Transactions with creditors - Solvent firms - The rules strategy: Legal capital
5 important questions on Transactions with creditors - Solvent firms - The rules strategy: Legal capital
How do rules of "legal capital" provide protection for creditors in a standardized form? TQ
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1. Prescribing a minimum initial investment of equity capital
2. Restrictions on payments out to shareholders
3. Triggering actions that must be taken following serious depletion of capital
- Most functional when creditors are homogenous and can coordinate relatively easily
What kind of transactions are seen as related-party transactions?
- Fall under the broader category of tunnelling = misappropriation of value
Which jurisdictions impose minimum capital rules?
€25.000 for public corporations
€45.000 in the Netherlands plus each share must be paid up to 20%
- All jurisdictions permit private companies with no minimum capital at all
- Gets lesser with the rise of entrepreneurs
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What happens in case of a serious loss in capital in Europe compared to the US?
- Public companies have to call shareholders' meetings to consider dissolution or other appropriate measures
Stronger rules in some jurisdictions: obtain fresh equity or stop trading
What is considered a serious loss of capital?
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