Company Law (Weeks 10-11) 1. Roots and History of Company Law 2. General Aspects of Company Law 3. Company Law in the EU 4. Company Law in USA 5. Company Law in Turkey

1. ROOTS AND HISTORY OF COMPANY LAW A) Laws related to credit, interest, merchants, division of labor have been around for thousands of years - e.g. Code of Hammarabi, and Roman “Lex Mercatoria” B) Commercial Codes developed later in Europe (1800s) - French Civil and Commercial Codes (shaped commercial law in much of Europe in early 1800s) - German codes (modeled on French codes; later exported to Austria, Switz, Nordic countries) - Ottoman Commercial Codes 1) 1850 – translation of French Commercial Code 2) 1926 – based on German model 3) 2012 – revised code effective this summer

2. GENERAL ASPECTS OF COMPANY LAW A) Company Law Governs Internal Affairs of Businesses 1) Try to reduce/minimize the net cost of production (make things run efficiently). 2) Accomplishes this goal by controlling the relationships between shareholders, directors, and managers. B) Two Dominant Models 1) Anglo-Saxon/American (UK) - Rules focus on maximizing shareholder return 2) Continental Europe (Germany) - Don’t focus only on shareholders’ interests (look also at employees, creditors, public, environment, etc.) * Modern times have seen gradual shift towards 2nd model

3. COMPANY LAW IN THE EUROPEAN UNION (EU) A) Premised on Four Basic “Freedoms” (esp. # 1 and 2) 1) Right of Establishment 2) Free Movement of Capital 3) Movement of Goods/Services 4) Movement of People/Workers B) Directives (generally require disclosure of info) 1) Intended to harmonize laws of EU members 2) Results to be achieved are binding on members, but the form/method of implementation is member choice C) Regulations & Recommendations 1) European corporate form = “SE” (Societas Europaea)

C) The Uniform Commercial Code (UCC) 4. COMPANY LAW IN THE USA A) Background - Regulators: 1)States, 2)Fed. Govt, 3) Securities Exchanges - Sarbanes-Oxley Act (2002): Intended to “protect investors” B) Choosing an Entity / Common Types of Entities - Sole Proprietorship - Partnership - Corporation - Limited Liability Company C) The Uniform Commercial Code (UCC)

CHOOSING A BUSINESS ENTITY A) Ease of Formation/Maintenance B) Tax Treatment C) Liability Issues Choices: Sole Proprietorship, Partnership, Corporation, LLC (see slides 7-10)

A) Owner and Business are single entity SOLE PROPRIETORSHIP A) Owner and Business are single entity B) Formation C) Tax Consequences D) Liability Issues

B) “General” Partnerships A) Partnership Basics 1) Definition/Formation 2) Tax Consequences 3) Liability Issues (personal liability, joint-and-several) B) “General” Partnerships 1) Definition 2) Roles/responsibilities of partners (Agreement?) C) “Limited” Partnerships 1) Generally designated with “L.P.” 2) Roles/responsibilities

A) Business is a legal person, separate from owners CORPORATION A) Business is a legal person, separate from owners 1) Created under state law (Articles of Incorporation) 2) Can sue and be sued; has 1st Amendment “speech” rights B) Important Characteristics 1) Income is subject to “double taxation” 2) Provides limited liability for owners C) Main Actors/Parties 1) Shareholders 2) Board of Directors 3) Officers & Managers * Business Judgment Rule D) Financing – Debt v. Equity Financing; “Capital Structure” E) Common Types – Private, Public C corp, S corp, Non-profit

LIMITED LIABILITY COMPANY (LLC) A) Background 1) Created under state law (Articles of Organization) 2) Recognized in all 50 U.S. states 3) Owners are called “members” * Respective shares, duties, power, etc. are spelled out in an Operating Agreement (function like corporate “bylaws”) B) Important Characteristics 1) Tax treatment of a partnership (flow-through) 2) Limited liability of a corporation (for owners) C) Differences from S Corp

The Uniform Commercial Code (UCC) A) Governs Sale-of-Goods Ks in USA 1) Art. 2 governs sales 2) Title to goods is exchanged for $ (or other value) B) Merchants – regularly deals in a particular good Firm offers (not revocable up to 90 days) C) Writing Requirement 1) Sale of goods priced ≥$500 (compare CISG)

D) Acceptance – any reasonable method 1) Mailbox rule = effective on dispatch (compare CISG) 2) Additional/Different Terms – not fatal to K (compare CISG) E) Open Terms OK 1) Price, payment, & delivery terms can be set later 2) Exception – Quantity must generally be specified F) Performance Duties 1) Seller – “Perfect Tender Rule” 2) Buyer – Accept goods and pay for them 3) Both – Good faith, commercial reasonableness