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- that information (including the accounting entries) should be disclosed about the company of which the branch is a part, in accordance with the provisions of Directives Fourth and Seventh;

- that the accounts of the company must give a true and fair review of the position of the company or the group of companies.

Twelfth Council Directive (89/667/EEC of 21 December 198925) was intended to introduce in the EU Member States legislation permitting single-member private limited-liability companies. Such companies should be allowed to exist in every EU Member State. The Commission believes that the permission to form a company with only one member (a physical person or a legal entity, i.e. a firm) stimulates physical persons to form new undertakings. One more advantage is that such a company acquires legal personality and can continue its activities even in case the owner is changed.

All the shares of such a company should be issued in the name of their owner who is the only shareholder. The sole member should exercise the power of the general meeting of the company;

record in minutes the decisions taken by the sole member, and draw up in writing contracts between the sole member and his company. Otherwise the company becomes subject to the normal restrictions envisaged by company law.

Article 7 of the Directive provides an alternative: the EU Member States are allowed to introduce legislation providing that an individual entrepreneur may set up the undertaking the liability of which is limited to a sum devoted to a stated activity, which is similar to private companies limited by guarantee. Each Member State of the EU has the right to introduce restrictions on activities of a person as the sole member of several undertakings and to make a decision on applicability of the Directive to public companies.

There is also a range of draft Directives in various stages of progress.

Proposals on Fifth Directive (internal structure of a companys management bodies, their structure and responsibility) were submitted to the CEC as far back as in 1972 but met a serious opposition (Le Gall, p. 81). The amended draft was sent to the Council on 19 August 1983.

Initially, the Directive was designed to introduce changes into company structures so that they had a two-tier management system (i.e. two Boards: the Executive Board and the Supervisory Board). At the moment the draft permits of adopting a one-tier management system (i.e. envisages one Board comprising members having executive and members having supervisory functions). Estimates show that the project in its present form is going to cause some technical difficulties in its implementation and overall is capable of just maintaining the status quo (giving shareholders the right to chose among the management structures).

In 1990 the EU Commission submitted to the Council a number of proposals on amendments to Second Directive on company law and to the drafts of Fifth and Thirteenth Directives on company law. One of the expected results should be widening of the scope of the corporate democracy in the EU Member States through:

OJ 1989 L124/8.

OJ 1989 L395/40.

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK - lifting restrictions and giving the shareholders equal voting rights (amendments to the draft Fifth Directive);

- imposing limits on the golden share practice that provides protection for some of the companies and results in open market asymmetry;

- regulating the situation where companys shares are being acquired not by the company itself but by its subsidiary (to minimize manipulations after take-over announcements through limiting the powers of the managing body of the company that received the offer) and giving the shareholders wider rights to nominate, appoint, and remove directors from office.

The provisions concerning employees involvement were also subject to debates. The initial proposal to ensure such involvement through appointments to the Board was the only model envisaged by the Directive. Later on the idea was modified: employees involvement became possible through informed consultations or through provision, under certain circumstances, of the right of veto over the decisions by the appointed Board members. However, even this wording met a serious opposition. Great Britain, for example, insisted that such provisions are not consistent with the corporate law. This position was not shared by the Netherlands and Germany as no clear-cut distinction between corporate and labour laws exists in these countries.

Apart from those fundamental issues the Directive was criticized for being excessively detailed, for the rigidity and complexity of the procedures of information and consultation of employees. The organizations representing business communities of Europe and individual countries (in particular, UNICE, CBI) and the Law Society expressed their concern that adoption of the Directive would increase the burden the companies carry in respect of regulatory procedures which would not be accompanied by a proportional increase in advantages for the company and its employees.

In the late 90-s the Commission continued the consultations covering, inter alia, a possibility of using the Directive on European Works Council. In its Resolution of 17 January 1997, the European Parliament opposed the approach on the grounds that setting up such a body is not an equivalent of participating in the Board of Directors. The European Parliament proposes the following minimum standards: provision to company employees a seat on the two-tier Board of Directors or, in case of a single-tier Board, an opportunity to participate in making decisions concerning employees economic problems and employer obligations should be a subject of an agreement with the company management.

In their final wording the Directives envisage application of practically every form of employee involvement that exists in the EU Member States:

- participation in the supervisory board with employees electing 1/3-1/2 of the member (the German model);

- participation in the supervisory board or in the executive body as an independent director through the system of co-optation (the Dutch model);

- establishing within the company of a special representative body a consultative council comprising employees representatives (the Danish model);

- system of collective agreements comprising elements of the above models.

Thus, the draft just notes the existing multitude of approaches (both to management structure and to employee involvement) which means lack of any unification. However, it is evident that a certain unification of public limited-liability companies structure and functions of their management organs first of all to ensure equal degree of protection of the rights of the shareholders and other persons involved in the companies activities.

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK Draft proposals for Ninth Directive (not adopted by the Commission formally) were distributed in 1984. The proposals concerned behaviour of groups of companies. At present, according to some estimates, the draft has poor chances of being approved in the short term perspective.

It is appropriate to mention here the Directive on information and consultation of employees of groups of enterprises adopted by the Council 26 which stipulates that if the economic activities are to be developed consistently, companies or company groups operating in more than one EU Member State should inform and consult employees representatives affected by their decisions.

Historically, this Directive is close to the so-called Vredling Directive that sets procedures of informing and consulting employees of companies having a complex structure.27 The Directive set requirements on informing and consulting employees of all the enterprises or groups of enterprises operating in more than one EC country and employing over 1000 workers out of which at least 100 work at two different enterprises in different EC countries. Such enterprises should establish a Council on European Employment problems that should become the venue for information and consultation of employees.

Draft Tenth Directive (mergers of enterprises of different nationalities, i.e. transnational mergers of public limited-liability companies) was submitted to the Council on January 14, 1985.28 Tenth Council Directive deals exclusively with cross-border mergers for fears that such mergers might help bypass the provisions concerning employees involvement. Thus, a consensus on the document and the issues it covers is yet to be achieved.

The Council adopted a number of Directives setting uniform requirements towards opening an access to the stock exchanges for securities (79/279 of 5 March 1979, 80/390 of 17 March 1980, 82/121 of 15 February 1982 and some others.).

Directive of 5 March 1979 coordinates terms of admission of securities to stock exchange listing.Securities should not be admitted to stock exchange listing unless they meet the Directive requirements to legal status and minimum size of the company, free circulation of shares and the percentage of shares for public offering (normally, 25% and more).

Directive of March 15 1980 defines in detail the terms of admission of shares to stock exchange listing.30 The information should be published by the official body in the form of technical elements of the listing before securities could be admitted to stock exchange tender. When the procedure is over in one of the EU Member State all the rest should recognize the terms of listing as sufficient. However, each of the Member States has the right to ask for additional information related to the specific market falling under its jurisdiction. The Directive also determines that as far as issue prospectus meets the Member State needs it can be viewed as a technical element of the listing.

A number of newly adopted Directives deal with further disclosure of in formation, coordination of requirements to the issue prospectus, mutual recognition of prospectus as a technical element of the listing (D.,23 April 1990, etc.) Directive on insider dealing contains rules envisaging physical or legal person responsibility for misuse of information on company if such information is related to prices. The Directive sets minimum standards in the area which means the EU Member States are allowed to go beyond its OJ 254/64.

OJ Vol 26C 217/3.

OJ 1985 C23 28/11.

OJ 22 L66/21.

OJ 23 l00/1, OJ L185/81.

OJ 32 L334/30.

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK boundaries. The Directive requests all the EU Member States to ban insider dealings and cooperate in the relevant information exchange to administer justice.

The Directive on investment services adopted in July 1993 envisages that investment companies should receive permission from their own governments that would serve as passports and allow them to carry out investment activities in the other EU Member States (Articles 1, 4).32 The service can be provided within the EU irrespective of the national boundaries. Otherwise, the investment company can get a permission to open branches in the other EU Member States without necessarily obtaining a new permission.

It should be stressed that the EU Court of Justice is increasingly alert to the cases of failure to implement the Directives fully and does not hesitate to substitute its own interpretation of the regulation for the relevant provision of the Member State national legislation if it believes the latter provides a wrong interpretation of the EU act.

2.3. The European Company The issue of establishing a European company has been on the EU agenda since 1965, the first draft being produced as far back as in 1970. Initially, two approached emerged.

The approach advocated by France envisaged the development of a Statute of a European-type company a national undertaking acting on the basis of a special unified legal act. The common company law of a Member State should be applicable to the company in accordance with the principle of subsidiarity. The approach by the EU Commission was to form a company that would operate fully under the Common Market law and be its subject. A group of experts headed by Pr. P.

Sanders developed a draft Statute of such a company that was twice (30 July 1970 and 13 May 1975) submitted to the Council as a draft Regulation. The draft copied to a considerable extent the German company law, in particular concerning the issues of employees participation in the supervisory board and regulation of activities of groups of companies. A temporary compromise was reached with adoption on 25 July 1985 of the Regulation 2137/introducing European Economic Interest Grouping (EEIG) as a less complex and more flexible legal and organizational form of cooperation and centralization of capital.34 The EEIG was designed as a new instrument of establishing an undertaking by citizens of at least two EU Member States.

Making profits for itself should not be the main purpose of a grouping and the employers can not hire more than 50 employees. At the proposal stage the Regulation envisaged that R&D would be the basic function of such a grouping. However, at the moment the grouping form is used to resolve a wide range of tasks (see Anderson, 1990, p.9). One of the advantages of EEIG is taxation transparency, i.e. profits are taxed after they have been distributed among its members.

The purpose of a grouping is only to facilitate or develop the economic activities of its members. A grouping has no authorized capital and its members have unlimited joint and several liability for the OJ 19898 L/386/32.

The time spent on completing the procedure depends on a number of factors. The higher the complexity and inconsistency of the measure the more time is needed to implement it. Besides, progress in this area might depend on how much an important European official, President of the European Commission, for example, tries to implement the measure while he/she still occupies the present position.

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