176 5 Equity and Shareholders’ Capital
company is founded.^181 Because of constraints on the use of the discretion at a
later point of time, one can say that the discretion is partly “consumed” when it is
used for the first time, but not “exhausted”.^182
For example, the English limited-liability company is regarded as a particularly flexible
company form, but that flexibility will to some extent be consumed at incorporation,
because it is easy for the company to choose the articles of association that it wants when
the company is incorporated but not as easy to change them afterwards.
The firm cannot opt out of the principle of equivalent treatment of holders of secu-
rities of the same class, but the firm can have different classes of shares (Volume
I). For example, a company can issue shares with different voting rights in order to
ensure that new investors will not be able to block decisions on structural change
or the issue of new shares.
Pre-emptive rights of shareholders are, to some extent, mandatory under
continental European company laws, but the laws of a Member State may provide
that the pre-emptive rights of shareholders are not mandatory in private limited-
liability companies.
For example, Finnish company law permits a private limited-liability company to exclude
pre-emptive rights in its articles of association. In addition, the general meeting may decide
to waive pre-emptive rights or authorise the board to decide on share issues and the disap-
plication of pre-emptive rights. Such an authorisation will increase flexibility.
Shareholders’ statutory information rights are usually minimum rights that cannot
be waived by the company. They are mandatory for two reasons. First, rules on
public disclosure protect not only shareholders but even creditors and other third
parties. Second, the purpose of shareholders’ information rights is to protect not
only shareholders in general but minority shareholders in particular.
There are seven main ways for a company to manage shareholders’ decision
rights and their exercise in a private limited-liability company with few
shareholders.
First, they can partly be “consumed” and restricted by the company’s statutes.
Generally, the contents of the statutes act as a constraint on corporate decision-
making. The statutes must lay down certain specific constraints such as the
company’s objects clause. In addition, they can also set out the allocation of
power between the general meeting and the board. This is easier in countries like
England where the internal allocation of power is mainly regulated in the
company’s articles of association, and less flexible in countries as Germany where
the allocation of power in a limited-liability company is mostly governed by
mandatory company law rules.
Second, the company may regulate the majority required for the resolutions of
the general meeting. This is a double-edged sword. A simple majority will
(^181) See, for example, Mäntysaari P, op cit, Chapter 6.
(^182) For the concept of “exhaustion of rights” in EU competition law, see Case 15/74 Cen-
trafarm v Sterling Drug [1974] ECR 1147.