278 5 Equity and Shareholders’ Capital
lies on its shareholders as agents to decide on the acceptance of the offer and
changes in its share ownership structure.^714
5.12 Shares as a Means to Purchase Other Goods
Shares can be used as a means to fund the purchase of other goods. Usually, the
firm issues shares to fund long-term capital investments such as the purchase of
real estate or a business enterprise. In an “asset deal”, the firm can pay for the pur-
chase of a business enterprise by issuing shares to the company that sells the busi-
ness.
Particular legal risks. For the firm, the use of shares as a means of payment
gives rise to particular legal risks (for general risks, see section 1.4 above). In the
EU, those risks are primarily caused by the legal capital regime.
Time. There is the question of time. The issuing of shares may require the prior
consent of the general meeting. The internal decision-making of the company will
be faster, if the board is authorised to decide on the matter. In many companies, it
is standard practice that the annual general meeting passes a resolution authorising
the board to decide on the issuing of shares and the waiving of shareholders’ pre-
emption rights.^715
Valuation of assets. The value of goods bought by the firm may be too low. In
Europe, the company must decide on the price payable for the shares.^716 (a) It can
be argued that the price payable for the shares must be justified and not below
their market value.^717 (b) If the value of the goods is lower than the price payable
for the shares, negative consequences can follow depending on the governing law.
English company law provides that “the allottee is liable to pay the company an
amount equal to the amount of the discount, with interest at the appropriate
rate”;^718 this duty can be modified if it is “just and equitable to do so”.^719 In Ger-
many, however, the contract for the sale of those goods to the company would not
be binding and the allottee would have to pay the price payable for the shares in
cash.^720
Form. There are requirements as to form. In particular, the Second Company
Law Directive normally requires the drawing up of a report by “one or more inde-
pendent experts appointed or approved by an administrative or judicial author-
ity”^721 or at least “a fair value opinion by a recognised independent expert” or “a
(^714) Article 3(1) of Directive 2004/25/EC (Directive on takeover bids).
(^715) Article 25(2) of Directive 77/91/EEC (Second Company Law Directive).
(^716) Article 8(1) of Directive 77/91/EEC (Second Company Law Directive).
(^717) Article 29(4) of Directive 77/91/EEC (Second Company Law Directive). See Case C-
338/06, Commission v Spain, OJ C 261 of 28.10.2006 p 12 (application).
(^718) Section 580(2) of the Companies Act 2006.
(^719) Section 589(3) of the Companies Act 2006.
(^720) § 27(3) AktG.
(^721) Articles 10(1) and 27(2) of Directive 77/91/EEC (Second Company Law Directive).