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Second Council Directive – The formation of public limited liability companies and the maintenance and alteration of their capital (77/91/EEC)

The Second company law directive dates from 1976. It coordinates national provisions on the formation of public limited liability companies, minimum share capital requirements, distributions to shareholders and increases and reductions in capital. The Directive lays down the conditions needed to ensure that the capital of the company is maintained in the interest of creditors.

Furthermore, it protects minority shareholders and states the principle that all shareholders who are in the same position should be treated equally. It sets out information which must appear in the statutes or the instrument of incorporation of the company (type and name of the company, objects, and so on). The directive also lists certain other information which must be made public (registered office, types of shares, subscribed capital, and so on).

As regards company formation the directive determines the amount and composition of the minimum subscribed capital, rules governing the issue and the price paid for shares and the form of consideration acceptable. No distributions to shareholders may be made when on the closing date of the last financial year the net assets are lower than the amount of the subscribed capital and reserves. There is an exemption for investment companies with fixed capital. There is a definition of a serious loss of the subscribed capital, in which event a general meeting must be called. The directive also states principle and exemptions on subscription by a company of its own shares, and on loans made and security provided by a company, as well as increases and reductions in capital.

In October 2004 the European Commission presented a proposal which would amend parts of the 1976 Second company law directive. The aim of the proposal is to make it easier for public limited liability companies to take certain measures affecting the size, structure and ownership of their capital. The new proposal would enable Member States, under certain conditions, to eliminate specific financial reporting requirements and to facilitate specific changes in share ownership. It would also bring into line across the EU the basic elements of legal procedures for creditors when capital is reduced.

The changes would include:

  • limiting the need for an expert valuation of contributions in kind when a company establishes itself or increases capital;
  • relaxing current rules on the limitation or withdrawal of pre-emption rights, to make the procedure of issuing new shares less burdensome, while maintaining shareholders’ protection from dilution of their shareholdings;
  • partially relaxing the prohibition on companies providing financial assistance for acquisition of their shares by third parties;
  • introducing ‘squeeze out’ and ‘sell out’ rights (that is, the right of the majority shareholder, under certain conditions, to buy out minority shareholders at a fair price and the complementary right of minority shareholders to compel the majority shareholder to buy their shares);
  • introducing a right for the company to acquire its own shares up to the limits of distributable reserves.

These modifications should enable companies to react more promptly and efficiently to market developments. Strong provision for protecting shareholders’ interests is made in the proposed amendments.

Legal basis

  • Art. 44 II lit.g EC (former Art. 54 III lit.g EEC)


  • Directive 92/101/EEC
  • Proposal COM (2004)730


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