Harmonization of company law in Europe

From a Legal and Economical Perspective
Spring Term 2002
Essay Topic:
Discuss the need for harmonization of company law in Europe having
regard to the development and experiences in the U.S. and the current
status of harmonization in Europe.

Jochen Müller

STRUCTURE

DISCUSS THE NEED FOR HARMONIZATION OF COMPANY LAW IN EUROPE HAVING REGARD TO THE DEVELOPMENT AND EXPERIENCES IN THE U.S. AND THE CURRENT STATUS OF HARMONIZATION IN EUROPE. 1

INTRODUCTION 1

LEADING TO THE TOPIC 1

WHAT IS HARMONIZATION? 1

AUTONOMOUS HARMONIZATION 2

NEED FOR HARMONIZATION OF COMPANY LAW IN THE EUROPEAN UNION? 2

WHY MIGHT HARMONIZATION BE NECESSARY? 3
Current Status of Harmonization of Company Law in Europe 3
Globalization 3
Freedom of Establishment in the EU 3
Protection of Third Parties 4
Development and Experiences in the U.S.A. 4
No Uniform Company Law 4
Mitigating factors 4
Model Statutes 5

WHY MIGHT HARMONIZATION NOT BE NECESSARY? 5
Current Status of Harmonization of Company Law in Europe 5
High Transition Costs 5
Gap between Law and Reality 6
Different Languages 6
Package Solutions 6
Petrifaction of Law 6
Development and Experiences in the U.S.A. 7
Basis of a Common Legal Culture 7
Freedom of Establishment in the U.S.A. 7
Model Act Legislation (MBCA) 7

EVALUATION OF THE FACTS 8

THE COMPETITIVE APPROACH 8

A EUROPEAN MODEL ACT 8

CONCLUSION 8

EUROPEAN PROBLEMS - A FINAL OUTLOOK 8

THE SOCIETAS EUROPAEA 9

Discuss the need for harmonization of company law in Europe having regard to the development and experiences in the U.S. and the current status of harmonization in Europe.

A) Introduction

I) LEADING TO THE TOPIC

European law is a daily reality. The legislation and, correspondingly, the extend of regulations given by the written primary and secondary European Union (EU) law becomes so densely, meanwhile almost as densely as it was hitherto only known from the national regulations system. Consequently, e.g. in Germany, more than 50 per cent of all administrative decisions on federal, state or communal level are taken on basis of regulations coming from Brussels - not everybody is aware of this development yet.

From a theoretical point of view, this EU-legislation can be divided into two different types of rules. One type, of course, are the rules passed by the EU-legislator which create new fields of law. This is regularly then the case if supranational European institutions are founded. The by far bigger part of EU-legislation is, however, that type which consists of rules created to harmonize the regulations already existing on national level in the Member States in order to lighten the burden of friction caused by 12 different (not to talk about the future developments, namely the East-Enlargement of the European Union) systems within the EU in the age of globalization, especially seen from an economical point of few.

II) WHAT IS HARMONIZATION?

Again, from a theoretical point of view, the legislative instrument of harmonization can be divided into two categories. The first can be described as assimilation and adjustment. It is meant to bring the differing national regulations in one subject of matter, e.g. company law, in a kind of mainstream, i.e. to co-ordinate and to make them similar but not necessarily uniform. The Commission in that case normally uses directives for harmonization of law. The Member States then are obliged to set up their own legislation in a manner that the principle of effectiveness of the EU-rules is not infringed but promoted. Nevertheless, there is room for keeping alive typical and traditional national characteristics of legislation.

The second category of harmonization can be described as standardization or, even stronger, unification of law. In that case the means of EU-regulation is used. It takes away the freedom of the Member States to design and set up harmonized rules in their own responsibility. An EU-regulation is binding upon every Member State and it has immediate validity. Thus, unlimited availability of the same law throughout the whole Community is, ideally, being achieved.

III) AUTONOMOUS HARMONIZATION

An interesting phenomenon which shall briefly be mentioned is that in the EU one can observe an increasing tendency of voluntarily adoption of European law and legal standards in national regulations systems. This process one can describe as autonomous harmonization and is characterized by a setting up of national rules according to EU-law without any concrete or obvious obligation for implementation. The national legislator either copies rules from the EU-treaty or another EU legal source when creating and passing new law, or he fulfils indeed a concrete obligation for harmonization an basis of an EU-regulation but beyond that he regulates fields of law being not in the scope of application of EU-regulations, within the same legislative national act.

B) Need for Harmonization of Company Law in the European Union?

It is stated as well by scholars as by the European Court of Justice (ECJ)¹ and fairly accepted that the EU aims at a "Community of Law" apart from all other objectives the EU is supposed to pursue. If we also accept this as a kind of axiom it is to be asked how this objective of a Community of Law can be achieved, especially if we cast a glance at the establishment and all the more at the maintenance and development of both a Common (or Single) Market and an Economic and Monetary Union (EEC) according to Art. 2 TEC. Theoretically, this aim can be reached by three approaches. The first is, as we have already mentioned, harmonization of the regulations systems of the Member States. By that, the second approach, competition between Member States as to political, economical and legal systems is impossible from the first. Therefore, harmonization "from the top to the bottom" can be questioned in depth. Hence, a broad debate about competition of the systems on the one hand and total unification on the other hand can be observed. The third approach to reach the aim of a Community of Law is a so called model act legislation as it is used, for example, in the U.S.A. in the area of company law. In this case a model regulation on a specific area of law is offered by an official authority leaving it to the state whether it might or might not implement the standardized regulation.

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1 ECJ, 14 December 1989, Expertise 1/91, Slg. 1991, I-6079 (6102 Rz. 21)