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 ln 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 r 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 e 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 w 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 a 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- Sa 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 ° n 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 e . ns 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. i< re 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