5.4 The Legal Capital Regime Under EU Company Law 151ments.^97 Furthermore, compliance with additional reporting and notification re-
quirements is necessary in order to avoid insider dealing and market abuse (sec-
tion 5.9.7 and Chapter 19).^98- In the case of a serious loss of the subscribed capital, a general meeting must be
called to consider whether the company should be wound up or any other mea-
sures taken.^99 This provision does not require a company either to wind itself up
or to take other measures. Rather, the only requirement is that the company let
shareholders discuss the possible alternatives, including the possibility of not
taking any action. This provision also applies, when losses put the company be-
low the statutory minimum capital requirement.
Excursion: capital requirements in US corporation law. Even in the US, there
have been legal capital rules covering areas such as par value and dilution of
stock.
According to Booth, “it is not clear that the rules relating to par value and wa-
tered stock were intended to protect creditors. Rather, they may have been in-
tended to assure equal treatment among subscribing stockholders, a function that
was largely supplanted by the federal Securities Act of 1933.”^100 However, legal
capital rules have “lost virtually all of their significance and force for stockholders
and creditors alike” and creditors rely primarily on negotiated contractual protec-
tions.^101
In the US, corporation law is state law. As regards internal decision-making of
the company, the board typically can be given large powers under the company’s
articles and shareholders have weaker legal powers than in continental Europe.^102
The legal capital rules vary widely from state to state. There are essentially five
models in common use:^103
- The 1950 Model Business Corporation Act (MBCA) followed an earned surp-
lus rule (there is a par value for shares, there are legal capital accounts, and a
corporation may not invade stated capital to make distributions to stockhol-
ders).
(^97) Article 19(1) of Directive 77/91/EEC (Second Company Law Directive) (as amended by
Directive 2006/68/EC).
(^98) Article 8 of Directive 2003/6/EC (Directive on market abuse); Regulation 2273/2003.
(^99) Article 17(1) of Directive 77/91/EEC (Second Company Law Directive). See also Arti-
cle 17(2): “The amount of a loss deemed to be serious within the meaning of paragraph
1 may not be set by the laws of Member States at a figure higher than half the sub-
scribed capital.”
(^100) Booth RA, Capital Requirements in United States Corporation Law. In: Lutter M (ed),
Das Kapital der Aktiengesellschaft in Europa, ZGR, Sonderheft 17. De Gruyter Recht,
Berlin (2006) pp 720.
(^101) Booth RA, op cit, p 742.
(^102) See, for example, Engert A, Kapitalgesellschaften ohne gesetzliches Kapital: Lehren aus
dem US-amerikanischen Recht. In: Lutter M (ed), op cit, p 761.
(^103) According to Booth RA, op cit, pp 743–798.