Hi.

My Name is Niklas Arvidsson.

I am an associate professor of
the Faculty of Law at Lund University.
My teaching and research mainly focuses on
company law and commercial contract law.
This lecture aims to give you a basic but
critical introduction into company law and
its European dimension.
First, it is important to realize
that both company and contract law,
whatever they are, deal with the phenomena
of huge importance for us all.
This is quite easily understood.
Society at large is
dependent upon markets, and
market transactions are in
essence contractual transactions.
So without contracts,
there simply is no market.
But markets also presuppose the existence
of stuff to be bought and sold.
As we all know,
this stuff is called goods and services.
Without them,
there will be no transaction.
The reason is, that the very function
of transactions is to create rights and
duties over the stuff.
But goods and services aren't
given by God, not directly anyway.
Instead, someone has to invent and
produce them.
And this someone is often a company.
Why?
Because invention and
production comes at a cost.
And this cost often exceeds
the means of a single person.
This is especially true of production.
A single person might invent something.
He might even produce something
out of his invention.
But he will certainly find mass
production very hard to accomplish.
Companies are designed to
overcome these difficulties.
Basically, a company is a legal tool for
accumulating resources, including money
and people, in order to sell stuff.
And as I mentioned, contracts
are the legal tool for selling and
buying stuff, of course,
all this is extremely simplified,
but in essence, it is nevertheless true.
In fact, companies are also closely
related to contracts in another sense.
Generally speaking, a company is a
voluntary association formed and
organized to carry on a business.

And the fact that companies

are voluntary association,
means that they are contractually or
semi-contractually based.
Okay.
So what does European law
have to say about companies?
Unfortunately, this question
cannot be answered unless we
first pursue an answer
to another question.
The question I have in mind is what
it means to speak about company law.
An answer to this question is logically
needed in order even to understand
the first question, furthermore,
our answer has to be universal.
Without a universal concept of company
law, it is impossible to speak of
company law across jurisdictions,
as I'm certainly trying to do right now.
Here we are touching upon
really interesting stuff.
To what extent is it really
possible to communicate legal
knowledge across jurisdictions.
And the different languages
that are tied to them.
I don't know.
One thing is sure though,
legal science is completely and
radically different from natural sciences.
Don't be fooled by those saying otherwise.
There are universal descriptive
theories of particle physics, but
there can be no universal descriptive
theories of law, including company law.
Having said this,
I still think it's possible to elaborate,
the minimalist universal
concept of company law.
Let me at least try.
Roughly speaking, company law is law
specifically targeted at companies.
As we remember, a company is
a voluntary association formed and
organized to carry on a business.
This definition is large enough to
comprise both companies limited by
shares and partnerships.
It should be mentioned however,
that the word company often is used as
a short hand for company limited by
shares, also known as corporations.
According to this usage,
partnerships are not companies at all.
But here, I don't use the word
in such a narrow meaning.
No doubt, the vast majority of the laws
applicable to companies are not

part of company law, instead, these laws

are usually members of other areas of law,
such as contract law, securities law,
tort law or tax law, company law.
Well, this law applicable to and
only to companies.
Now, a universal concept of company
law cannot be too content focused.
The reason is that there
are huge differences between
different jurisdictions as to
how companies are regulated.
One kind of differences concerns
available company forms.
Most company forms are not shared by
all jurisdictions on the planet earth.
However, some forms are more or
less universal,
such as the company limited by shares and
the general partnership.
The trouble is that within such more or
less universal forms, there are still
differences as to, to applicable rules.
The differences and similarities between
jurisdictions are discussed within
an international discipline
called comparative company law.
In view of the pluralism, however,
it has become fashionable to shift
focus from rules to functions.
The underlying idea is that rules
address extra legal problems and
that different rules can
address the same problem.
Hence, in spite of the fact that
there are a few universal rules,
maybe there are universal functions.
And maybe, a universal theory of company
law could be built upon such functions.
The problem here is that
the word function is ambiguous.
Sometimes it is used to describe effects,
and
sometimes it is used to
describe intended effects.
And as we all know, there is no guarantee
that a rule has the intended effect.
As a matter of fact,
there is no guarantee at all that a rule
is underpinned by any intentions.
I am aware that this might sound strange.
We are so used to view law instrumentally.
That we often have a hard time accepting
the possibility of purposeless rules.
Anyway, the dominating functionalist
view of company law is built upon
economics.The point of departure
consists of the so called agency theory.
According to this theory,
the problems of any company law

are derived from information asymmetries

between so-called agents and principals.
The reason is, that these asymmetries
give rise to so-called agency costs.
And company law, it is thought,
can best be explained as motivated by
an endeavour to minimize such costs.
In its most general form,
the principal is anyone who's
interests are affected by
the actions of another person.
This other person then is an agent.
And thus, if A and B are persons and
A's decisions influence B's welfare, then
B is A's principal, and A is B's agent.
However, in law, agency relationships
presuppose the existence of direct or
indirect legal relationships
between agents and principals.
In the context of a company, there
usually are multiple agency relations.
For an example, such relations exist
between the company's members.
They also exist between,
on the one hand members, and
on the other hand non-members, who are
invested with decision-making authority.
And, they exist between members and
other company stakeholders,
including the company's creditors.
No doubt agency theory has
proven very fruitful in
explaining the fundamental
problems of company law.
But I will not dwell on this theory here,
instead, I would like to construct a more
rule oriented concept of company law.
In spite of the difficulties, I believe
that such an account is possible but
of course,
it has to be sufficiently general in
character to accommodate very different
company forms and company rules.
I will however, only speak of companies
with so called legal personality.
This means that I'm only interested in
company forms which as a matter of law,
can have rights and duties.
The core of company law
has three components.
First, there have to be rules
concerning the decision making
procedures within a company.
This rules organize and
regulate the decision making
authority on behalf of the company.
In that way, they construct what is known
as the company's internal relations.
Secondly, there had to be
rules that organized and

regulate the representation of

authority on behalf of the company.
These rules concern what is known as
the company's external relations.
And thirdly, there have to be rules
regarding the responsibilities for
the company's debts.
Rules regarding decision making procedures
are necessary since companies usually have
many members, often they also have other
persons involved in the decision making,
such as directors and officers.
Due to this pluralism,
there had to be rules that decide
when a company decision exists.
In other words, these rules identify
the conditions under which the decision is
subscribed to the company.
For example, within a company
limited by shares, the individual
shareholders usually have no decision
making authority on behalf of the company.
Instead, this authority is granted to
entities such as the general meeting and
the board of directors.
But the rules that help us identify
company decisions are insufficient.
Instead, they had to be complimented
with another type of rules.
These are rules which decide when a given
company decision is lawful and or
not, from the perspective of company law.
Even though the person or entity might
have decision making authority on
behalf of the company,
that authority is not only potent.
Instead, it is circumscribed
by other rules,
these rules limit the decision
making authority.
And they do so in order to safeguard
the interests of some kind of
legally recognized
stakeholders in the company.
Such stakeholders typically
include company members and
the company's creditors.
An intensely debated normative question
concerns, how the relevance stakeholders
should be conceived, especially in
the context of multinational corporations.
This question has a defining character for
the international movement that calls for
an enlarged corporate
social responsibility.
This is not the place to
discuss these things further.
Let me just say that the issue
might be explained in terms of
so-called externalities.

Actions taken by multinational

corporations no doubt have
an enormous societal impact.
It seems clear then that the welfare
of humankind at large is
strongly affected by corporate actions for
good and evil.