Public limited company (d.d.)

A public limited company (d.d.) is a company whose share capital (capital stock) is divided into shares. It is represented by a legal person, which means that it is an independent holder of rights and obligations in legal transactions.

A public limited company is a capital company in which the shareholders are not personally liable; rather, liability is held by the company itself up to the amount of all its own assets. As with other companies, the personal liability of partners may be establishment through the process of ‘lifting the corporate veil’.

A public limited company may be set up by one or more domestic or foreign natural or legal persons that adopt statutes (memorandum of association), which must be drawn up in the form of a notarial act.

Shareholders are not the owners of the company but only exercise their membership and property rights on the basis of paid-up participation (shares) in the share capital.

The statutes are the articles of association of public limited companies and are therefore the most important instrument of such companies, as they govern the manner in which they operate and the relationship between shareholders.

Under the Companies Act (ZGD-1), the content of the statutes should contain the following basic information:

• the name, surname and address or business name and registered office of each founder;
• the business name and registered office of the company;
• the activities of the company;
• the amount of the share capital.

Regarding shares, the statutes must cover the following:

• if a company has shares in a nominal amount, the nominal amount of the shares and the number of shares of each nominal amount;
• if there are several classes of shares, the class of shares, as well as the nominal amounts and the number of shares issued in each class;
• if the company has no-par-value shares, the number of shares and, if there are several classes of shares, the class of shares and the number of shares issued in each class;
• whether the shares are in bearer form or are ordinary registered shares.

Other information to be included in the articles of association of a public limited company:

• the amount of the paid-up capital on the date of entry of the company in the register, and any other paid-up capital;
• management system (single- or two-tier);
• the number of members of the management or supervisory bodies, or the instrument that specifies this;
• the term of office of members of management or supervisory bodies;
• the form and method of publications relevant to the company or shareholders;
• the duration of the company, if established for a certain period of time, and the way in which the company is wound up.

If shareholders contribute through in-kind contributions or if the company takes over current or future plants or other property by means of non-cash acquisition, the statutes must provide for the additional information as defined in the ‘Share capital of a public limited company’ section below.

The minimum share capital amount is EUR 25,000 and the minimum nominal amount of one share is EUR 1. Higher nominal amounts must be denominated in multiples of EUR 1. Shares may be paid for in cash, in kind  or by non-cash acquisition (the company takes over current or future plants or other assets). However, at least one third of the share capital must be paid in cash.

If shareholders contribute in-kind contributions or if the company takes over current or future plants or other assets by means of non-cash acquisition, the statutes must determine:

• the subject of the contribution in kind or non-cash acquisition;
• the person from whom the company acquires the item;
• the number of shares and, in the case of shares with nominal value, their nominal value as well, made available by means of a contribution in kind or non-cash acquisition.

If the company takes over an asset for which payment is made and which is to be added to the shareholder contribution (non-cash acquisition), this is also deemed to be a contribution in kind.

If a company is established by one founder, it must pay the shares in full prior to the entry of the company in the register, or provide the company with adequate security.

Shares are securities. They are in bearer form or are ordinary registered shares. A share performs two functions: it constitutes an aliquot of the share capital and is a document (security) that contains the content of the holder’s membership rights.

Membership rights include property rights and membership rights in the stricter sense. The most important property right is the right to participate in profit-sharing, while the most important membership right is the right to participate in the management of the company.

Shares are divided in terms of rights into ordinary  (regular) and  preference (beneficial) shares.

Ordinary or regular shares give the holder the right to:

• participate in the management of the company;
• enjoy a share of the profits (dividend);
• receive a corresponding portion of the remaining assets after liquidation or bankruptcy of the company.

In addition to the above, preference or beneficial shares confer the following pre-emptive rights:

• in relation to the payment of predetermined amounts or percentages from the nominal value of the shares or from the profits;
• in relation to payments made upon liquidation of the company;
• other rights provided for in the company statutes.

Every share also confers a voting right. Only preference shares may be issued without a voting right, although such shares may not account for more than half the share capital of the company.

More information:

• Companies Act;
• Code of Obligations;
• Book-Entry Securities Act.

There are two way of setting up a public limited company: simultaneous establishment and successive establishment.

Simultaneous establishment of a public limited company means that all founders adopt and sign the statutes and take over the shares themselves. The company is established when the founders take over all the shares. The founders may pay up the shares in cash or by means of contributions in kind. The founders appoint the company’s first supervisory board, whose mandate lasts only until the first general meeting, and a financial auditor for the first full or partial financial year.

The members of the first management board are appointed by the supervisory board. The founders must draw up a report on the formation of the company, and the members of the management board and the supervisory board must verify the process under which the company was set up. The members of the management board and supervisory board make an application for entry of the company in the register.

Successive establishment of a public limited company is effected by means of a public share subscription (prospectus) on the basis of an announcement.

A public limited company is established before a notary. The notary draws up all the necessary documents. The composition and signing of the documents requires the attendance in person of the founders (natural persons or the legal representatives of legal persons). The founders adopt the statutes, publish the prospectus and take over a portion of the shares.

The subscription of shares and the cash payments for them may only be made at banks in which subscribers are able to consult the statutes, the founders’ and auditors’ reports, and the prospectus. Subscription may be unsuccessful if all offered shares are not subscribed for and properly paid in, and if the founders do not take them over.

If subscription is successful, the founders have 15 days from the expiry of the subscription deadline to distribute the shares between the subscribers. The founders may not dispose of payments for shares, and the management board may dispose of them only after the company has been entered in the register.

The founders’ meeting must be convened no later than two months after the expiry of the deadline for the subscription of shares. If the founders’ meeting is not convened, establishment of the company shall be deemed to have been unsuccessful.

The founders’ meeting establishes whether the subscription of shares proceeded correctly, and elects those bodies of the company for which the meeting is responsible under the Companies Act. A public limited company is established only after all the decisions of the meeting have been adopted.

The management and supervisory bodies are the management board, the board of directors and the supervisory board. The company may choose a two-tier governance system with a management board and supervisory board, or a single-tier governance system with a board of directors.

The supervisory board’s function is to supervise the management of the company’s operations. This gives it the right to require the management board to report on issues that are determined by law and that it deems important. The supervisory board must have at least three members.

One group of members of the supervisory board represents the interests of shareholders (these members are appointed by the meeting) and the other group comprises representatives of workers (as provided for by the Worker Participation in Management Act).

The management board holds two functions: the management and representation of the public limited company (d.d.). The management board may be an individual or collective body and must have at least three members. Any natural person may be a member of the management board, even if they are not a shareholder.

The members of the management board (directors) shall be appointed by the supervisory board for the period laid down in the statutes. This period may not exceed six years, but the members may be reappointed.

A public limited company with only a single-tier system of governance comprises, in addition to the general meeting, a board of directors with similar functions to the supervisory board in the two-tier system. The board of directors manages the company, supervises its business operations and represents it.

The board of directors of a public limited company may also appoint one or more executive directors, who may also be members of the board of directors. The board of directors must enter every appointment of an executive director, and the scope of their entitlement to represent the company, in the register.

Executive directors may assume responsibility for day-to-day business management, the management of accounts, the drawing-up of the annual report, etc.

Every public limited company has a body called the general meeting. In this body, shareholders exercise their rights and decide on the adoption of the annual report, the use of the distributable net profit, the appointment or dismissal of the members of the supervisory board or the board of directors, the amendment of the statutes, the appointment of the auditor, etc.

The meeting must be convened in the cases laid down by law or by the statutes, and when convening of the meeting is to the company’s benefit. Management shall decide on the convening of the general meeting by simple majority.

Announcement of the convening of the general meeting contains details of the time and place of the meeting, and the conditions on which participation in the meeting and exercise of the right to vote depend. Every decision taken at the meeting is certified by a notary in a notarial act.

The strengths of public limited companies lie principally in the fact that:

• the shareholders are not accountable for the company’s liabilities;
• legal transactions may be concluded between the company and its shareholders;
• they may operate on the stock exchange.

The weaknesses of public limited companies lie principally in the fact that:

• there is a duty to pay up the share capital;
• dividends are subject to high taxation;
• the procedure of establishment is more complex;
• the operating costs are higher.