Company Law Piia Kapulainen / Matti Rudanko

Esitys aiheesta: "Company Law Piia Kapulainen / Matti Rudanko"— Esityksen transkriptio:

1 Company Law Piia Kapulainen / Matti Rudanko
LEB Slide Set 7 Company Law Piia Kapulainen / Matti Rudanko Osakeyhtiölaki Regulates: Institutional framework of the company Relatioship between parties, liabilities between the parties, position of the shareholders, protection The nature of the company Approacher the area of acoounting and finance, a gate to acoounting and finance Indirect/direct effects to the decision making General principles: interpreting the law, the law mainly is details and and applications of general princilples

2 Company Forms Differences between the company forms:
Liability for debts of the company (LLC – Partnerships, Sole proprietor): owner personally liable for the debts of business? LLC: No (in small LLCs shareholder’s personal assets are often used as a warranty). Partnerships, Sole proprietor: Owner personally liable for the commitments of business. Limited partnerships: general partners personally liable, limited (silent) partners not Agency (LLC: Board, Managing director; Partnerships, Sole proprietor: partners, proprietor) Taxation Amount of capital Differences between the company forms: - Limited liability company (LLC) – Partnership - Limited partnership - Sole proprietor Osakkeenomistajalle ei voida yhtiöjärjestyksen määräyksinkään asettaa maksuvelvollisuutta osakeyhtiön velkojia kohtaan. Osakkeenomistaja saattaa yhtiöjärjestyksen määräyksen nojalla olla maksuvelvollinen osakeyhtiötä kohtaan. Tällainen määräys sisältyy yleensä vain muuta kuin elinkeinotoimintaa harjoittavaan osakeyhtiön yhtiöjärjestykseen, kuten esimerkiksi silloin, kun on kyseessä keskinäinen kiinteistöosakeyhtiö. Yhtiöjärjestyksen mukaan ei voida asettaa osakasta maksuvelvolliseksi. Mutta voidaan määrätä suorittamaan maksuja LEB Slide Set 7

3 Amount of Company Forms
Limited liability company Sole proprietor Limited partnership Partnership Source: National board of patents and registration of Finland LEB Slide Set 7

4 Limited Liability Companies Act
Institutional framework of the company: Stakeholders and legal organs (board, managing director, shareholders, creditors), their mutual relationships -> principal – agent – relationships Structure and general contents of LLCA: Organization and administration of the company Structures for decision making (which organ decides on what, majority voting rules, limits of the content of the decision) Liabilities of the organs Capital structure of the company Shares and share (equity) capital, increase and reduction of share capital Finance: issues of shares, option rights, capital loan Dividends and distribution of assets Protection of creditors Rules of profit sdistribution: how much, who decides, when,what assets can be used LEB Slide Set 7

5 Majority-minority owners
Focus of Company Law SHAREHOLDERS Majority-minority owners MANAGEMENT (Supervisory Board) Board of directors (Managing director) (AUDITOR) CREDITORS Minority protection: minority divident, majority amount rules, lunastaminen Mitä tämä muistuttaa: tietävätkö mitä on corporate governance? OYL: legal structures of corporate governance LEB Slide Set 7

6 General principles of Limited Liability Companies Act
Private – Public Companies: Main differences: The securities of a private company shall not be admitted to public trading amount of capital (2.500 € / €) The purpose of a company is to generate profits for the shareholders, unless otherwise provided in the Articles of Association (LLCA 1:5) The management of the company shall act with due care and promote the interests of the company. A limited liability company shall be a legal person distinct from its shareholders established through registration -> Limited Liability 1. Private public ero: minimun capital 2500, the shares can be Velkojien suojaksi: yksi tapa suojata velkoja. Muita tapoja: saavat maksut ennen voitonjakoa, voittoa saa jakaa vain rajoitetusti, tietyissä toimenpiteissä kysyttävä velkojien lupaa. Tämä vähimmäispääoma suojaa velkojia siten, että katsotaan että täytyy olla tietyn verran varoja. The purpose = periaatteessa tuottaa omistajille voittoa, mutta tavalla että Interest of the company täyttyy Capital: capital is gained by collecting the payments Suomi+Ruotsi: yhteinen laki julkisille ja yksityisille, Tanskassa erillislaki Julkisia koskee tiedonantovelvollisuudet JULKINEN: Sillä pitää olla toimitusjohtaja ja ainakin 3 hallituksen jäsentä. On myös julkisia osakeyhtiöitä, jotka eivät ole pörssissä kaupankäynnin kohteena, ja on mahdollista, että julkisen osakeyhtiön osakkeista vain osa on pörssissä kaupankäynnin kohteena. 2. Mitä tämä tarkoittaa suhteessa esim. Reaalitoimintaan? Debated! A situation modelled by principal-agent- theory Päämies-agentti: = päämies ja agentti solmivat sopimuksen tietyn tehtävän suorittamisesta, agentti valitsee miten tavoitteeseen pääsee Tehtävä: Johto johtaa yhtiötä, tavoitteena varallisuuden kasvattaminen Omistajilla riski sijoituksen menetyksestä Johdolla kontrolli, muttei residuaaliriskiä -> omistajalla riski johdon tekemisistä Siksi täytyy antaa omistajien valita johto, lojaliteettivelvoite + palkkaus The interests…. = the law demands the management to act according to the purpose Johto= hallitus + tj The shareholders shall have no personal liability for the obligations of the company. LEB Slide Set 7

7 General principles of Limited Liability Companies Act 2
A share may be transferred and acquired without restrictions, unless otherwise provided in the Articles of Association. The shareholders exercise their power of decision at the General Meeting. Decisions shall be made by the majority of the votes cast, unless otherwise provided in this Act or in the Articles of Association. All shares shall carry the same rights in the company, unless it is otherwise provided in the Articles of Association. Suostumuslauseke= CONSENT CLAUSE = Osakkeen hankkimiseen (trade, gift) vaaditaan yhtiön suostumus Lunastuslauseke = REDEMPTION CLAUSE = Jollain taholla oikeus lunastaa uudelle omistajalle siirtynyt osake Mitä päätöksiä osakkeenomistajat tekevät: Articles of association- changes Assigning board, auditors The company decides to acquire its own shares, issue new shares Unless it is otherwise provided in this Act or the Articles of Association, the following decisions shall be made by qualified majority: (1) the amendment of the Articles of Association; (2) a directed share issue; (3) the issue of option rights and other special rights entitling to shares; (4) the acquisition and redemption of own shares in a public company; (5) the directed acquisition of own shares; (6) a merger; (7) a demerger; and (8) going into liquidation and the termination of liquidation. Some shares carry better voting rights/ Voting right can be used in named matters LEB Slide Set 7

8 General Meeting Decision making:
Rights of a shareholder in a company: Right to attend, speak and vote in the general meeting Right to dividend: general meeting decides; 1/10 minority dividend LLCA 13:7 Residual position Ordinary general meeting: use of profit, discharge of liability, adoption of financial statements Extrordinary general meeting: if the Board of Directors, an auditor or shareholders with a total of (1/10) of all shares considers it necessary Decision making: Majority principle: A proposal that has been supported by more than half the votes Qualified majority:at least two thirds of the votes cast and the shares represented at the meeting (on matters listed in LLCA 5:27) Only matters that are mentioned in the notice of the General Meeting The shareholders shall exercise their power of decision at the General Meeting. Use of profit = tilikauden voitto Jos äänet menee tasan, puheenjohtaja saa päättää Enemmistöpäätös, määräenemmistöpäätös Ylimääräinen yhtiökokous on pidettävä, jos tilintarkastaja tai osakkeenomistajat, joilla on yhteensä kymmenesosa tai yhtiöjärjestyksessä määrätty pienempi osa kaikista osakkeista, vaativat sitä kirjallisesti tietyn asian käsittelemistä varten. It may be provided in the Articles of Association that the General Meeting decides matters that fall within the general competence of the Managing Director and the Board of Directors. Unless it is otherwise provided in this Act or the Articles of Association, the following decisions shall be made by qualified majority: (1) the amendment of the Articles of Association; (2) a directed share issue; (3) the issue of option rights and other special rights entitling to shares; (4) the acquisition and redemption of own shares in a public company; (5) the directed acquisition of own shares; (6) a merger; (7) a demerger; and (8) going into liquidation and the termination of liquidation. Tietyissä tilanteissa kaikkien suostumus (lunastus/suostumuslauseke) Pöytäkirja LEB Slide Set 7

9 Board of Directors Tasks: 1-5 members
Take care of the administration of the company and the appropriate organisation of its operations. responsible for the appropriate arrangement of the control of the company accounts and finances. Instructions to general manager 1-5 members Member can resign, Appointer may dismiss The opinion of the majority shall constitute the decision unless a qualified majority is required in the Articles of Association 1-5 members, jos useita, puhis, luonnollisia henkilöitä Yksittäistapauksissa TJ:n alan asiassa päätös, voi siirtää oman alansa päätöksen/TJ:n päätöksen YK:lle LEB Slide Set 7

10 Managing Director Tasks: Board of Directors appoints
Take care of the executive management of the company in accordance with the instructions and orders given by the Board of Directors. Take care that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner. Supply the Board of Directors with the information necessary for the performance of the duties of the Board of Directors. Unusual and extensive measures: only if 1. so authorised by the Board of Directors or 2. if it is not possible to wait for a decision of the Board of Directors without causing essential harm to the business operations of the company. Tasks: Board of Directors appoints Right to resign, Board of Directors can dismiss Hallituksen ja TJ:n tehtävien jako yrityskohtaista -> hallitus määrittää Mähönen&Villa II, s. 166: Esim. TJ:n tehtävistä: Sopimusten solmiminen alihankkijoiden kanssa, työhönotto, EI kuitenkaan: organisaation muuttaminen, laauejtak9jej/supistaminen authorised by the Board of Directors or if it is not possible to wait for a decision of the Board of Directors without causing essential harm to the business operations of the company. LEB Slide Set 7

11 General meeting appoints
Supervisory Board Not necessary; provisions on the Supervisory Board must be included in the Articles of Association. Supervisory Board supervises the administration of the company, which is the responsibility of the Board of Directors and the Managing Director. Possible: provided in the Articles of Association that the Supervisory Board appoints the Board of Directors. At least 3 members General meeting appoints Esim. hallituksen ja tjn valvonta Toimitusjohtajan valinta kuuluu aina hallitukselle LEB Slide Set 7

12 Basics about Finance Forms of finance differ in four respects:
Equity, Debt capital, Mezzanine (e.g. capital loan, preferred stock) Forms of finance differ in four respects: Right to control Owners: yes – preferred stock, capital loan and other creditors: no Mandatory yield Equity and capital loan: No - debt capital: Yes Determination of yield Debt and capital loan: fixed - equity: variable Position in the order of payment in liquidation 1) creditors – 2) capital loan creditors – 3) owners LEB Slide Set 7

13 Distribution of the Assets of a Company to Shareholders - Basics
How much can be distributed? The distribution of assets shall be based on the latest adopted and audited financial statements (mainly balance sheet). The essential changes in the financial position of the company after the completion of the financial statements shall be taken into account in the distribution. The company may distribute its reserves of unrestricted equity, less the assets that are to be left undistributed under the Articles of Association. Assets shall not be distributed, if it is known or should be known at the time of the distribution decision that the company is insolvent or that the distribution will cause the insolvency of the company. LEB Slide Set 7

14 Distribution of the Assets of a Company to Shareholders - Basics 2
EQUITY AND LIABILITIES Equity Restricted equity: Share capital Fair value reserve (käyvän arvon rahasto) Revaluation reserves (arvonkorotusrahasto) Unrestricted equity: other reserves Reserve for invested unrestricted equity Other Reserves Profit from the current and the previous financial periods LEB Slide Set 7

15 Distribution of the Assets of a Company to Shareholders - Basics 3
Decision about profit distribution and its amount made by General meeting (1/2) on the suggestion of the board. (1) the distribution of profits (dividend) and the distribution of assets from reserves of unrestricted equity (2) the reduction of the share capital, (3) the acquisition and redemption of own shares (4) the dissolution and deregistration of the company LLCA defines the allowed methods of distributing assets to shareholders: Other transactions that reduce the assets of the company or increase its liabilities without a sound business reason shall constitute unlawful distribution of assets. LEB Slide Set 7

16 Limited Liability Companies and Financial Markets

17 Financial Markets and Limited Liability Companies
Money market (maturity time less than one year) Securities markets Equity (stock) market (shares) Bond market (debt instruments: transferable promissory notes issued in mass) Financial markets Share capital and other special requirements in Companies Act Special requirements in Securities Markets Act (SMA) for the company and the security issued by it By going public – becoming a public company (plc) – the company enters financial markets becoming an issuer LEB Slide Set 7

18 Financial Markets Macroeconomic view: blood circulation of national economy Requires efficiency ensured also by means of regulation Another regulatory objective: investor protection Purpose: (like that of other markets): transfer resources (funding) to where they are needed Primary markets: collecting capital to companies Secondary markets: profit through market value increase (cf. dividends) Investment markets Markets of corporate control For companies, markets are a means of getting capital – for investors a means of getting profit LEB Slide Set 7

19 Company Law (LLCA) and Securities Markets Law
A two-fold regulatory system: Company Law: principal – agent relationships Shareholders – management / majority – minority owners / creditors – shareholders etc. Account of different stakeholders Securities Markets Law: (1) ensuring efficient functions of the market and (2) investor protection LEB Slide Set 7

20 Main Objects of Regulation in Securities Markets Law: Disclosure Duties 1
Information of the issuer (financial position, future prospects etc) and of the security to facilitate well-founded investment decisions Especially the prospectus duty Obligation of the issuer Duties in conjunction with the issue of securities: Securities Market Act (SMA ch. 3 – 5) interim and annual accounts and account statements Regular disclosure duties: SMA ch. 7 any news having a material impact on the value of the security Ongoing disclosure duties: SMA ch. 6 LEB Slide Set 7

21 Main Objects of Regulation in Securities Markets Law: Disclosure Duties 2
portion of the voting rights or total number of shares reaches or exceeds or falls below 5, 10, 15, 20, 25, 30, 50 or 90 % Obligation of a shareholder and issuer Flagging duties (share ownership portion reaching / exceeding / falling below defined thresholds): SMA ch. 9 LEB Slide Set 7

22 Other Main Sets of Securities Market Provisions
Rules of trading (mostly self-regulation of the Stock Exchange) Ban on market abuse Insider regulation SMA ch.12 – 14, Penal Code 51:1-2: ban on trading on the basis of non-public price-sensitive information + ban on disclosing it to another unless the disclosure takes place as part of the ordinary performance of the work, profession or tasks Market manipulation: SMA ch. 14, Penal Code 51:3-4: affecting market prices in an inappropriate way e.g. by operations in the company’s own shares Public bids and mandatory redemption of minority shares (SMA ch. 11, LLCA 18:1) -> LEB Slide Set 7

23 The same phenomena may be objects of two-fold regulation, representing different interests
A shareholder with more than 9/10 of all shares and votes in the company (redeemer) shall have the right to redeem the shares of the other shareholders at the fair price. A shareholder whose shares may be redeemed (minority shareholder) shall have the corresponding right to demand that the shareholder’s shares be redeemed E.g. redemption duty of minority shares in Companies Act (equality of shareholders and proper decision making conditions within a company are protected): A shareholder whose portion exceeds 3/10 or 5/10 of the voting rights carried by the shares of a company shall launch a takeover bid for all the remaining shares (mandatory bid). Cf. mandatory bid (redemption duty of others’ shares) provisions in the SMA based on an acquired major holding e.g. due to a successful takeover: protection of investors at large and functions of the market: LEB Slide Set 7

24 RECAP OF THE COURSE! Law and Markets
Two functions of regulation at markets: 1 Creating Freedoms 2 Affecting the positions and behavior of the actors (use of freedoms) Can be examined in three contexts: Freedom of contract, Free Competition, Financial Markets (Shares): FREEDOM OF CONTRACT: Four freedoms + exceptions-> protecting the weaker party, grounds for invalidity due to inappropriate conduct FREE COMPETITION: Everybody entitled to compete by the company form, product/service, at the market they want + forbidden: misuse of the market position and forbidden competition manners FINANCIAL MARKETS: Free movement of capital, proper market functions, investor protection + ban on the use of insider information and market manipulation etc. SMA aims at creating equal (informational) position for every investor. LEB Slide Set 7