5.6 Legal Aspects of Equity Provided by Shareholders 163shareholders can benefit from temporary market bubbles by selling shares when
the price is high (for example, the IPO of a listed company’s subsidiary at the peak
of the market cycle); or (g) there are marketing reasons (a listed company is
better-known) or other business reasons (for example, the change of corporate
culture in a previously state-owned enterprise, increased external pressure, etc) for
going public.
This can be illustrated by the listings of private-equity funds. According to The Economist,
several factors were driving the flurry of listings in 2007: “Firms are keen to raise ‘perma-
nent capital’, providing them with a big pool of funds upfront that they can invest without
fear of redemptions; and company founders want to put money in the bank while fund
valuations look healthy. For investors such as pension funds, buying a stake in a listed en-
tity may appeal if their internal rules stop them investing directly in private-equity or hedge
funds. Listed funds can also help investors avoid the risks of long lock-up periods.”^137
5.6 Legal Aspects of Equity Provided by Shareholders
5.6.1 General Remarks
There are various kinds of shareholders (shareholders, members, partners)
depending on the enterprise form of the firm, and the legal aspects of equity
capital provided by shareholders depend, to a large extent, on the enterprise form.
However, some legal questions are general (generic) and characteristic of such
equity regardless of the firm’s enterprise form. As regards public limited-liability
companies, many of those questions have been approximated by legal instruments
adopted by Community institutions.
In the following, a general discussion of legal aspects characteristic of shares in
a legal entity will be followed by the specific legal aspects of shareholders’ equity
in four forms of legal entities: the partnership, the limited partnership, the private
limited-liability company, and the listed public limited-liability company. The le-
gal aspects of other forms of equity will be discussed in the context of mezzanine
financing (Chapter 6).
5.6.2 General Legal Aspects of Shares in Legal Entities
The general (generic) legal aspects that are characteristic of shares in all legal enti-
ties relate to the following questions: (a) the rights attaching to shares; (b)
repayment of investment in shares and withdrawal of shares; (c) the extent of
management discretion; (d) the transferability of shares; and (e) duties of
disclosure.
(^137) Lifting the lid, The Economist, January 2007.