Capital market and public companies law

Capital markets and EU company law

Exam details

Paolo Benazzo

Papers, cases/codes, etc.: material of exam.

Exam: Written, with 3 open-ended questions. 50-60 minutes.

Course structure

The course is divided into four sections:

Corporate governance

Definition and significance of public companies

What are public companies and the relevance of these in our economics and societies.

Company and corporations are synonymous: "company" is according to UK usage; "corporations" to USA.

Types of company ownership

Based on whom owns a company, we distinguish:

• Private company: Owned by private individuals.
• Public company: Owned by governments, States.

Private company characteristics

PR. C.) A private company hasn’t shares [quote, azioni]; a public company has.

In private companies, having shares means that there are equity holders, subjects who invest capital in the company. If we decide to establish a private company, we invest money in the company and we become equity holders, owners of capital, of equity (not debt!).

“Equity” means that if we invest money, all these monies are definitely invested in the company and we cannot pretend to have these monies recovered: once invested, until the company exists, those monies are invested in the business activity. We are not lending money to the company! In case of lending money, the creditor has a legal right towards the company to have the money paid back under the terms of the contract.

Risks for equity holders

An equity holder is running a risk: if things go well, the profits belong to the equity holder; if the company is bankrupt, the investment is lost and they can’t request to be paid back (like in banks).

Equity and shareholder: no differences in terms of risks: they invest money in the company: if the company makes profits, profits are to be paid to equity holders and shareholders; if not, nobody can say anything to the company. If the company goes insolvent, the monies are lost definitively.

Public company characteristics

PU.C.) A shareholder's peculiarity is that participation in the company is represented by means of shares. A "share" is a piece of the equity capital of the company [capitale sociale della società].

• Each share is equal to any other shares (ex: 20€ of equity capital, 20 shares of 1€ of nominal value). In order to be the owner of the share, one must invest at least 1€.
• Each share used to be represented by a piece of paper, where it is stated that this share represents a piece of the capital of that company. The owner of the share is a participant as a shareholder to the capital of the company.
• The share could easily pass on different hands: if one wants to get out of the company, they cannot say to the company that they want to leave, but they have to sell the share.

Therefore, public companies are companies which aren’t a private deal, a deal within a small group of equity holders: they do negotiations!