EU Company Research Articles

Investment, inflation, and the role of internal information systems as a transmission channel

We examine whether the quality of firms' internal information systems influences the relation between inflation shocks and corporate investment, as posited by imperfect information models. Inconsistent with RBC models’ prediction that nominal variables (e.g., inflation) do not affect real variables (e.g., corporate investment) but consistent with the presence of information frictions, we first document a positive relation between inflation shocks and firm-level investment. Next, we show that higher internal information system quality, measured through responses to the World Management Survey, mitigates the positive relation between inflation shocks and firm-level investment. This result suggests that internal information quality serves as a channel through which aggregate-level nominal variables affect firm-level real variables. We then document that firms with higher internal information system quality make relatively more efficient investment decisions following inflation shocks. Our inferences are robust to using the 8th EU Company Law Directive as a shock to internal information system quality and to several additional tests.

An Introduction to and Evaluation of the 2019 Belgian Companies Act – Preparing for the Previous War?

Abstract 109This article discusses some aspects of the completely new Companies Act (“BCCA”) adopted in Belgium in 2019. Even though the reform touched upon all aspects of company law and all company types, its main goal was to roll back Belgian goldplating of EU company law Directives and to turn the hitherto very rigid Belgian private company into a very flexible, contractual vehicle with little mandatory law applicable to it, except for rules on creditor protection. As part of this reform, the concept of legal capital (not just minimum capital requirements) was abolished for the private company. In order to allow a Belgian company to better compete in the light vehicle competition, Belgium moved from the real seat doctrine to the incorporation theory. For public companies, the main reform was probably the introduction of loyalty shares, which (so far) did not succeed in attracting more listings to the Brussels stock market, but did allow existing controlling shareholders to cement their control with a smaller stake than before. The reform was very successful in increasing legal certainty about many issues about which no authoritative case law exists. But in a way, the reform fought the last war (the light vehicle competition) while arguably not enough attention was paid to enabling venture capital and private equity contracting and the capital structures that go with these investments.110

The EU’s Proposed Reform of Directors’ Duties and the Missing Link to Soft Law

In this paper, we investigate whether reform of EU company law is needed to make corporate governance more sustainable. We also consider some issues to which the EU proposals on company law and sustainability paid scant attention, such as the role of corporate governance codes and other types of soft law, mainly of international origin, in promoting sustainable governance. In addition, we underline that in recent years the EU has adopted several measures which offer better prospects for sustainable governance than the reform of directors’ duties the EU is currently debating. We conclude that the failure to take corporate governance codes and the existing regulatory framework into account could seriously impair pending reforms of directors’ duties and their link to sustainability.

Commission

This overview highlights the Commission’s (i) adoption of the DAC7 Implementing Regulation for exchange of information with third countries; (ii) proposal for new digital tools under EU company law (iii) EESC support of the DAC8 proposal; (iv) referral of Belgium to the ECJ for incorrect transposition of the ATAD CFC provisions; and (iv) approval of Lithuanian scheme to support companies in the context of the Russian invasion of Ukraine.

A New Start for the European Private Company: The Draft Statute for a “Société Européenne Simplifiée” (SES)

Abstract 654 In February 2021, an international group of experts under the auspices of the French lawyers’ association Henri Capitant published a draft statute for a “European Simplified Company” (Société Européenne Simplifiée, SES). The draft intends no less than to revive the idea of a European Private Company (SPE), albeit in a modified manner. Unlike the SPE proposal, the SES initiative does not exclusively aim at adopting an EU regulation under Art. 352 TFEU that requires the consent of all 27 Member States. Instead, it is open for alternatives to EU-wide regulation, be it by way of enhanced cooperation under Art. 20 TEU or an international treaty between the interested Member States. In June 2021, the SES initiative gained the support of the Franco-German Parliamentary Assembly calling on the French and German governments to intensify their efforts in working towards a supra-national private company on the basis of the SES proposal.It is against this background that the present article seeks to analyse the objectives and main features of the Draft SES Statute. In the author’s view, the SES initiative should be welcomed as it seeks to fill an evident gap in the existing EU company law framework. The paper concludes that, despite several concerns that still need to be addressed, the Association Henri Capitant’s Draft SES Statute provides a solid and suitable basis for the consultations to come. 655

Accounting Policies and Dividend Limitation: A European Comparison

Abstract The adoption of IFRS by the EU has raised issues about its economic consequences in terms of, among others, volatility of corporate profits, taxation of profit and distribution of dividends. Indeed, it has brought the interactions between legal rules for dividend distribution and accounting policies back into focus. The EU company and accounting regulations are based on capital maintenance rules that involve limitations on dividend distribution when certain accounting policies are implemented in individual financial statements under local GAAP. However, while a majority of member states permit IFRS for individual financial statements, the EU regulations are silent on this issue. In this article, we outline an in-depth analysis on legal dividend distribution rules interactions with accounting policies in European countries, whether local GAAP or IFRS are applied. We have selected nine cases of potential recognition of unrealised gains in individual financial statements under local GAAP and/or IFRS, some of which are already specified in the EU regulations. For each case, we have analysed the national accounting regulations and the corporate laws. Our analysis reveals that the limitations on dividend distributions recommended by the EU have been most largely implemented in the national regulations, but not in all countries. It also sheds light on potential loopholes in the current European regulation regarding unrealised gains that may be more systematically recognised under IFRS than under local GAAP: unrealised gains arising from the recognition of deferred tax assets and unrealised gains arising from benefit pensions plan. To fill these gaps in the national regulations and to harmonise the legal basis for dividend distribution better within the EU, we suggest including in the European regulation the concept of ‘realised profits’ and thus ‘distributable profits’ as a required basis for dividend distribution. It involves in the first place identifying relevant criteria that may enable disentangling realised and unrealised profits or losses.

Social media and EU companies' engagement in circular economy: A LinkedIn approach

In the Internet age, companies utilize social media platforms to increase their network, visibility, and profits. LinkedIn is one of the most popular such platforms, offering profile hosting and several basic services for free that both companies and customers make good use of. In this study, data-driven and qualitative approaches of assessing the topic of circular economy as a LinkedIn activity in the EU and UK are performed. Data were collected by LinkedIn registered companies with the keyword “circular economy”, extracting variables such as number of employees, date of foundation, company's activities, etc. Results indicate that 3727 EU company profiles are involved in circular economy activities. The majority of these companies operate in the UK, followed by the Netherlands and Italy. In total, there are >120 k employees in companies with circular economy activities in the EU, with Finland having the highest representation per half million population. With the extracted data, we provide a primary descriptive and statistical analysis for each country's engagement in circular economy, based on the business' sector activity. In addition, a presentation of circular economy companies per industrial sector and country is provided. The findings indicate that the examined companies give collective information regarding differentiations among the countries they operate in, but also shed light to the penetration of circular economy entrepreneurship in the EU. Monitoring the characteristics of the examined LinkedIn companies, as well as their descriptions and hashtags, essential insights on the progress and penetration of this ongoing economic transformation is provided. This approach offers significant perspectives for future country-specific in depth-analyses on this trending topic.

UBO registers in the EU and the case of a company controlled by a trust

Abstract UBO registers of companies and trusts are being introduced all over the EU under the 4th and the 5th AML Directive. Very few EU Member States have expressly dealt with the case of an EU company controlled by a trust. The UBO registers of companies are fully open to the public while those of trusts are accessible only to people demonstrating a legitimate interest. This is consistent with the respect of privacy that goes back to the ‘Declaration of the Rights of Man and the Citizen’ of 1789. Some countries such as Belgium and Cyprus have issued regulations requesting that only the trust be mentioned in the UBO register of the underlying company while the details of the UBOs of that trust are filed in the corresponding, non-public register.

Fighting Short-Termism in EU Company Law after the Financial Crisis

The authors challenge the belief that the shareholder model dominates EU company law, to the detriment of corporate sustainability. The article argues that the last financial crisis has significantly moved EU regulation towards integrating stakeholder model into EU company law. The article seeks to identify means that the EU has employed to fight shareholder primacy norm. The article considers safeguards underpinning the corporate financial sustainability, alongside those aspects of corporate social responsibility which focus on the interaction between a financially sustainable company and sustainable society. Shareholder model, stakeholder model, share capital, accounting standards, corporate social responsibility

Discussion Report – UK and EU Company Law After Brexit

Discussion Report – UK and EU Company Law After Brexit

Harmonizacija prekograničnih kretanja privrednih društava u pravu EU

In this paper the author presents an overview of the EU legal framework for cross-border company's mobility. It gives a historic background to various obstacles related to cross-border mobility and puts it into the context of the European Court of Justice decisions on the various issues of right of establishment. EU Company Law Directive on Cross-border Mobility regulates cross-border conversions (resulting in the change of applicable law and at least registered seat of the company) and cross-border divisions for the first time. It also improves already existing regime for cross-border mergers. Directive on CrossBorder Mobility gives an opportunity for various internal market participants, including economically strong as well as smaller business forms to use advantages of predictable, efficient legal procedure to perform cross-border operations. It includes various harmonization instruments in order to protect interests of (minority) shareholders, creditors and employees. Double control, including issuance of the pre-merger certificate in the country of origin and control of the procedure in the destination country before cross-border procedure has been registered and becomes effective provides for optimal co-ordination of national authorities, and offers safe business environment for various market participants.

Sustainable Value Creation Within Planetary Boundaries—Reforming Corporate Purpose and Duties of the Corporate Board

Business, and the dominant legal form of business, that is, the corporation, must be involved in the transition to sustainability, if we are to succeed in securing a safe and just space for humanity. The corporate board has a crucial role in determining the strategy and the direction of the corporation. However, currently, the function of the corporate board is constrained through the social norm of shareholder primacy, reinforced through the intermediary structures of capital markets. This article argues that an EU law reform is key to integrating sustainability into mainstream corporate governance, into the corporate purpose and the core duties of the corporate board, to change corporations from within. While previous attempts at harmonizing core corporate law at the EU level have failed, there are now several drivers for reform that may facilitate a change, including the EU Commission’s increased emphasis on sustainability. Drawing on this momentum, this article presents a proposal to reform corporate purpose and duties of the board, based on the results of the EU-funded research project, Sustainable Market Actors for Responsible Trade (SMART, 2016–2020). Keywords: corporate purpose; corporate boards; sustainability; due diligence; planetary boundaries; social foundation; climate change; human rights; EU company law; EU Green Deal; EU Sustainable Finance Initiative.

Exit Britain Enter the Stakeholders: Could Brexit End the Cultural Wars within the European Union Company Law and Give Birth to a Truly “European Company”?

The history of European Union company law is a very troubled one. It is a history of national conflicts and debates which resulted in the inability of the EU to create a common body of EU company law. The article will argue that national company laws are deeply rooted in national culture. Corporate governance in particular evolved into an arena where fierce corporate culture wars were fought for decades. This is why the European Company -the so-called Societas Europea- failed to evolve into a truly supranational corporate form. While all member states have their own distinctive systems of corporate governance, the failure in question has been mostly fuelled by the conflict between the two widely-opposed corporate governance systems of the UK and Germany. The UK endorses the so-called contractual model of corporate governance. Germany on the other hand employs the so-called stakeholder system of corporate governance. The rest of the member states of the EU lie between those two opposing poles. The conflict between the two European pillars of widely opposed corporate philosophies and consequently laws –the UK and Germany- has been so intense that it undermined any attempt to create a single European company. The article argues that Brexit can change that. The exit of one of the two main pillars of the conflict may pave the way for the dominance of the stakeholder model of corporate governance in the EU. A post-Brexit EU would lack the most vocal and influential supporter of contractualism. This should allow the remaining member states to converge into a standard that would be closer to the stakeholder model. Company Law, Corporate Governance, UK, Germany, European Company, Societas Europea, Culture, Brexit, Stakeholder model, contractual model, European Union

The Sustainable Corporate Objective: Rethinking Directors’ Duties

Traditionally, the purpose of directors’ duties within company law is to ensure that the powers of management given to directors are properly exercised. For instance, instead of using their managerial powers to further their personal interests or for some collateral purpose, directors are under a duty to take decisions which they think will further the company’s interests. In most EU jurisdictions, determining what acting in the company’s interest means is not mandated by law, but is rather left to the subjective business judgement of directors. The discretion allowed by this duty has allowed for, influenced in part by a law and economics approach to company law, the shareholder value norm to become entrenched. This paper argues that the law of directors’ duties should evolve to provide specific guidelines to directors on the question of the corporate objective. It supports existing arguments for a reform of EU company law to include a new duty requiring directors to ensure sustainable value creation. The paper argues that any such duty should be framed objectively and be enforced through public mechanisms rather than a reliance on private actors.

Back to the Digital Future? On the EU Company Law Package’s Approach to Digitalization

Back to the Digital Future? On the EU Company Law Package’s Approach to Digitalization

Digitalization and EU Company Law: Innovation and Tradition in Tandem

The process of digitalization challenges the traditional legal order. In this context, the European Commission has recently shifted the legislative focus to the field of EU company law. One part of the so-called “EU Company Law Package” (COM(2018) 239 final) broaches the issue of “the use of digital tools and processes in company law”. This paper analyzes the proposal’s background, clarifies the legal status quo and discusses in detail the proposed measures (e.g. online registration of companies, online filing, Business Registers Interconnection System). We argue that, all in all, the proposal mostly succeeds in bringing innovation and tradition together. This can be demonstrated with respect to the proposal's openness towards the Latin notarial system. Nevertheless, the inclusion of purely domestic cases exceeds the legislative powers of the EU. In addition, the paper sheds light on the implementation steps necessary in Germany.

Corporate Governance Codes and Groups of Companies: In Search of Best Practices for Group Governance

Many listed companies are part of a group of companies and therefore they are facing the special challenges of effecting group governance. Group governance will involve balancing the interests of the group against the interests of the individual companies in the group. Finding the right balance between these two is not always easy, which is confirmed by that the Commission has announced its intention to facilitate the recognition of the concept of ‘group interest’ in EU company law.We have analysed a number of corporate governance codes to see how they address the issue of group governance. We initially examined 48 codes, but selected 16 codes for detailed analysis. In the codes analysed we have found some recommendations for how groups of companies should be governed, but they are often found in different codes, often apply to a broader category of situations, not specifically group situations, and in some cases point in different directions. Therefore, it seems fair to say that the current recommendations for group governance are fragmented and superficial. Since we have analysed those codes that, based on our initial survey of 48 codes, were most likely to contain recommendations on these issues, the recommendations on group governance in other codes are even more likely to be fragmented or non-existent.Therefore, there seems to be a need for more clarity on group governance and the Commission’s intention to address the issue of group interest should be welcomed. However, since there is little consensus on what constitutes good group governance, considering the often opposing strategies underlying the analysed codes’ recommendations, the Commission also has a difficult task if it decides to take steps to operationalise the recognition of group interests.

The EU Company Law Package: How it Should be Improved to Strengthen Workers' Rights and Avoid Abuse Through Cross-Border Company Mobility

The proposed EU company law package, which was published in April 2018 by the European Commission, seeks to encourage cross-border company mobility while at the same time protecting stakeholder interests. The ETUI’s GOODCORP network of company law experts has identified three areas where the package needs to be revised in the interests of protecting workers’ rights and discouraging corporate abuse and makes thirteen specific recommendations for amendment. These areas include: improving worker involvement rights; strengthening procedures for discouraging abusive behaviour such as tax evasion; and reducing the potential for fraud through online company foundations.

The Polbud-Case and New EU Company Law Proposal: Expanding the Possibilities for Cross-Border Conversions in Europe.

On 25 October 2017, the European Court of Justice ruled in the Polbud-case that a cross-border conversion is permitted on the basis of the freedom of establishment, even if the converted company does not conduct any economic activities in the new home Member State. On 25 April 2018, the European Commission proposed new company law rules to enable companies to make best of business opportunities in the EU’s Single Market and to ensure that cross-border conversions, mergers and divisions are accompanied by adequate safeguards against abuse. This directive explicitly refers to the Polbud-case. In this article the Polbud-judgment is discussed in the broader context of cross-border conversions. Furthermore, the proposal of the European Commission is discussed and the antitax abuse provision thereof.

The Current Challenges for EU Company and Financial Law and Regulation

Abstract European company and financial law and regulation have been evolving over time along with business and financial practices. The resulting ‘social licence’ established by company and financial law and regulation aimed to balance the granted privileges of limited liability and share transferability with the corporate social contribution to economic development and employment. Recent transformations driven by shareholder value and financialisation have been challenging this balance of interests between stakeholders (including employees and shareholders) and society. The EU institutional framework may respond to these challenges by reaffirming the centrality of the enterprise as a going concern. On this basis, corporate accountability and responsibility may be enforced to make ongoing corporate affairs accountable and responsible for their contribution to economy and society. Ongoing corporate capacity to cope with social and environmental responsibilities may be assured along with the fair and sustainable remuneration of stakeholders, including shareholding investors, and a fair tax contribution. The EU institutional design and policy mix may be organised to respond to this comprehensive set of corporate dimensions. Here the most relevant fields to be reconsidered include: enterprise groups and corporate social responsibility; financial reporting and transparency; financial investment and asset management.