5.4 The Legal Capital Regime Under EU Company Law 147Excursion: Why increase or reduce share capital? The distribution of subscribed capital is
subject to restrictions. A company can thus increase the equity nature of its assets by con-
verting distributable assets into undistributable assets. Where the shares of the company
have a nominal value, the company cannot issue new shares without increasing the amount
of such assets. The company can also reduce share capital. In principle, the company may
want to convert undistributable assets into assets that may be regarded as distributable. If
the company has made a loss and part of the company’s share capital has been wiped out,
the board may have to restore the company’s balance sheet position or commence bank-
ruptcy or liquidation proceedings; the company may therefore have to reduce its share capi-
tal by cancelling part of it without making any payment to its shareholders.^62
Fixed minimum capital. The Second Directive also lays down some fixed mini-
mum capital requirements. As said above, fixed minimum capital requirements are
not a necessary ingredient of a legal capital regime. Creditors can be protected
even in other ways. This became clear in Case C-212/97 Centros, in which the
freedom of establishment prevailed over the application of the higher minimum
capital requirements of the host country and there was no justification to apply the
laws of the host country on public policy grounds. The fixed minimum capital re-
quirements are as follows:
- The minimum legal capital of a public limited-liability company must be at le-
ast €25,000.^63 This requirement does not apply to private limited-liability com-
panies, as they do not fall within the scope of the Directive.^64 - The general minimum capital requirement is complemented by sector-specific
capital requirements such as initial capital requirements for investment firms.^65
An investment firm must have an initial minimum capital of €730,000 unless the
Capital Requirements Directive permits a lower initial capital.^66 For example, a
minimum initial capital requirement of €125,000 is imposed where the investment
firm “does not deal in any financial instruments for its own account or underwrite
issues of financial instruments on a firm commitment basis” but “holds clients’
money and/or securities” and “offers one or more of the following services: (a) the
reception and transmission of investors’ orders for financial instruments; (b) the
execution of investors' orders for financial instruments; or (c) the management of
individual portfolios of investments in financial instruments”.^67
(^62) See Article 33 of Directive 77/91/EEC (Second Company Law Directive).
(^63) Article 6(1) of Directive 77/91/EEC (Second Company Law Directive).
(^64) In England, section 763 of the Companies Act 2006 lays down minimum share capital
requirements for public limited-liability companies. Sections 542, 547 and 548 of the
Companies Act 2006 provide for share capital but do not lay down any minimum share
capital requirements for private limited-liability companies.
(^65) See Article 67 of Directive 2004/39/EC (MiFID).
(^66) Article 9 of Directive 2006/49/EC (Capital Requirements Directive). For critical views,
see Moloney N, EC Securities Law. OUP, Oxford (2008) pp 462–463.
(^67) Article 5(1) of Directive 2006/49/EC (Capital Requirements Directive).