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GAZETTE
SEPTEMBER 1980
COMPANY LAW NOTES
Second Council Directive on Co-ordination of Regulations
relating to the formation of Public Limited Liability Com-
panies and the Maintenance and Alteration of their Capital
(97/91/EEC)*
The Second EEC Directive on Company Law was
adopted by the Council of Ministers on 13 December
1976 and required Member States to adopt legislation
implementing its provisions by December 1978. The
Directive was implemented in the United Kingdom some
months ago by the Companies Act, 1980, but no legisla-
tion has yet been proposed in Ireland, although it is
expected that a Bill will be published before the end of this
year.
Of the Directives under review, the Second Directive
will undoubtedly have the most noticeable effect on Irish
solicitors' everyday practice of company law. Its most
significant provisions may be discussed under the
following headings:
Classification of Companies
In Ireland and the U.K., the Directive applies to public
companies limited by shares and to public companies
limited by guarantee and having a share capital, and
(unless otherwise stated) the word " c omp a ny" in this note
is intended to refer only to such companies. A company
must indicate its nature in its title; in the U.K., this has
been done by requiring such a company to include the
words "public limited c omp a ny" in its corporate name.
The U.K. has also altered the grounds for distinguishing
between public and private companies found in Ireland in
Section 33 of the Companies Act, 1963 by removing the
provisions requiring private companies to limit the
number of their members and restrict the transfer of their
shares. Instead, the U.K. Act provides that the essential
distinction between public and private companies will now
be the prohibition on private companies offering their
shares to the public. (The U.K. Act also prohibits the
formation of any new companies limited by guarantee
having a share capital, but this is not required by the
Directive.)
Provisions will have to be made in the implementing
legislation for somewhat altered procedures for the
incorporation of public and private companies and for the
conversion of private companies into public companies
and vicc versa.
Memorandum and and Articles of Association
The Directive specifies certain basic data relating to the
company which these documents must contain and also
requires the publication of other information not presently
filed, such as the actual or estimated amount of all costs
payable by the company in connection with its forma-
tion.
Subscription of Capital
The Dircctivc requires a company to have a minimum
subscribed capital of 25.000 European Units of
Account (about IR£16,750) before it can commence
business. It provides for the adjustment of this minimum
•(Official Journal L26 of 3 1.1.77).
capital in the event of fluctuation of the exchange rate
between national currencies and the E.U.A. and also
provides for a fiveyearly review of the minimum as
calculated in E.U.A. The Directive contains transitional
provisions hich will allow existing public companies
achieve the minimum capital figure over a period of up to 3
years from the date on which the implementing legislation
enters into force. Member States are free to adopt a higher
figure if they wish: the U.K. Act requires a minimum
capital figure of £50,000.
Shares issued (for cash or other consideration) on
incorporation or on an increase in capital must be paid up
to at least 25% of their nominal value before the company
can commence business. Where the consideration is other
than cash, it must be contributed to the company within
five years of the date of allotment.
The Directive prohibits the issue of shares at a discount
except to persons who "place shares in the exercise of
their profession". This provision has led to the repeal in
the U.K. of the equivalent of Section 63 of the Companies
Act, 1963.
The Directive requires a company's subscribed capital
to be made up of assets "capable of economic
assessment" and prohibits a company from accepting
an undertaking to perform work or supply services as part
of those assets. To ensure that these principles are
observed, the Directive goes on to provide that where
shares are issued for a consideration other than cash,
either on the incorporation of a company or on an
increase in capital, the company must obtain an
independent expert's report on the value of the assets
being contributed to the company and this report must be
published. The "independent expert" in Ireland will
almost certainly be the company's auditor. A similar
report is required if, within two years of incorporation, a
company acquires any assets from its promoters for a
consideration equivalent to 10% or more of its issued
capital.
Member States need not require an expert's report on
an increase of capital where shares are issued on a take-
over or merger involving an exchange of shares.
Maintenance of Subscribed Capital
The Directive introduces an important new rule in
relation to the payment of dividends by providing that
they can be paid only to the extent that the company's
"net assets" after payment of the dividend will not be less
than the subscribed capital plus any reserves not avail-
able for distribution. The term "net assets" is not defined
in the Directive; in the U.K., the legislation provides for
the definition of net assets by statutory instrument, which
will permit developments in accounting practice - such as
inflation accounting — to be taken into account. The
Dircctivc also provides that distributions to shareholders
may not exceed the aggregate of (a) the profits at the end
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