The Gazette 1974

He five directives are all essentially dealt with in the

British and Irish Company Acts.

, But there seem to exist quite fundamental differences

at least two other respects. On the Continent, indus-

trial companies tend to look to the Banks as the primary

source for new capital funds, and these moneys are

aised as long-term loans rather than as share-capital

°r equity, which in many countries, particularly France,

tends even in quite large companies to remain in family

hands. The new issue and stock markets thus have a

les

s important role than in Britain, and disclosure re-

t i r eme n ts tend to be less austere. On the other hand,

Continental Company Law tends to have a somewhat

Hore zealous regard for creditors' rights.

Secondly, both Eire and Britain have a long tradition

supplementing statute law with a complex system of

xtra-statutory self-regulation and discipline imposed

hy the accountancy bodies, the stock exchange, and the

Panel on take-overs and mergers. It is in this area

^here real difficulties lie.

The need to approximate

Now, what have the European Communities to do

ith national company laws? Is there a real need for

Heir approximation? What are the objectives of Com-

munity policy in this field? The two divisions con-

cerned with company law at the Commission are part of

Directorate General called "Internal Market". This

Hference is significant.

It underlines the fact that the Communities have

Lom their very beginning been based on the creation of

a n

area of open commercial competition with all the

important characteristics of the internal markets of an

mdividual country. Clearly, the abolition of trade bar-

bers resulting from tariff rates and quotas was its neces-

ry first step. So is the harmonisation of other direct

measures affecting the price-competitiveness of trade

between Member States such as export credit guarantee,

^ a te aids, special tax rebates, restrictions or premiums

exchange with other Member States.

However, the EEC-Treaty envisages this common

market area as one :

where not only goods, but also services, capital and

persons, that is individuals and business enterprises,

could cross frontiers between Member States free

from being discriminated by law, regulation or

administrative action (Article 3 lit. (a) and (c), 52-73),

area where these basic freedoms can be exercised

within a system (of law and economic policy) ensuring

Hat competition is not distorted (Article 3 lit. (f),

85-102),

"-and where the establishment and the proper func-

tioning of the Common Market are not negatively

affected by diverging national laws (Article 3 lit. (h),

54 para. 3 lit. (g), 56, 57, 66, 69, 70, 99, 100).

H one phrase : creating the common market means

uring conditions for trade within the Community

Hnilar to those existing in a national market (cf. Article

3 para. 3 lit. (b). This huge task clearly asks for

approximation of important aspects of company laws,

Mticularly in relation to public companies.

edom of capital ifiovement

Without such approximation, there will be no com-

mon market for capital investment. The free movement

capital is one of the four basic freedoms to be

att

ained within the Community. Only if investors know

and are sure that they have equal rights and equivalent

safeguards under any of nine company laws, will they

be ready to buy shares from companies incorporated

in other Member States. Consequently, only then will

public companies have real access to the capital mar-

kets of other Member States, and thus be enabled to

both contribute to the creation of a common capital

market and benefit from it. And there can be little

doubt that this aim calls for a system of common legal

rules offering a high degree of protection to investors

and thereby attracting investment in public companies.

Unfortunately, common principles and general rules

will not suffice to reach these results.

Freedom of establishment

Another freedom basic to a common market is the free

movement of persons, including legal persons. The

Treaty of Rome grants the right of establishment not

only to natural persons but also to companies. This is

the right of a company incorporated in one Member

State to operate in the territory of another without

being discriminated against, that is under the same rules

as domestic companies.

Freedom of establishment includes :

—the right

firstly

to set up and manage undertakings

under the conditions laid down by the law of the

host country for its own nationals (Article 52 (2), 53),

—secondly,

to set up agencies, branches and subsidiaries

in other Member States (second sentence of Article

52 (1), 54 (3) (f), 53),

—thirdly,

freedom of establishment includes the right

of existing companies themselves (Article 58 (1)),

—fourthly,

to transfer their registered office to another

Member State without being discriminated against as

a foreign company,

—and

fifthly

to merge with a company established in

another Member State as if it were a company in the

same country (Article 220 subpara. 3).

But unless in all these cases the foreign company is

subject to a company law which provides much the

same safeguards as those provided by its own company

law, Member States could not be expected to grant this

right of establishment in all sectors of the economy. This

is a major reason why the original Member States insist

on approximation of company laws.

Moreover, only through co-ordination can be avoided

another consequence of this freedom : the establishment

of companies in Member States where there are less

stringent safeguards. The companies' choice of location

should be made from an economic point of view and

not a legal one. This is very difficult when a company

is confronted with different rules in each Member State

where it wishes to set up a subsidiary, a branch or an

agency.

In other words : smaller and medium-sized companies

will hesitate to make the fullest possible use of freedom

of establishment. If the fact that a company is incor-

porated in one of the Member States comes to mean

that it is subject to a company law which provides

standard basic safeguards for those who trade with it

and invest with it, there will in every Member State be

more confidence than there is now in companies incor-

porated in the other Member States. This greater confi-

dence will be one of the factors which enable companies

to make use of the increasing opportunities which the

Community will provide. This is the benefit which the

Community see in the approximation of company laws.

It could be a very real benefit. This is why industry and