for decisions or actions which go beyond the scope of the ordinary scope of business activities of the company a limited partnership is represented exclusively by general partners (a limited partner is not authorised to represent the company ) a limited partnership is represented exclusively by general partners (a limited partner is not authorised to represent the company )

33 Limited partners responsability: profit is paid out to a limited partner if he has paid his capital contribution in full profit is paid out to a limited partner if he has paid his capital contribution in full limited partner shall participate in the compensation of loss incurred by company’s business, but only up to the amount of his share in the company’s capital limited partner shall participate in the compensation of loss incurred by company’s business, but only up to the amount of his share in the company’s capital

34 Economic interest grouping

35 a legal person established by two or more natural or legal persons with the aim of facilitating and promoting the economic activities which form the objects of their business activities, and to improve or increase their effect, but in such a way that legal person does not acquire profit for itself a legal person established by two or more natural or legal persons with the aim of facilitating and promoting the economic activities which form the objects of their business activities, and to improve or increase their effect, but in such a way that legal person does not acquire profit for itself the grouping is not established for the purpose of acquisition of profit the grouping is not established for the purpose of acquisition of profit

36 Important characteristics of economic interest groupings: a) at least two persons are joined b) its goal is strictly prescribed by the Act and is different from all other companies c) the basis is the agreement d) it is a legal person and a company e) members are liable for the groupings' obligations

37 The grouping shall have this bodies: members acting jointly members acting jointly management board of the grouping management board of the grouping other bodies that must be provided for in the contract on the establishment of the grouping other bodies that must be provided for in the contract on the establishment of the grouping

38 the management board is the obligatory body of the grouping consisting of one or more members the management board is the obligatory body of the grouping consisting of one or more members members of the management board do not have to be the members of the grouping members of the management board do not have to be the members of the grouping management board shall perform the MANAGEMENT AND REPRESENTATION tasks management board shall perform the MANAGEMENT AND REPRESENTATION tasks

39 In all cases of dissolution of the grouping, except in case of bankruptcy, liquidation must be carried out In all cases of dissolution of the grouping, except in case of bankruptcy, liquidation must be carried out

40 Joint Stock Company

41 Joint stock companies are regulated in Title IV of the Companies Act which has 225 Articles out of which almost all are very detailed and regulate separate issue under their own headings. Joint stock companies are regulated in Title IV of the Companies Act which has 225 Articles out of which almost all are very detailed and regulate separate issue under their own headings. The provisions about joint stock companies make up one third of the total Act The provisions about joint stock companies make up one third of the total Act

42 Establishment of a company: SIMULTANEOUS ESTABLISHMENT SIMULTANEOUS ESTABLISHMENT SUCCESSIVE ESTABLISHMENT SUCCESSIVE ESTABLISHMENT

43 Share capital the smallest initial amount of company’s capital defined in the Articles of Association the smallest initial amount of company’s capital defined in the Articles of Association a sum of nominal amounts of shares a sum of nominal amounts of shares The share capital is divided into shares and it must be made out to nominal amounts expressed in HRK. -The lowest amount of share capital of a joint stock company is HRK ,00

44 The meaning of the concept of a share is threefold: PART OF THE SHARE CAPITAL OF THE COMPANY PART OF THE SHARE CAPITAL OF THE COMPANY COLLECTION OF MEMBERSHIP RIGHTS AND OBLIGATIONS BELONGNIG TO A SHARE’S OWNER COLLECTION OF MEMBERSHIP RIGHTS AND OBLIGATIONS BELONGNIG TO A SHARE’S OWNER SECURITIES SECURITIES

45 Bearer shares or registered shares bearer shares do not specify the name of their owner and they are transferred on the basis of transfer of ownership (tradition). bearer shares do not specify the name of their owner and they are transferred on the basis of transfer of ownership (tradition). registered shares specify the name of the shareholder. They are transferred by endorsement or in the manner prescribed by the law regulating non-materialised securities (cession). registered shares specify the name of the shareholder. They are transferred by endorsement or in the manner prescribed by the law regulating non-materialised securities (cession).

46 Three classes of shares: ordinary ordinary preferred* preferred* non-voting shares non-voting shares Each share gives the right to vote at the general meeting of the company. *only preferred shares may be issued without the right to vote

47 Limited liability company

48 a company into which one or several legal or natural persons have invested their capital contributions, participating in the share capital which was agreed upon earlier so that the members are not liable for the company's obligations a company into which one or several legal or natural persons have invested their capital contributions, participating in the share capital which was agreed upon earlier so that the members are not liable for the company's obligations

49 A limited liability company a company a company a legal person a legal person a company of capital a company of capital a commercial company a commercial company members are not held liable for company's obligations members are not held liable for company's obligations has share capital has share capital

50 A limited liability company may be established only simultaneously. A limited liability company may be established only simultaneously.

51 members of the company are not called shareholders but members of the company members of the company are not called shareholders but members of the company the lowest prescribed share capital of the limited liability company is HRK ,00 the lowest prescribed share capital of the limited liability company is HRK ,00 the minimum amount of a capital contribution is HRK the minimum amount of a capital contribution is HRK

52 the share capital is divided into contributions that may be expressed in securities the share capital is divided into contributions that may be expressed in securities the company agreement is the basic founding document of the company, and not the articles of association as is the case in the joint stock company the company agreement is the basic founding document of the company, and not the articles of association as is the case in the joint stock company

53 The obligatory bodies: the management board (at least one member ) the management board (at least one member ) the general meeting the general meeting the Supervisory Board is an optional body of a limited liability company the Supervisory Board is an optional body of a limited liability company

54 Commercial register

55 a public book containing data and information about entry subjects that must be entered into the register pursuant to the law (Article 2 of the Court Register Act) a public book containing data and information about entry subjects that must be entered into the register pursuant to the law (Article 2 of the Court Register Act)

56 Subjects in the court register: unlimited partnership unlimited partnership limited partnership limited partnership economic interest grouping economic interest grouping joint stock company joint stock company limited liability company limited liability company sole trader sole trader institution institution association of istitutions association of istitutions other persons as prescribed by the law (Article 6 of the Court Register Act) other persons as prescribed by the law (Article 6 of the Court Register Act)

57 Enforcement law

58 a branch of law regulating enforcement proceedings and securing proceedings a branch of law regulating enforcement proceedings and securing proceedings

59 Bankrupcy law

60 is regulated by the provisions of the Bankruptcy Act (OG Nos. 44/96., 29/99., 129/00., 123/03. and 82/06., 116/10., 25/12.) is regulated by the provisions of the Bankruptcy Act (OG Nos. 44/96., 29/99., 129/00., 123/03. and 82/06., 116/10., 25/12.) Bankrupcy Act regulates: Bankrupcy Act regulates: -the conditions for the initiation of bankruptcy proceedings -bankruptcy proceedings -legal consequences of its initiation and implementation -the bankruptcy plan

61 Reasons for bankruptcy : insolvency insolvency overdebtedness overdebtedness

62 Securities Market Act

63 The Securities Market Act regulates: the procedure for the issuance of securities the procedure for the issuance of securities transactions with securities and persons authorised to conduct business with securities transactions with securities and persons authorised to conduct business with securities conditions for organised public trading in securities conditions for organised public trading in securities protection of investors and holders of rights from securities protection of investors and holders of rights from securities non-materialised securities non-materialised securities the organisation and powers of the Central Depository Agency the organisation and powers of the Central Depository Agency the stock exchange and regulated public markets the stock exchange and regulated public markets

64 transactions with securities may be performed in Croatia only by authorised companies: transactions with securities may be performed in Croatia only by authorised companies: a brokerage firm a brokerage firm a bank licensed by the Agency and entered into the court register a bank licensed by the Agency and entered into the court register

65 Role of the courts

66 In the Republic of Croatia the government is divided into three branches of power: In the Republic of Croatia the government is divided into three branches of power: legislative legislative executive executive judicial ( independent and autonomous ) judicial ( independent and autonomous )

67 Judicial power in the Republic of Croatia is exercised by: misdemeanour courts misdemeanour courts municipal courts municipal courts county courts county courts commercial courts commercial courts High Misdemeanour Court of the Republic of Croatia High Misdemeanour Court of the Republic of Croatia High Commercial Court of the Republic of Croatia High Commercial Court of the Republic of Croatia Administrative Court of the Republic of Croatia Administrative Court of the Republic of Croatia the Supreme Court of the Republic of Croatia the Supreme Court of the Republic of Croatia

68 III. Company formation and creditor protection

69 Joint stock company

70 Acquisition of shares the decision on the issuance of shares is made by the General Meeting or the founders of the company in accordance with the statute the decision on the issuance of shares is made by the General Meeting or the founders of the company in accordance with the statute The company’s own shares are shares held by the company and the rights of which are not in effect The company’s own shares are shares held by the company and the rights of which are not in effect

71 The company may acquire its own shares only in the following cases: The company may acquire its own shares only in the following cases: if such acquisition is necessary to avoid immediate and serious damage threatening the company; if such acquisition is necessary to avoid immediate and serious damage threatening the company; - if shares are to be offered in order to provide them to company employees or to employees of companies affiliated with the company; - if shares are to be offered in order to provide them to company employees or to employees of companies affiliated with the company; - if shares are acquired with the aim of compensating the severance shareholders in accordance with the provisions of this Act; - if shares are acquired with the aim of compensating the severance shareholders in accordance with the provisions of this Act; - if the acquisition is made without consideration or if by the acquisition the financial institution purchases the shares on commission; - if the acquisition is made without consideration or if by the acquisition the financial institution purchases the shares on commission;

72 - on the grounds of universal legal succession; - on the grounds of universal legal succession; - pursuant to the decision of the general meeting to redeem the shares, in accordance with the rules on the reduction of the share capital of the company. - pursuant to the decision of the general meeting to redeem the shares, in accordance with the rules on the reduction of the share capital of the company. - on the basis of the authority of the General Assembly to acquire shares which is worth 18 months at the most and determines the lowest and the highest price that may be paid for those shares and the amount of share capital referring tho those shares in such a manner that it may not exceed the tenth portion of the mentioned capital - on the basis of the authority of the General Assembly to acquire shares which is worth 18 months at the most and determines the lowest and the highest price that may be paid for those shares and the amount of share capital referring tho those shares in such a manner that it may not exceed the tenth portion of the mentioned capital

73 Relations between shareholders and the company The rights of shareholders may be divided into: The rights of shareholders may be divided into: economic rights economic rights management rights management rights preferred rights preferred rights

74 Distribution of profits basic economic right of shareholders is the right to participate in the distribution of profits basic economic right of shareholders is the right to participate in the distribution of profits a dividend only in joint stock companies a dividend only in joint stock companies paid from net profits paid from net profits profits are shared in proportion to the par value of shares profits are shared in proportion to the par value of shares a different method of distribution of profits may be prescribed by the Articles of association a different method of distribution of profits may be prescribed by the Articles of association

75 Increase in share capital: a company may acquire funds necessary for investments and other purpose by taking an interest loan and obligation to return it or on the basis of systematic provisions of company law a company may acquire funds necessary for investments and other purpose by taking an interest loan and obligation to return it or on the basis of systematic provisions of company law – increase in capital - by issuing new shares

76 The advantages of such an increase in capital are the following: new shares or increase in their nominal value belong to shareholders on the basis of distribution in proportion to their share in the company, new shares or increase in their nominal value belong to shareholders on the basis of distribution in proportion to their share in the company, new shares are valid as paid in full new shares are valid as paid in full special financial statements are required for such an increase special financial statements are required for such an increase such increase in capital shall not affect the obligations of the company towards third persons and additional obligations of shareholders such increase in capital shall not affect the obligations of the company towards third persons and additional obligations of shareholders

77 Share capital reduction The reasons for capital reduction transactions are always of economic nature: The reasons for capital reduction transactions are always of economic nature: Capital surplus Capital surplus Significant loss Significant loss

78 Regular reduction of share capital - effective reducation Regular reduction of share capital - effective reducation Simplified reduction of base capital - a form of nominal reducation Simplified reduction of base capital - a form of nominal reducation Withdrawal (depreciation) of shares - one of the special legal techniques of regular, effective capital reduction Withdrawal (depreciation) of shares - one of the special legal techniques of regular, effective capital reduction

79 Legal and technical reduction may be carried out in the following manner: by reducing the nominal share amount; by reducing the nominal share amount; by consolidating the shares, which shall be allowed only if the minimum par value may not be lowered any further; by consolidating the shares, which shall be allowed only if the minimum par value may not be lowered any further; by withdrawal (depreciation) of shares by withdrawal (depreciation) of shares

80 The Act requires that the decision specifies the purpose of such capital reductions, which may be the following: The Act requires that the decision specifies the purpose of such capital reductions, which may be the following: to compensate for a decline in value, to compensate for a decline in value, to offset losses to offset losses or transfer assets to capital gains or transfer assets to capital gains

81 Dissolution of a company The Act regulates the reasons and procedures for the dissolution of a joint stock company. Other reasons for the dissolution of the company may be prescribed by the Articles of Association The Act regulates the reasons and procedures for the dissolution of a joint stock company. Other reasons for the dissolution of the company may be prescribed by the Articles of Association The company is dissolved after the completion of liquidation proceedings regulated by the law The company is dissolved after the completion of liquidation proceedings regulated by the law

82 There are different cases of dissolution: final decision of the court referred establishing that the entry of the company in the commercial register was illegal final decision of the court referred establishing that the entry of the company in the commercial register was illegal final court decision denying the initiation of bankruptcy proceedings due to a lack of bankruptcy assets to cover the costs of bankruptcy final court decision denying the initiation of bankruptcy proceedings due to a lack of bankruptcy assets to cover the costs of bankruptcy dissolution of the company as an exceptional case possible only when proposed by the Government of the Republic of Croatia, and when the court adopts a decision on the dissolution dissolution of the company as an exceptional case possible only when proposed by the Government of the Republic of Croatia, and when the court adopts a decision on the dissolution company without assets may be dissolved by deletion from the commercial register company without assets may be dissolved by deletion from the commercial register

83 Limited liability company

84 Relations between members and the company The rule is that funds corresponding to the amount of share capital defined by the company agreement must be contributed to the company The rule is that funds corresponding to the amount of share capital defined by the company agreement must be contributed to the company

85 The Companies Act regulates legal relations between the company and its members in two separate subsections: The Companies Act regulates legal relations between the company and its members in two separate subsections: - CAPITAL CONTRIBUTIONS - BUSINESS SHARES

86 Distribution of profits The main economic right of members is to request the payment of annual profit and of undistributed profit (minus losses) from the previous years for as long as the company exists The main economic right of members is to request the payment of annual profit and of undistributed profit (minus losses) from the previous years for as long as the company exists The basis for the distribution of profits, unless otherwise provided for in the company agreement, is the ratio between actual capital contributions of members The basis for the distribution of profits, unless otherwise provided for in the company agreement, is the ratio between actual capital contributions of members

87 Business shares Unless otherwise determined by the company agreement, the business share of a company member shall be determined in accordance with the amount of capital contribution that has been taken over Unless otherwise determined by the company agreement, the business share of a company member shall be determined in accordance with the amount of capital contribution that has been taken over

88 The Companies Act differentiates between the possibility of acquisition and pledge of company's own business shares for which the capital contribution has been fully paid and for which it hasn't: The Companies Act differentiates between the possibility of acquisition and pledge of company's own business shares for which the capital contribution has been fully paid and for which it hasn't:

89 1. The company shall not acquire or to take in pledge its own business shares for which the capital contribution amount has not been fully paid

90 2. The company may acquire its own business shares for which the capital contribution amounts have been fully paid, provided that the following conditions have been cumulatively fulfilled: - the capital contribution amounts have been fully paid - the price of the capital contribution is paid by the assets exceeding the share capital of the company - provided the company is able to set up the reserves for acquiring its business shares, pursuant to law, without reducing the company’s share capital or reserves it is obliged to maintain pursuant to the company agreement, and which may not be used for payments to company members.

91 3. A member of a limited liability company may have a type of legal relation with the company that is separate from its membership.

92 Increase in share capital There are two ways of increasing share capital: There are two ways of increasing share capital: EFFECTIVE AND EFFECTIVE AND NOMINAL NOMINAL

93 Share capital reduction when a company has too much capital and wishes to reduce it when a company has too much capital and wishes to reduce it when it has suffered losses which it could not recover within a reasonable period of time when it has suffered losses which it could not recover within a reasonable period of time when, instead of dealing with the nominal share capital which has been objectively reduced, the company decides to reduce the share capital to the actual value of the company's assets when, instead of dealing with the nominal share capital which has been objectively reduced, the company decides to reduce the share capital to the actual value of the company's assets

94 The reduction of share capital may be effectuated by: a) returning basic shares to company members; b) through the reduction of par value of those shares; c) through complete or partial exemption of company members or their legal predecessors from their commitment to full payment of their capital contributions

95 Dissolution of the company Reasons for dissolution of the company: the expiry of the time limit defined by the company agreement, the expiry of the time limit defined by the company agreement, the decision of the company members the decision of the company members merger of the company into another company or consolidation with another company merger of the company into another company or consolidation with another company a final court decision a final court decision completion of bankruptcy proceedings completion of bankruptcy proceedings register court decision adopted in relation to shortened register court decision adopted in relation to shortened

96 IV. The system of corporate governance

97 Organisational structure of the company according to the new legislation in this area, limited liability company is the only type of a company with three lawful management bodies: according to the new legislation in this area, limited liability company is the only type of a company with three lawful management bodies: the General Meeting the General Meeting the Management Board the Management Board the Supervisory Board the Supervisory Board

98 Management Board the Management Board is the main body of the limited liability company independent of the General Meeting and the Supervisory Committee the Management Board is the main body of the limited liability company independent of the General Meeting and the Supervisory Committee

99 the Management Board consists of one or more persons the Management Board consists of one or more persons the number of members is determined in the Articles of association, and if there is more than member of the Management Board, a Chairman must be appointed the number of members is determined in the Articles of association, and if there is more than member of the Management Board, a Chairman must be appointed the members of the Management Board and its Chairman are appointed by the Supervisory Board for a period of five years the members of the Management Board and its Chairman are appointed by the Supervisory Board for a period of five years

100 The members of the Management Board realise the right to a remuneration for their work on the basis of a contract concluded with the company. The remuneration may be calculated in two ways: in a fixed amount or in a fixed amount or by participating in a certain extent of profits, that is, in a share determined in a different manner (bonus) by participating in a certain extent of profits, that is, in a share determined in a different manner (bonus)

101 The members of the Management Board may be cleared of their liability if it is proved that: they acted with the care of a prudent businessman, they acted with the care of a prudent businessman, on the basis of the General Meetings' decision on the basis of the General Meetings' decision

102 Supervisory Board

103 the main function of this body is to ensure expert and objective supervision over the overall effectiveness of the Management Board the main function of this body is to ensure expert and objective supervision over the overall effectiveness of the Management Board the supervisory authority in the Croatian law are confidential the supervisory authority in the Croatian law are confidential members of the supervisory board shall be elected by the general meeting of the company members of the supervisory board shall be elected by the general meeting of the company

104 Scope of work of the supervisory board and its responsibilities Supervision work Supervision work Representation function Representation function

105 The composition of the supervisory board must reflect two of its basic functions: a supervisor body for which majority shareholders are primarily interested a supervisor body for which majority shareholders are primarily interested an expert body capable of effective supervision and influence on the successful business operations, growth of the company and increase in profits an expert body capable of effective supervision and influence on the successful business operations, growth of the company and increase in profits

106 Without the consent of the supervisory board, a member of the management board shall not: either for his account or for the account of third persons, carry out activities from the object of activity of the company either for his account or for the account of third persons, carry out activities from the object of activity of the company act as a member of the management or supervisory boards in another company engaged in business similar to that of the company act as a member of the management or supervisory boards in another company engaged in business similar to that of the company use company premises to perform activities for his own or for another person's account use company premises to perform activities for his own or for another person's account be a personally liable member of another company if the company carries out activities from the object of activity of the company in question be a personally liable member of another company if the company carries out activities from the object of activity of the company in question

107 General Meeting

108 a company body in which shareholders realise their rights and in which the will of all shareholders is shaped and expressed a company body in which shareholders realise their rights and in which the will of all shareholders is shaped and expressed

109 Decision-making and business operations: conclusion and amendments of business contracts, conclusion and amendments of business contracts, joining of a company, joining of a company, merger of the company merger of the company transfer of assets transfer of assets transformation of the company transformation of the company

110 General meeting: Shareholder democracy and decision making in principle, every shareholder may participate at the general assembly and in the decision-making process, unless he is the holder of shares that exclude this right in principle, every shareholder may participate at the general assembly and in the decision-making process, unless he is the holder of shares that exclude this right shareholders must be informed about the business operations of the company as a precondition for voting and decision-making before the general assembly shareholders must be informed about the business operations of the company as a precondition for voting and decision-making before the general assembly

111 The right to information is protected: by the law in cases when the provision of information may be denied (taxes, information harmful for the company, business secrets, etc) by the law in cases when the provision of information may be denied (taxes, information harmful for the company, business secrets, etc) by court protection of the right to information by court protection of the right to information

112 There are two possible majorities for the adoption of valid decisions: simple majority simple majority ¾ of represented shareholders – a qualified majority ¾ of represented shareholders – a qualified majority a greater majority than a ¾ majority a greater majority than a ¾ majority

113 Best practices in public companies basic rules concerning the management, supervision and competence over companies are contained in different regulations, for the most part in the Companies Act and in other acts and regulations regulating the capital market. basic rules concerning the management, supervision and competence over companies are contained in different regulations, for the most part in the Companies Act and in other acts and regulations regulating the capital market.

114 for the purpose of development of best practice in corporate management in the republic of Croatia, the Croatian Agency for the Supervision of Financial Services and the Zagreb Stock Exchange have prepared a Code of Corporative Management for the purpose of development of best practice in corporate management in the republic of Croatia, the Croatian Agency for the Supervision of Financial Services and the Zagreb Stock Exchange have prepared a Code of Corporative Management

115 The basic principles of the Code are: transparency of business operations transparency of business operations clearly defined procedures in the work of the Supervisory Board, Management Board and other bodies and structures responsible for taking important decisions clearly defined procedures in the work of the Supervisory Board, Management Board and other bodies and structures responsible for taking important decisions avoidance of the conflict of interest avoidance of the conflict of interest efficient internal control efficient internal control efficient division of responsibilities efficient division of responsibilities


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