Antoine PUJO

Tuesday, 27 September 2016

Chapter 3: Corporate Law — General Rules

Two types of companies: limited liability company (LLC) and general liability company (GLC). And
there are public and private companies: public —> you are on the stock market; private —> you are
not on the stock market.

General Liability Company (GLC) : You are liable without any limit. If there is a debt higher than
your entire wealth, you will pay and loose your entire wealth (more risky). No contribution.

Limited Liability Company (LLC) : Contributions: $2000 in the company. You can’t owe more than
$2000

Part 1: Definition of a Company

A company is (1) a person; (2) a contract.

1.1 — A Person

As a person, a company has a state: name, date of birth, date of death,

nationality, and parents (founders). Each company has one nationality.
Multinational companies: headquarters (parent company) has one nationality,
and the group may have more than one nationality (subsidiaries).

As a person, a company also has a capacity: a company will always have a full capacity. But it
requires someone real to do things and incarnate the company. Representative “​in carna​” (CEO for
example). No wedding but can merge.

Company also has patrimony, since it is a person: you cannot own a company as if it was a person,
but you can control it with shares (stocks). A company has a bank account.

1.2 — A Contract

When there is only one person, it is not a company (except in special cases). You don’t need to have
a written contract to create a company, but you need to have an offer and an acceptance.

Two kinds of contract: (1) ​de jure c​ ompany (WLC & CLC) — you need to have a paper for
registration, it is essential. ​De jure c​ ompany can be both GLC and LLC. When it is written, it is
called statutes (CLC) and articles (WLC); (2) ​de facto ​company (CLC) — a ​de facto ​company is

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always a GLC. Don’t need to register, since it is an oral agreement. It can be created from facts.

Part 2: Birth of a Company

In order to create a company, there is a key notion: ​affectio societatis. ​It means three things: (1) to
work together: difference between working with, and working for. In work together, it is a matter of
working with; (2) to share benefits: this is why they created company. If you don’t share, you are not
part of the company; (3) to share losses.

If you have these three elements, you do have a company.

What happens if you have started to create of a company, and you have decided to buy stuffs for the
company. Who do this stuff belong?

Three period in the lifetime of a company: (1) before the signature/articles/status; (2) after the
signature, before the registration; (3) after the registration.

Period 1​: anyone can force the company to respect certain rules, sign the contract added to the status.
If you sign the contract + the articles, the company is bound, so the company is the owner of the
thing bought.

Period 2​: a power is a document you sign in order to give someone to have the power to do
something. If you want to have the ability (to bind a company) through a document, you will have
the power through a power. In order to have the power through a power, you need to be a founder.

Period 3: only one has the power to bind the company (the CEO, representative, president). He is the
only one to be able to give a power. He has to the power to speak on the behalf of the company. He
is the only able to force a company to respect the contract signed at the moment of the creation of the
company.

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Part 3: Life of a Company

3.1 — Representatives

A representative is someone that do all the actions which are necessary on the behalf of the company
(i.e. CEO). In a GLC, all the shareholders are representatives, unless we have exception in the
statutes articles. In a LLC, the representatives are elected for a limited period of time.

There are representatives in every entreprise/undertaking in the world. In case of a criminal matters,
both the representatives and the company are liable and condemned. Same for business matters, both
the representatives and the company are liable and condemned.

A representative can be dismiss in some cases:

(1) In GLC, 100% of votes are needed to dismiss a representative, and only if there is a serious
ground (anything harming the company as a representative). Exemples of serious grounds: hire
someone after two months with no qualification, paid too much, etc. Drunk, heavy smokers, abuse of
employees, or fired because of economic reasons (even if there is no economic crisis), there is no
serious ground.

(2) In a LLC, you don’t need serious grounds, but you need bind ​ad nutum. T ​ he decision is
immediate and irrevocable (absolute power — no need to justify your choice). Exemple of ad nutum:
moving your head.

Rule of Appearance: if the representatives of a company sign a contract with a creditor, and they
cannot pay anymore, the creditor will ask the company to pay the creditor. And if the shareholders
opposed themselves against the contract, the shareholders can sue the representative.

If it appears logical for a creditor that the representative binds the company, then the company is
bound.

If a contract is accepted by the company by the representatives, this contract can be either (1)
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accepted — a common one, a usual one; (2) prohibited; (3) controlled: neither accepted, nor
prohibited — an agreement between the company and the representatives, or a family member of the
representative, or a shareholder, or a family member of the shareholder, or a company, controlled by
the representatives or a family member, or a shareholder or a family member of the shareholder.

3.2 — Shareholders

Shareholders have rights and powers.

They have the right of the receiving money (through dividends, other not public company) and they
have the right of voting (but not always, because it depends on the company — GLC/LLC).

In GLC, when you vote it’s one person = one vote. You need 100% of votes (of the people being
there).

In LLC, one share not always equals one vote. You need 50% + 1 vote.

In a LLC, if you want to change some articles, you need 2/3 of voting people agree (even if normally
it’s 50%). If you want to change the nationality of the company, you need 100% of approval.

Sometimes shareholders won’t vote in the interest of the company, but for their own interest. It can
then be: (1) an abuse of majority: major shareholders vote for themselves and not for the company.
The other shareholders can seize the court and start a legal action. The judge will then cancel the
decision only in LLC; (2) an abuse of minority: block decision against the company interest : in GLC
and in LLC, if you have more than 1/3 you can block.

For defacto company, it is always impossible to sell and to transmit shares.

For dejure company, it can be possible to sell or to transmit shares only if it is written in articles.

In GLC, if you have a new shareholder who wants to buy a share of another one shareholder, the
others shareholders have to agree (approval) to permit the new one to buy. If you die and you decide
to give your shares to your children, there is no need of approval. However, if you decide to give it to
a non-member of your family, you need approval of the other shareholders (only in GLC).

A prohibited agreement is a contract creating a loss for the company without any consideration or
that is useless.

Shareholders can also give ​quitus​. Once a year, shareholders can vote to accept or not the way the
company was managed by the representatives. Then, the representatives produce and show account,
and the shareholders can vote to accept and give quitus, that is they lose the right to start a legal

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action against the representatives.

If they don’t give quitus, the company is frozen and the representatives don’t have the power to
represent the company anymore. Then, we need to dismiss the representatives. And after one year, if
you cannot find someone to remplace the representatives, the company is destroyed and this is the
end.

Fraus omnia corrumpit: if the representatives lie while producing the account, it is possible to start a
legal action, even if quitus was given.

Part 4 : Death of a Company

If you are in a GLC, if there is any change in the ​company’s structure ​(someone dies, the
representative is dismissed, etc.), it leads to the death of a company.

In WLC, a company is created for a number of years (​term​). The maximum of years is 99 years
(because it’s the expected time of a normal person). But you can end your company thanks to general
assembly, and then you create the same, and the old company will transmit everything to the new
company.

You can end a company by making shareholders vote.

The lack of ​affectio societatis​, you can’t have a company anymore, so it ends.

Bankruptcy ​is another way to end a company. There is bankruptcy when the liquid debts (debts you
have to pay now) cannot be paid by the useable assets (assets you have to use now). When there is
bankruptcy, there is a specific order of creditors to be refund thanks to the capital: (1) the state:
because the public interest is bigger than the personal interest and because the one that creates law is
the state; (2) employees, called superpriviliged, also called über: because they worked many months
without being paid, but their chance of receiving money is very low; (3) creditors with a privilege: a
privilege means there is a security, that could be: (a) mortgage, a security on res immobilis (building,
land, home...); (b) pledge: res mobilis (cars, animals...); (4) simple creditors also called unsecured:
because they don’t have any mortgage or pledge, and their chance to receive money is around 0.

To refund the creditors, it follows the rule prize of the race: first in first paid.

Is it easy to buy or sell shareholders? In GLC you need to have vote in favour (100%)
and for a LLC we don’t care, you can do what you want.