The concept of legal capital aims to protect those who interact with the company, namely, creditors and shareholders. The 2nd Company law Directive has put special emphasis on protecting the company’s creditors. Firstly, there are rules concerning the formation and raising of capital, where the article 6 imposes a minimum capital of 25.000E that can be increased by the Member States. Therefore, as mentioned by the European Court of Justice in Meilicke, it follows that the 2nd Company law Directive allows the Member States to introduce or maintain higher or stricter standards as far as they are compatible with freedom of establishment. Secondly, creditors are protected by rules that limit profit distribution among shareholders. According to article 15 (a), this rule applies when the total of the capital subscribed and reserves is lower than the net assets of the company, so that below this point, any premium must not be used for making distributions among shareholders. Thirdly, creditors might be protected in case of capital reduction of the company, securing the creditor’s prior claim on the company’s assets. Hence those creditors whose claims were generated prior to the publication of the decision to reduce capital have the right to secure its claims. Again, Member States are allowed to introduce a stricter regime, where creditors must to consent or to authorize the reduction of capital.
The 2nd Directive also protects current shareholders of the company against a dilution of their rights. Firstly, when forming and raising capital, it is forbidden to issue shares at a price below par, which is the value of a share in proportion to the total value of the capital that it represents. This issue is especially problematic when the contributions of the company are in kind. To guarantee the “no issue below par” rule, an independent expert must valuate the asset in order to determine if it fits with the par value of the shares issued. Secondly, in cases of capital increases the Directive provides that the decision must be decided upon the general shareholders meeting, being up to the Member States the quorum needed to approve it. In cases where there are different classes of share, each class have to authorize individually the capital increase.
