The European company law is a new branch of law that is concerned with the establishment and operation of corporations within the European Union (Vossestein, 2009). Currently, there are no laws that govern the manner in which companies operate within the region. These companies only operate in accordance with standards that have been operational since the formation of the European community in 1957 (Hanson, 1999). These standards aim at harmonizing trade within the member states of the union. They also control the freedom of establishment and competition within the member states. All member states of the union have separate company acts which may be contradicting (Bandura, 1995). These acts are however under constant management so that they can comply with the requirements of the European Union to enhance trade and commerce within the continent. However, there has been a lot of legislation among member states to harmonize their laws to make the trade within them to be sustainable (Kaplan and Norton, 2006).
Much of the harmonization of these laws are still under development. The adoption and implementation of these laws are being closely monitored. Monitoring can take months, years, or even decades. This is because harmonization of these laws considers a lot of issues such as historical and political factors (Fitzsimmons, 2000). Different countries of the union face different challenges in their development which make the prediction of law to be clear. Due to these uncertainties, a lot of measures have to be taken to ensure that the laws that are developed from the harmonisation of company laws of member states are effective and sustainable. This paper focuses on the legislations that have been put in place to ensure that companies within the union. They include national corporate mergers, a national division of corporations, cross-border mergers of capital companies, and mergers, divisions, and contribution of assets (Gerven, 2010).
National Corporate Mergers
National Corporate Merger is operated under the 3rd directive of the council held in 1978 based on article 54 which concentrates on mergers of national corporations (Segall, 2003). This legislation is applicable to corporations that are found in the member states of the European Union. This directive is applicable in mergers when two or more companies of different member states join to form a new company. According to the directive, the merger process involves three processes. These are drafting the merger project, holding a shareholders meeting, and completing the merger (Wheelwright, 2001).
Drafting the merger project is the first step that is conducted during the formation of a merger. This document is drafted by the administrative or management bodies of the company in question. These act as the representative of the companies and through drafting this document they bind their companies to a part and parcel of the merger. The merger project is then drafted in a manner that is consistent with the national legislation and the standards set by the European Union (Swamidass and Newell, 1997). The document is very detailed and contains the name and type of the company of the new merger. It also contains the ratio of share exchange and any compensation (if applicable), date when the shareholders will be able to access profits, rights, and duties of the companies forming the merger, mode of profit sharing, and the advantages that will be accrued by the merger.
The second step is the deliberation of shareholders meeting where they decide whether to adopt the merger or not. If they decide not to adopt the merger then the merger project is done away with. However, if they decide to adopt the project then the merger document is published (Benson, 2001). Approval by the shareholders is just but the minimum requirement for the legislation of the new company, according to the law of the member states of the European Union there should be at least a two-thirds majority vote of the shareholders to approve the merger. This has to be represented by their securities (shares) or capital. Other rules that are applicable in the process of formation of a merger are also applicable. If there are several classes of shares, then voting should be conducted for each class of shares. Also, necessary amendments to the statutes can be made to incorporate any change that may occur during this process.
The last step is the completion of the merger. This involves the transfer of the assets between the company and third parties. This may be through the acquisition of assets from third parties or distribution to them. This aims at making the new company free from any debts or obligations of the old companies (William, 2006). This process, therefore, involves the transfer of assets between the company being acquired and the acquiring company with regards to third parties who may owe or are owed assets by the acquired companies. This process also ensures that the shareholders of the acquired companies remain to be shareholders of the new company and that the acquired companies are non-existent. They should be dissolved so that their rights and liabilities die with them.
This whole process should be conducted without undermining the laws of member states (Dimitrakopoulos, 2004). Therefore the requirement of the member states should also be met. This will ensure that the merger is legal and recognized by the law of the member states. In case of any discrepancies regarding the acquisition of shares by the shareholders then the acquired company of the respective state should take this issue into consideration and follow up the matter for a maximum period of six months since the time the merger took effect (Das and Teng, 2009). This period may however be extended in case of exceptional cases. Member states also protect their shareholders by organizing a civil responsibility of the administration of the acquiring company holding them responsible in case of any misconduct during the implementation of the merger. A system is also established by the member states to protect the rights and interests of members and third parties.
Acquisitions and mergers, therefore, harmonize trade and commerce within member states. These ventures become successful and sustainable only through the adaptation of company laws of various member states and amending them when need be. Mergers promote cross-border trade between member states of the European Union. They also lead to the growth and development of infrastructure, create employment opportunities and increase the income earned by the member states. The harmonisation of company law between member states, therefore, plays a crucial role in the success of mergers and the sustainability of the union in general.
National Divisions of Corporations
National divisions of corporations are found in the 6th directive of the council of December 1982 and regulate division by takeover, division under judicial supervision, and the formation of new companies (Fontaine, 2007). These laws have been harmonized to comply with the laws of the member states of the European Union. Division by takeover involves the dissolution of a company without the liquidation of its assets. The assets of the company that is being dissolved are transferred to other companies and the shares of the shareholders are divided accordingly (Gitman and McDaniels, 2008). They, therefore, benefit from such liquidation by being paid a cash value that does not exceed 10% of the nominal value of their shares.
In the process of division of a company, the administration or the management of the company has to draft a draft project (Hannagnan, 2007). the draft project contains the details of the company that is being divided, the ratio of share exchange and any compensation (if applicable), date when the shareholders will be able to access profits, rights, and duties of the companies forming the division, mode of profit sharing and the advantages that will be accrued by the division. The document should also contain a detailed description of the assets to the recipient companies and the distribution of the shareholders to the various companies.
This process has to be approved by the shareholders of the new companies that have been formed from the division during the general meeting held by all these companies (Sopow, 2007). The approval will be carried out if the motion gets the majority votes of the shareholders. A separate vote can also be held if need be.
The government of the member states can intervene in the case where the new companies do not comply with the guidelines that were made concerning the manner in which shares are shared and distributed among all the shareholders (Wether and Chandler, 2006). In this case, the state protects the minority shareholders by giving them the right to acquire their shares from the companies. They will therefore receive full compensation for the value of their shares in such an event. It is difficult to agree on the value of the shares, the decision is left to a judge to determine the value of these shares.
It is the laws of the member states which will agree upon the date of commencement of the divisions. It involves the transfer of the assets between the company and third parties. This may be through the acquisition of assets from third parties or distribution to them. This aims at making the new companies be free from any debts or obligations of the old company (Belbin, 2010). This process, therefore, involves the transfer of assets between the companies being created and the company is divided with regards to third parties who may owe or are owed assets by the created companies. This process also ensures that the shareholders of the divided company still remain to be shareholders of the new companies and that the divided company becomes non-existent.
The same procedures apply in the case of division under judicial supervision and division with the formation of new companies. However, in the case of division under judicial supervision, the judicial authority has the power to convene in the general meeting of shareholders and make decisions with regards to the manner in which the divisions should be conducted. In the process of division company laws of the member states have been harmonized to ensure that the process is smooth and effective. This ensures that the companies that are created from the different states operate under the same set of rules and guidelines which are consistent with the laws of the member states.
Cross-Border Mergers of Capital Companies
Cross-Border mergers aim at facilitating the merging of companies within the European Union that have capital (Gusfield, 2008). The main objective of these mergers is to reduce cost, to ensure that these companies operate legally in the member states and that they receive maximum benefits from the numerous transactions that are conducted on the member states of the EU. The Cross-Border mergers are operational under the directive of the European Parliament of October 2005. It is applicable to companies that have been registered by the EU, operational among the member states and at least two of them are governed by the laws of different member states (Berry, 2009).
The merger is operational when one company dissolves its assets and liabilities to another company (acquiring company) during its dissolution without liquidation by issuing the securities or shares of its members that represents the capital of the company or cash payment which does not exceed 10% of the nominal value of the shares. This transfer can be from one or more companies that are being dissolved to merge up with a new company (Holmes, 2004). In most cases, a cross-border merge involves two or more companies that combine under the national legislation of the countries of origin of the companies in question. To be legally binding, these companies should comply with the rules and regulations of the member states.
The management or administration of these companies therefore should develop a merging project which should contain the details of the companies that are being involved in the merge, the ratio of share exchange and any compensation (if applicable), date when the shareholders will be able to access profits, rights, and duties of the companies forming the cross-border merger, mode of profit sharing and the advantages that will be accrued by the cross-border merger. This document will then be published in accordance with the legal systems of the companies that comprise the merge a month before the general meeting of the shareholders which decides the fate of the merge. The management or administration of these companies should also prepare a report which will explain the economic and legal impacts of the cross-border merge to the shareholders and the members. The same report should also be prepared by an independent body to examine the impacts of the cross-border merge on the staff of the companies and the shareholders.
Each of these companies should then hold a general meeting where voting for or against the cross-border merge will be done. For it to pass, it will require a majority vote of the shareholders. If the motion is passed in favor of the cross-border merge, then the new company should be registered (Ward et al, 2005). This will result to the companies that were merged to cease from existing, transfer of their assets to the new company and their members will now be members of the new entity. The law of the member states will also protect the shareholders if the management or the administration fails to abide by the rules and regulations of the company. In such cases, the shareholders are given a right to withdraw their shares from the company or receive compensation that is equivalent to the nominal value of their shares.
Mergers, Divisions, and Contributions of Assets
Mergers, Divisions, and Contributions of Assets are established under the council directive of July 1991 to ensure that there is a common system of taxation of companies in the European Union for mergers, divisions, and transfer of assets and shares (Johnston, 2000). The taxable value which is obtained from the profits or losses of the company is used to calculate the tax base of profits or capital gains that are transferred from one company to another (Gilbert, 2010). The same base is also used to calculate the liability that is transferred to the company. The transferred assets and liabilities are also linked to the beneficiary company as its permanent elements. They will therefore be used in the calculation of the taxable base of the company. The mergers or divisions of companies will also not involve the capital gains on assets which is the difference between the actual value of assets and liabilities. These laws have to be in line with the laws of the member states. It is therefore the duty of the member states to ensure that the necessary provisions are provided for before the base of the tax is calculated (James, 2006). The member states should therefore bring into force administrative, legal, and legislative provisions that will ensure that the laws are in line with the directives of the present day (European Parliament, 1997). When a member state adopts these legislations it should ensure that they are referenced to the directives of the present day and determine the modalities of the named reference (Wessel, 2004).
The company laws of member states of the European Union are still in the process of being harmonized. It is a complicated process and may take months, years, or even decades to be complete. Harmonization of these laws ensures that there is a smooth operation of trade within the member states. This is because the rules and regulations which the companies follow are consistent with the company laws of the member states. Harmonization of these laws, therefore, requires synchronisation of the laws of the member states of the companies that are in question. This is achieved by an agreement between the two states to create a legal document that will be binding to the states and comply with the requirements of the European Union.
Therefore, there can never be real harmonization of legal structures that govern large companies without an agreement between the companies involved. The presence of an agreement is very essential because it creates a legal bond between the said companies. That is why in case of division or merging of companies a project document has to be made. This document strictly states the rules and regulations that should be followed and the rights and responsibilities of the parties involved. This document is legally binding and is recognised by the member states of the companies involved. In case of breach of the rules, the party that is guilty will face the full consequences of the law. Harmonisation of the company law of various states therefore is an issue which is critical in nature and should not be taken lightly by the parties involved.
Bandura, A. (1995) Self-efficacy in changing societies. Cambridge University, Cambridge.
Belbin, R.M. (2010) Management Teams; Why They Succeed or Fail. London. Elsevier
Berry, L. (2009) Relationship Marketing of Services, Growing Interest and Emerging Perspectives. Journal of the Academy of Marketing Science, 23, 236–245.
Benson, P. (2001) The theory of contract law: new essays. Cambridge University Press, Cambridge.
Das, T.K and Teng B.S. (2009) Cognitive Biases and Strategic Decision Processes; Journal of Management Studies, 36 (6), 757-778.
Dimitrakopoulos, D.G. (2004) Greece in the European Union. Routledge, Oxon.
European Parliament (1997) Debates of the European Parliament. Official journal of the European Communities, 4 (507), 813-897.
Fitzsimmons, J.A. (2000) Service Management: Operations, Strategy, and Information Technology. McGraw-Hill, Boston.
Fontaine, C. (2007) Human Resource Management Base. Chicago. North Eastern University,
Gerven, D. (2010) Cross-Border Mergers in Europe. Cambridge University, Cambridge.
Gibbert, M. (2010) Strategy Making in a Crisis: From Analysis to Imagination. New York, Edward Elgar Publishing.
Gitman, L. and McDaniels C. (2008) The Future of Business: The Essentials. Dallas, Cengage Learning
Gusfield, J. (2008) Community: A Critical Response. New York: Harper & Row.
Hannagnan, T. (2007) Management: Concepts and Practices; Financial Times. nd Prentice Hall.
Hanson, S. (1999) Legal method. Routledge, Oxon.
Holmes, M. (2004) A practical guide to national competition rules across Europe. London, Kluwer Law International
James, F. (2006) The Way Forward: 21st Century. Web.
Johnston, M. (2000) The Tumultuous History of the European Union. London, Beard Books.
Kaplan, R.S. and Norton D.P. (2006) How to Implement a New Strategy without Disrupting Your Organization. Harvard Business Review 84 (3), 100-109.
Segall, J. (2003) The Corporate Merger. Beard Books, New York.
Sopow, E. (2007). Corporate Personality Disorder. Universe, Edinburg.nd
Swamidass, P.M. and Newell, W.T. (1997) Manufacturing Strategy, Environmental Uncertainty and Performance. Management Science 33 (4), 509–524.
Vossestein, G. (2009) Modernization of European Company Law and Corporate Governance: Some Considerations on Its Legal Limits. Kluwer Law International, London.
Ward, K., Kakabadse, A. and Bowman, C. (2005) Designing World Class Corporate Strategies: Value-Creating Roles for Corporate Centres. Manhattan, Butterworth-Heinemann.
Wessel, B. (2004) Current topics of international insolvency law. London, Kluwer
Wether, W and Chandler, D. (2006) Strategic Corporate Social Responsibility: Stakeholders in a Global Environment. Miami.Sage
William, C. (2006) A treatise on the law of partnership. T. & T. Clark, Oxford.
Wheelwright, S.C., (2001) Restoring Our Competitive Edge: Competing Through Manufacturing. Wiley, New York.