NOTICE: THIS IS A SAMPLE OF THE COMPLETE ANSWERS FOR THE TEST. IT IS
INTENDED TO PROVIDE STUDENTS WITH ADDITIONAL GUIDELINES ON THE
STRUCTURE AND CONTENTS OF THEIR EXAMS. FOR THIS REASON, ALTHOUGH THE
QUESTIONS REQUIRE STUDENTS TO REFER ONLY TO TWO LEGAL SYSTEMS OF
THEIR CHOICE FOR EACH ANSWER, THIS SAMPLE MENTIONS ALL THE LEGAL
SYSTEMS TAKEN INTO CONSIDERATION IN THE SYLLABUS OF THE COURSE (WHERE
APPLICABLE).
Comparative Company Law – Prof. Vanoni
Exam of 9th July 2019
1. A limited partnership has four partners: two general partners and two limited partners.
Explain: a) what is the position of the limited partners with respect to the powers of management
and representation of the partnership? can they be involved and to which extent ? b) If they cannot,
what would the consequences for the limited partners be if they breached such prohibitions?
Answer by making reference to two different legal systems.
A limited partnership is a partnership with two classes of partners: general partners (GP) and
limited partners (LP): the former can be likened to the partners of general partnerships, the latter
are characterized by having limited liability for the obligations of the partnership to the extent of
the contributions made to the business organization. Since they risk less than GP, in most
jurisdictions LP usually undergo some restrictions as to the power of management and/or
representation of the partnership.
England: LP cannot manage or represent the partnership, unless otherwise provided in the
partnership agreement and could lose (but not necessarily) their limited liability for the obligations
of the partnership.
France: LP seem to be allowed to take part in management decisions, but cannot enter into
transactions with third parties; if they do, they become liable for the obligations arising only from
the prohibited acts.
Germany: LP are excluded from management, unless the articles provide otherwise, but can object
to transactions going beyond the scope of the ordinary business described in the articles; they have
no power to represent the partnership and lose limited liability if they breach such prohibition.
Italy: LP are hindered from commingling with the management or the representation of the
partnership, unless expressly authorized to do so by the GP and managers; in case of breach, a LP
will lose limited liability for all the obligations of the partnership, but will not become a GP.
US: each State has its own partnership law. However, State statutes tend to adopt all or parts of
Uniform Acts, namely the RULPA of 1985 or the ULPA of 2001. In both cases, LP can take part in
management activities; as for the power to act as agent for the partnership, there are no
restrictions under the ULPA, while the RULPA provides for unlimited liability if the LP behaved in
a way to let third parties reasonably believe they were GP.
2. Suppose that you are a shareholder in a private company.
Explain: a) Could you freely sell your shares to your brother? b) Could you freely sell your shares
to a person that was introduced to you by an officer of your bank? c) If the answers are negative to
a) and/or b), what should you do to sell your shares?
Answer by making reference to two different legal systems.
Generally speaking, companies are characterized by the principle of free transfer of shares, since
the personal features of the shareholders are not particularly relevant for the business
organization. However, since private companies have a small number of shareholders, some
jurisdictions provide for some restrictions, while all of them allow shareholders to agree on
providing for some limits (eg: pre-emption rights) to the transferability of shares.
England: restrictions to the transferability of shares may be agreed upon in the articles of the
company, otherwise there are no mandatory restrictions; the same principle applies to Italy and
Germany.
France: there are no statutory restrictions to the transfer among family members; transfer to third
parties requires (by statute) the approval of at least half of shareholders in number and
sharecapital; if approval is not granted, the shares must be bought by the company or its
shareholders, otherwise the transfer to the third party can take place.
US: private companies are called close corporations. Only a few States provide for mandatory
restrictions to the transfer of shares (pre-emption rights to the existing shareholders), whilst
generally speaking opt-in restrictions are allowed in charters.
3. Suppose that you are a member of the Board of Directors of the public company ZZZ; at the
Board meeting which was held yesterday the directors checked the accounts of the first semester of
2019 and realized that in that period the company suffered serious losses.
Explain: a) In which circumstances should the directors take any action with respect to such losses?
b) what could the role of the shareholders be?
Answer by making reference to two different legal systems.
In jurisdictions which mandate minimum capital contributions and retain the notion of legal capital
(EU countries), usually when the company incurs losses and they exceed a certain proportion to the
legal capital amount (i.e., the item in the balance sheet) the balance between the losses and the
value of the legal capital must be readjusted through a capital increase (requiring shareholders to
make additional capital contributions) or a capital decrease, which formally amends the item of
legal capital, brings it to its actual worth and writes off losses. In some jurisdictions the increase or
reduction is not mandatory, but it is carried out for information purposes and to allow a more
efficient management of the company. The jurisdictions in which a certain proportion between legal
capital and losses is mandated are:
France: when losses have reduced the capital by over ½ shareholders must decide whether to wind
up the company or make new capital contributions
Italy: when losses cause the capital to diminish by over 1/3 of its worth, a shareholders’ meeting
must be called by the directors in order to cover losses through a capital increase or write them off
through a capital decrease (which can be put off for a year, unless the losses caused the capital to
fall below its mandatory minimum amount).
Germany: if losses are written off through a capital decrease, directors cannot distribute dividends
to shareholder exceeding 4% of the sharecapital worth to protect creditors.
Capital alterations are amendments to the charter and must be resolved by shareholders’ meetings
to be passed by a supermajority vote.
US: in some States the legislatures have eliminated the notion of stated capital; in this case, if the
corporation incurs losses, directors can make distributions to shareholders only in compliance with
the insolvency test.
4. Suppose now that the public company ZZZ has adopted the one-tier governance system.
Explain: a) who appointed you to your office of director ? b) Within the company, who is in charge
of monitoring/supervising your activity?
Answer by making reference to two different legal systems.
The one-tier governance system is mandatory in the US and England; it is optional in Italy and
France. It is called one-tier system, because it does not contemplate a supervisory body separated
from the board of directors.
In all jurisdictions, directors are appointed by the shareholders’ meeting, which resolve by a simple
majority vote, except for the US, in which the MBCA provides for a plurality vote, so that it is
easier to appoint directors and allow the corporation to keep operating its business.
Control over management (compliance with applicable laws and the charter) is carried out by nonexecutive directors within the board (who may be organized in committees) and is considered to be
part of management duties.
In France there is a PDG and executive officers; the other directors are mostly in charge of
monitoring the executives activities.
In Italy the directors in charge of the supervision are part of a committee and must all meet the
strict independence requirements mandated for the members of the board of statutory auditors in
the two-tier horizontal system.
In England and the US as well usually the directors in charge of monitoring must qualify as
independent directors.