With the deadline for implementing the EU Shareholder Rights Directive II (SRD II) fast approaching, the government recently published a ministerial draft of the Stock Corporation Amendment Act 2019, which addresses the rules on say on pay and related party transactions. The draft seeks to minimise the administrative burden on listed companies by avoiding any 'gold plating'. Further, it closely follows SRD II and takes advantage of business-friendly options.
Although the Companies Law created flexible mechanisms and procedures allowing specific shareholder powers to be delegated to a company's management, it also provides that only some decisions made in this regard can be subject to an annulment action. Specifically, the law excludes decisions which concern an increase in a company's share capital from being challenged. However, the Constitutional Court recently recognised shareholders' right to request the annulment of such decisions in court.
Until recently, Romanian companies could distribute dividends to shareholders only on an annual basis and on approval of their annual financial statements at the end of each financial year. This paradigm has changed and companies can now opt to distribute their dividends annually or quarterly. Although these newly acquired corporate rights have been widely welcomed within the Romanian business markets, they may initially be treated with suspicion by entrepreneurs.
The squeeze-out of minority shareholders in closely held companies is a controversial issue made more complex by the large number of Romanian companies with minority shareholders. Historically, state-owned companies were privatised through the management-employee buy-out method, which allowed employees to receive shares in former state-owned companies. As such stakes were often granular, many minority shareholders are dormant or even unaware of their participation in these companies.
The corporate functioning rules for joint stock companies have been repeatedly altered by Romanian legislation, especially in relation to the governing structures of companies, such as shareholders' assemblies and management bodies. However, some situations create problems in practice or generate inconsistencies within jurisprudence. One such example is the use of secret voting in general shareholders' meetings.
Creditors and investors assess the level of a company's net assets when deciding whether to grant a loan to or invest in that company. Further, the Companies Law requires companies to maintain a certain level of net assets. However, an increasing number of companies on the Romanian market are struggling with low net assets to total asset ratios. Luckily, such companies can redress their situation through a share capital increase, which is a straightforward procedure.
The Higher Administrative Court recently requested that the Constitutional Court repeal Section 39(2) of the Trade Act, as it infringes fundamental rights guaranteed by the Constitution. Austrian legal practitioners are already eagerly awaiting this judgment, which is expected to be issued during 2018.
EU Directive 2017/828, amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement, was recently published. The directive provides several options for member states when transposing the directive into national law. Depending on how the respective national legislature make use of these options, there will be minor or major changes to the national law.
Parliament recently passed a new law on the registration of beneficial owners of Austrian legal entities. After obtaining the necessary approval of the Austrian federal states, the law is expected to enter into force on January 15 2018. In disclosing the relevant information on beneficial owners, the register aims to detect and prevent money laundering, especially with regard to complex corporate structures, holding companies or private foundations and trusts.
The typical way to invest in an Austrian company is by way of a capital increase. However, there are formalities with respect to limited liability companies (LLCs) – the most popular legal form in Austria – that sometimes make investing in LLCs unattractive or burdensome. To eliminate the concerns associated with these transactions, Austrian law provides a suitable, but widely unknown, alternative investment instrument: participation rights.
The Austrian Parliament recently passed an amendment to the law on limited liability companies (LLCs) aimed at simplifying the foundation of a special kind of LLC. The purpose of the changes – and the simplifications associated with them – have been hotly debated.
In a recent decision the Supreme Court held, in line with prior case law, that apparent authority requires the circumstances on which the assumption of authority is based to be induced by the principal, not by the representative. Although this is not new, the verdict has helped to clarify the boundaries of apparent authority. Certain key requirements must be met in order to establish apparent authority and thus allow the counterparty to rely on it.
Most start-ups are founded by first-time founders directly after graduation, with the founding team typically consisting of no more than two members. Because of this, founders are often unequipped to deal with the business challenges that they will face. Founders thus often make mistakes, especially at the start. Having an advisory board with qualified and trusted members can help a start-up to transform its potential into successes and create a foundation for sustainable development.
The rationale behind no-assignment clauses is that they allow the rights, claims and receivables to remain with the parties that have negotiated and executed the underlying agreement, rather than allowing a counterparty to sell or otherwise transfer its claims to an unrelated party. In order to be effective, a no-assignment clause must have been expressly negotiated and agreed and, with due consideration of all circumstances, must not grossly disadvantage the creditor.
While there is substantial uncertainty surrounding the consequences of Brexit, it can be assumed that it will have far-reaching consequences for limited companies registered on the Austrian Commercial Register. In particular, the freedom of establishment principle will no longer apply to relationships between Austria and the United Kingdom, which will have a significant effect on existing limited companies in Austria.
The legislature recently responded to criticism regarding the 2014 amendment to the Civil Code by considering the special purpose of shareholder agreements and their qualification as undisclosed partnerships. The latest version of the Civil Code now includes an exemption for undisclosed partnerships. All shareholder agreements may once again contain a waiver of ordinary termination rights in line with common practice and the typical goals of these agreements.
Modelled on the German Stock Corporation Act, a 2015 reform of the Austrian Criminal Code introduced a business judgement rule into the Austrian Stock Corporation Act and the Limited Liability Companies Act. The rule applies to management and supervisory board members and will change boards' decision-making processes – in particular, for complex, risky, far-reaching, resource-consuming and strategically important matters.
A recent amendment to the Civil Code will have a dramatic effect on shareholder agreements, as shareholders of a company established for an indefinite term can no longer waive ordinary termination rights. As any party to a civil law partnership can now terminate the partnership, parties should either conclude a termination waiver for a fixed period or conclude the agreement for a fixed period (with renewal options).
Austria recently experienced a significant boom in its start-up sector and has since produced some major international players. That said, starting a business in Austria requires an understanding of the legal system, including common legal risks (eg, founder and shareholder liability), the requirements for founding a limited liability company, adhering to arm's-length principles and establishing exit scenarios.
The Supreme Court recently held that agreements between shareholders on voluntary capital contributions to a company may be agreed outside the articles of association and are subject to no formal requirements. The decision ensures that shareholders of stock corporations and limited liability companies have flexibility when agreeing on capital contributions outside the articles of association.