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IP/04/1334

Brussels, 29th October 2004

Company law: Commission proposes to simplify the formation, maintenance and alteration of companies’ capital

The European Commission has presented a proposal for a Directive to make it easier for public limited liability companies to take certain measures affecting the size, structure and ownership of their capital. The proposal would amend the parts of the 1976 Second Company Law Directive covering the formation, maintenance and alteration of capital. This proposal is part of the Commission’s Action Plan on Company Law and Corporate Governance, announced in May 2003 (see IP/03/716 and MEMO/03/112) and will be submitted for adoption under the 'co-decision' procedure to the EU's Council of Ministers and the European Parliament.

Internal Market Commissioner Frits Bolkestein said "To maximise the efficiency and competitiveness of European business, we need to simplify and improve EU rules on companies’ capital while maintaining strong safeguards for creditors and investors, especially minority shareholders.”

Stakeholders find some aspects of the current legal capital regime under the Second Company Law Directive too inflexible and costly. To remedy this, the new proposal would enable Member States, under certain conditions, to eliminate specific financial reporting requirements and to facilitate specific changes in share ownership. It would also bring into line across the EU the basic elements of legal procedures for creditors when capital is reduced.

Among the changes would be:

  • limiting the need for an expert valuation of contributions in kind when a company establishes itself or increases capital
  • relaxing current rules on the limitation or withdrawal of pre-emption rights, to make the procedure of issuing new shares less burdensome while maintaining shareholders’ protection from dilution of their shareholdings
  • partially relaxing the prohibition on companies providing financial assistance for acquisition of their shares by third parties
  • introducing “squeeze out”- and “sell out”-rights (i.e. the right of the majority shareholder, under certain conditions, to buy out minority shareholders at a fair price and the complementary right of minority shareholders to compel the majority shareholder to buy their shares)
  • introducing a right for the company to acquire its own shares up to the limits of distributable reserves.

These modifications should enable companies to react more promptly and efficiently to market developments. Strong provision for protecting shareholders’ interests is made in the proposed amendments.

Background

The Second Company Law Directive dates from 1976. It co-ordinates national provisions on the formation of public limited liability companies, minimum share capital requirements, distributions to shareholders and increases and reductions in capital. The Directive establishes the conditions to ensure that the capital of the company is maintained in the interest of creditors. Furthermore, it protects minority shareholders and states the principle that all shareholders who are in the same position should be treated equally.
The full text of the proposal and a working document with further detailed information are available at:

http://ec.europa.eu/internal_market/company/capital/index_en.htm


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