Hedge funds and Private Equity - PES

3.4 Company law and corporate governance (shareholders rights)
In the fields of company law and corporate governance, the EU objectives include: providing
equivalent protection for shareholders and other parties concerned with companies; ensuring
freedom of establishment for companies throughout the EU; fostering efficiency and competitiveness
of business; promoting cross-border cooperation between companies in different
Member States; and stimulating discussions between Member States on the modernisation of
company law and corporate governance.
Here a long list of directives has been adopted ranging from the formation of public limited
liability companies and the maintenance and alteration of their capital (Directive 2006/68/EC) to
cross-border mergers of limited liability companies (Directive 2005/56/EC), takeover bids
(Directive 2004/25/EC), disclosure requirements in respect of certain types of companies
(Directive 2003/58/EC), and Directive 2001/86/EC supplementing the Statute for a European
company with regard to the involvement of employees. A Directive regulating shareholders voting
rights is currently under scrutiny by both EU legislators and a debate is taking place on whether
one share should mean one vote.
The Take-over Directive applies to takeover bids for the securities of a company governed
by the law of a Member State if those securities are admitted to trading on a regulated
market in one or more Member States. The scope of the companies and merger transactions
covered by Directive is narrow. However, Member States can choose to regulate
a wider range of companies and merger transactions if they want to.
The general principles in the Directive are:
All holders of the securities of an offeree company of the same class must be given
equal treatment – in particular, if a person acquires control of a company, the other
holders of securities must be protected.
Holder of securities in an offeree company must have sufficient time and information
to enable them to react a properly informed decision on the bid – the board of the
offeree company must give its views on the effects of the bid on employment, conditions
of employment and the company’s business locations.
The board of the offeree company must act in the interest of the company as a whole,
and must not deny the holders of securities the opportunity to decide on the merits of
the bid.
False markets must not be created in the securities of the offeree company, the offeror
company or any other company concerned by the bid in such a way that rise or fall in
the prices of the securities becomes artificial and the normal functioning of the market
is distorted.
An offeror may only announce after ensuring that it can fulfil in full any cash consideration
it offers and after having taken all responsible measures to secure the
implementation of any other type of consideration.
Offeree companies must be hindered in the conduct of their affairs for longer than
responsible by a bid for their securities.
Part I – Hedge funds and private equity funds – how they work
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