5.4 The Legal Capital Regime Under EU Company Law 149- However, where shares are issued for a consideration other than in cash at the
time the company is incorporated or is authorised to commence business, the
consideration must be transferred in full within five years of that time.^74 - The shares of a company may not be subscribed for by the company itself.^75
- Where the laws of a Member State permit a company to acquire its own shares,
the acquisitions must not have the effect of reducing the net assets below the
amount mentioned in the main rule on distributions (the earlier maximum limit
of 10% of the subscribed capital is now optional).^76 - Any distribution made contrary to the main rule must be returned by sharehol-
ders who have received it if the company proves that these shareholders knew
of the irregularity of the distributions made to them, or could not in view of the
circumstances have been unaware of it.^77 - A company may not advance funds, nor make loans, nor provide security, with
a view to the acquisition of its shares by a third party.^78 - It is also worth noting that the Second Directive does not provide for any
exemption for distributions made to the parent company in a company group.
This may influence the French Rozenblum doctrine as well provisions of the
German Aktiengesetz on “group law” (Konzernrecht).^79
Restrictions on use and distribution: decision-making. There is increased separa-
tion of control and management. The general meeting has a veto right in transac-
tions that typically increase or reduce legal capital.
- Generally, shareholders have traditionally been protected by mandatory provi-
sions of company law in continental Europe. According to continental Europe-
an company laws and the Second Directive, existing shareholders have pre-
emptive rights.^80 - The Second Directive provides that the general meeting decides on: any increa-
se in (legal) capital;^81 the authorisation of a company body to decide on an inc-
rease in the subscribed capital;^82 the withdrawal of shareholders’ right of pre-
emption;^83 the authorisation of a company body to decide on withdrawal of sha-
(^74) Article 9(2) of Directive 77/91/EEC (Second Company Law Directive).
(^75) Article 18(1) of Directive 77/91/EEC (Second Company Law Directive).
(^76) Article 19(1) of Directive 77/91/EEC (Second Company Law Directive) (as amended by
Directive 2006/68/EC).
(^77) Article 16 of Directive 77/91/EEC (Second Company Law Directive).
(^78) Article 23(1)(c) of Directive 77/91/EEC (Second Company Law Directive).
(^79) See Fleischer H, Verdeckte Gewinnausschüttung und Kapitalschutz im Europäischen
Gesellschaftsrecht. In: Lutter M (ed), op cit, pp 130–131; Ferran E, Principles of Corpo-
rate Finance Law. OUP, Oxford (2008) pp 47–48.
(^80) Article 29(1) of Directive 77/91/EEC (Second Company Law Directive).
(^81) Article 25(1) of Directive 77/91/EEC (Second Company Law Directive). For English
law, see section 617 of the Companies Act 2006.
(^82) Article 25(2) of Directive 77/91/EEC (Second Company Law Directive).
(^83) Article 29(4) of Directive 77/91/EEC (Second Company Law Directive).