5.11 Shares as a Means of Payment 237price. However, shares can also be used as a means of payment, i.e. allotted only
to particular investors who are willing to exchange assets for shares. Such situa-
tions range from mergers and share exchanges to the use of share-based executive
incentive programmes.
5.11.2 Community Law: General Remarks
Shares are a means of payment, if shares are subscribed for against consideration
other than in cash or at an undervalue. Due to the European legal capital regime,
the use of shares as a means of payment is generally constrained by mandatory
company law provisions vesting veto rights in the general meeting. There are five
core constraints.
First, the use of shares as a means of payment is not possible without a resolu-
tion by the general meeting. There is usually a connection between the number of
shares and the amount of legal capital. According to the Second Company Law
Directive, the general meeting decides on any increase in the subscribed capital^499
or the authorisation of a company body to decide on an increase in the subscribed
capital.^500 If the number of shares is set out in the articles of association, the use of
shares as a means of payment can require the amendment of the articles of asso-
ciation.^501
Second, existing shareholders have pre-emption rights.^502 The Second Directive
provides that the general meeting decides on the withdrawal of shareholders’ right
of pre-emption^503 or the authorisation of a company body to decide on it.^504
Third, shares may not be issued at an undervalue. (a) The main rule is that
shares may not be issued at a price lower than their nominal value, or, where there
is no nominal value, their accountable par.^505 (b) Member States may nevertheless
allow those who undertake to place shares in the exercise of their profession to
pay less than the total price of the shares for which they subscribe in the course of
the transaction.^506 (c) If the company issues shares for a consideration other than in
cash and the subscribed capital is increased, that consideration must consist of as-
sets capable of economic assessment. An undertaking to perform work or supply
services may not form part of those assets.^507
(^499) Article 25(1) of Directive 77/91/EEC (Second Company Law Directive).
(^500) Article 25(2) of Directive 77/91/EEC (Second Company Law Directive).
(^501) Article 3 of Directive 77/91/EEC (Second Company Law Directive).
(^502) Article 29(1) of Directive 77/91/EEC (Second Company Law Directive): “Whenever the
capital is increased by consideration in cash, the shares must be offered on a pre-emptive
basis to shareholders in proportion to the capital represented by their shares.”
(^503) Article 29(4) of Directive 77/91/EEC (Second Company Law Directive).
(^504) Article 29(5) of Directive 77/91/EEC (Second Company Law Directive).
(^505) Article 8(1) of Directive 77/91/EEC (Second Company Law Directive).
(^506) Article 8(2) of Directive 77/91/EEC (Second Company Law Directive).
(^507) Article 7 of Directive 77/91/EEC (Second Company Law Directive).