Concern (business)

Last updated

A concern (German : Konzern) is a type of business group common in Europe, particularly in Germany. It results from the merger of several legally independent companies into a single economic entity under unified management.

Contents

A concern consists of a controlling enterprise and one or more controlled enterprises. [1] The relationship between the controlling and controlled enterprises is based on the actual commercial and management relationships, unlike parent and subsidiary companies which are related by share ownership and voting rights. [2]

Outside of professionals, the term Group, also mistakenly within the meaning of large companies – regardless of its corporate structure – is understood.

The Group concept is one of antitrust relevance: the so-called Group privilege, the privilege of the consolidated Group companies involved, means that in itself, prohibition included practices did not violate German or European Commission (EC) antitrust law. On the other hand, the Group concept in Banking Act in the formation of borrower unit and particularly of the large credit limits of paramount importance.

Types

The 1965 Aktiengesetz, literally "stock law", but commonly known in English as the German Stock Corporation Act, defines a concern as: "one dominant and one or more dependent companies, together under the unified leadership of the ruling company". [3]

The Aktiengesetz applies only to any Aktiengesellschaften (AG; literally "stock company"; singular Aktiengesellschaft), which are analogous to public companies in the English-speaking world. An Aktiengesellschaft differs from a Gesellschaft mit beschränkter Haftung (GmbH), which is analogous to limited liability companies in other countries. A GmbH is regulated under the Gesetz betreffend die Gesellschaften mit beschränkter Haftung of 1892 (GmbH-Gesetz; literally "law concerning companies with limited liability").

Three different kinds of concern are identified under Aktiengesetz: the contractual concern, the factual concern, and the flat concern. [4]

Contractual

In this form of concern, the controlling enterprise and controlled enterprise enter into a control agreement – wherein the controlling enterprise can obtain management powers over the controlled enterprise, sometimes amounting to complete control – and/or a profit transfer agreement. [5] These powers may be used in a way that is detrimental to the subsidiary, provided that they are in the interests of the concern and do not damage the legal separateness of the subsidiary. [4]

In return, the controlling enterprise is liable to compensate the controlled enterprise for all deficits of the controlled enterprise during the term of the agreement. [4]

Factual

In this form of concern, the controlling enterprise exerts a controlling influence on the controlled enterprise, but there is no formal control or profit transfer agreement. [1] If one company owns a majority in another company, then the first company is deemed to exert a controlling influence. [1] The parent company is then liable for any damage which results from the interference of the parent company in the subsidiary, which is judged on a case-by-case basis. [4] This kind of concern is more difficult to establish and so is more common. [4]

Flat

In this version, there is no parent company, instead a number of legally separate companies are subject to common direction. [3]

Other forms

To apply the law of concern to concerns involving German limited liability companies, the German courts have created the qualified de facto concern, beginning in the 1970s. [4] This form of concern applies only in parent subsidiary relationships. If the parent is shown to have a long-standing and pervasive control over the affairs of the subsidiary, then there is a presumption that the parent was not acting in the best interests of the subsidiary. If the parent is unable to displace this presumption, then the parent is liable for all the obligations of the subsidiary. [4]

This type of concern was limited by the German Federal Supreme Court in 2002 to only apply where the control is such that the subsidiary will inevitably collapse or become insolvent, on the basis that the parent has abused the separate legal personality of the subsidiary. [4]

Conglomerate

(inorganic groups) The conglomerate consists of enterprises in different businesses. Unlike the concern, the companies in a conglomerate have limited business relationships with each other.

Criticism of corporations

The result of the merger often emerging political power of (wholesale) companies has been criticised for their formation. The critics can be divided into three groups:

  1. Politicians: Political criticism about the group size are reflected in the European Union competition law and antitrust laws.
  2. The Church: The Church's criticism comes through Christian social teaching (or corporate ethics).
  3. Society: Social criticism can be found since the formation of the labour movement, especially in the currents of social democracy and Marxism.

Since the emergence of New Social Movements, corporations have also become the focus of movements such as the environmental movement and the anti-globalization movement (see Black Book brand companies).

See also

Related Research Articles

Corporation Separate legal entity that has been incorporated through a legislative or registration process

A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity and recognized as such in law for certain purposes. Early incorporated entities were established by charter. Most jurisdictions now allow the creation of new corporations through registration.

Business Organization undertaking commercial, industrial, or professional activity

Business is the activity of making one's living or making money by producing or buying and selling products. Simply put, it is "any activity or enterprise entered into for profit. It does not mean it is a company, a corporation, partnership, or have any such formal organization, but it can range from a street peddler to General Motors."

Gesellschaft mit beschränkter Haftung "Company with limited liability" in German-speaking countries

A Gesellschaft mit beschränkter Haftung, meaning "company with limited liability", is a type of legal entity very common in Germany, Austria, Switzerland and Liechtenstein. It is an entity broadly equivalent with the private limited company in the United Kingdom and many Commonwealth countries, and the limited liability company (LLC) in the United States. The name of the GmbH form emphasizes the fact that the owners of the entity are not personally liable or credible for the company's debts. GmbHs are considered legal persons under German, Swiss and Austrian law. Other variations include mbH, and gGmbH for non-profit companies.

Joint-stock company Business entity which is owned by shareholders

A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares. Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.

Incorporation (business) forming of a new corporation

Incorporation is the formation of a new corporation. The corporation may be a business, a nonprofit organization, sports club, or a government of a new city or town.

A subsidiary, subsidiary company or daughter company is a company that is owned or controlled by another company, which is called the parent company, parent, or holding company. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a government or state-owned enterprise.

Limited liability partnership Partnership in which some or all partners (depending on the jurisdiction) have limited liabilities

A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from the traditional partnership under the UK Partnership Act 1890, in which each partner has joint liability. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a corporation. Unlike corporate shareholders, the partners have the right to manage the business directly. In contrast, corporate shareholders must elect a board of directors under the laws of various state charters. The board organizes itself and hires corporate officers who then have as "corporate" individuals the legal responsibility to manage the corporation in the corporation's best interest. An LLP also contains a different level of tax liability from that of a corporation.

Private limited company type of company used in many jurisdictions

A private limited company is a type of business entity in "private" ownership used in many jurisdictions, in contrast to "public" ownership, with some differences from country to country. Private limited companies have a limited number of employees which normally is 50. Examples include LLC in the US, private company limited by shares in the UK, GmbH in Germany, společnost s ručením omezeným in the Czech Republic or Društvo sa ograničenom odgovornošću in Serbia. The benefit of having a private limited company is that there is limited liabilities and depending on each one’s point of view this next point could either be a benefit or a disadvantage. Shares can only be sold to shareholders in the business that means that it can be difficult to liquidate them.

<i>Aktiengesellschaft</i> type of business entity in German-speaking countries

Aktiengesellschaft is a German word for a corporation limited by share ownership whose shares may be traded on a stock market. The term is used in Germany, Austria, Switzerland, and South Tyrol for companies incorporated there. It is also used in Luxembourg, although the equivalent French language term société anonyme is more common. In the United Kingdom, the equivalent term is "PLC" and in the United States while the terms "incorporated" or "corporation" are typically used, technically the more precise equivalent term is "joint-stock company".

Corporate law body of law that applies to the rights, relations, and conduct of persons, companies, organizations and businesses

Corporate law is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. The term refers to the legal practice of law relating to corporations, or to the theory of corporations. Corporate law often describes the law relating to matters which derive directly from the life-cycle of a corporation. It thus encompasses the formation, funding, governance, and death of a corporation.

Limited liability Business structure where shareholders cannot owe more than their stake in a venture

Limited liability is a legal status where a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership. If a company with limited liability is sued, then the claimants are suing the company, not its owners or investors. A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the amount already invested in the company and for any unpaid amount on the shares in the company, if any. The same is true for the members of a limited liability partnership and the limited partners in a limited partnership. By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business.

Limited partnership Form of partnership

A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited partner. Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.

Piercing the corporate veil

Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. Common law countries usually uphold this principle of separate personhood, but in exceptional situations may "pierce" or "lift" the corporate veil.

Kommanditgesellschaft private company in which two or more natural or legal persons have come together under a joint name to trade

A Kommanditgesellschaft is the German name for a limited partnership business entity and is used in German, Belgian, Dutch, Austrian, some other European legal systems as well as in Japan where it is called as gōshi gaisha.

A corporate group or group of companies is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. The concept of a group is frequently used in tax law, accounting and company law to attribute the rights and duties of one member of the group to another or the whole. If the corporations are engaged in entirely different businesses, the group is called a conglomerate. The forming of corporate groups usually involves consolidation via mergers and acquisitions, although the group concept focuses on the instances in which the merged and acquired corporate entities remain in existence rather than the instances in which they are dissolved by the parent. The group may be owned by a holding company which may have no actual operations.

A squeeze-out or squeezeout, sometimes synonymous with freeze-out (freezeout), is the compulsory sale of the shares of minority shareholders of a joint-stock company for which they receive a fair cash compensation.

United States corporate law overview of United States corporate law

United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance rights, found mostly in the Securities Act of 1933 and the Securities and Exchange Act of 1934, as amended by laws like the Sarbanes–Oxley Act of 2002 and the Dodd–Frank Wall Street Reform and Consumer Protection Act. The US Constitution was interpreted by the US Supreme Court to allow corporations to incorporate in the state of their choice, regardless of where their headquarters are. Over the 20th century, most major corporations incorporated under the Delaware General Corporation Law, which offered lower corporate taxes, fewer shareholder rights against directors, and developed a specialized court and legal profession. Nevada has done the same. Twenty-four states follow the Model Business Corporation Act, while New York and California are important due to their size.

German company law field of law that deals with companies and enterprises

German company law (Gesellschaftsrecht) is an influential legal regime for companies in Germany. The primary form of company is the public company or Aktiengesellschaft (AG). A private company with limited liability is known as a Gesellschaft mit beschränkter Haftung (GmbH). A partnership is called a Kommanditgesellschaft (KG).

The corporate veil in the United Kingdom is a metaphorical reference used in UK company law for the concept that the rights and duties of a corporation are, as a general principle, the responsibility of that company alone. Just as a natural person cannot be held legally accountable for the conduct or obligations of another person, unless they have expressly or implicitly assumed responsibility, guaranteed or indemnified the other person, as a general principle shareholders, directors and employees cannot be bound by the rights and duties of a corporation. This concept has traditionally been likened to a "veil" of separation between the legal entity of a corporation and the real people who invest their money and labour into a company's operations.

References

  1. 1 2 3 Stock Corporation Act 1965 (Germany), section 17
  2. Stock Corporation Act 1965 (Germany), section 16
  3. 1 2 Stock Corporation Act 1965 (Germany), section 18
  4. 1 2 3 4 5 6 7 8 Reich-Graefe, Rene (2005). "Changing Paradigms: The Liability of Corporate Groups in Germany". Connecticut Law Review. 37.
  5. Stock Corporation Act 1965 (Germany), section 291