Shareholder protection in share issues: the legal capital model versus the contractual model
PhD student: Mr T. Vos
Promotors: M. Wyckaert, V. Colaert
Duration: 1/9/2016 - 31/8/2020
When companies issue new shares to raise capital, several conflicts of interest can arise between the management or the controlling shareholder on the one hand, and the minority shareholders on the other. Corporate law needs to strike a balance between protecting shareholders in these conflict situations and retaining enough flexibility for companies to raise capital. In the prevalent approach in the European Union, shareholders are protected in share issues by the rules on legal capital: shareholders rights are allocated on the basis of legal rules and protection against dilution is offered through pre-emption rights (the legal capital model). The United States, on the other hand, have long abolished legal capital. They allow shareholders rights to be allocated in a contractual manner and protect shareholders through general fiduciary duties of directors (the contractual model). However, there is a trend in several European countries to incorporate elements of the contractual model, which leads to a hybrid model. These different approaches to shareholder protection have not yet been the subject of fundamental comparative and evaluative research. This research wants to fill this gap. It aims to determine how shareholders should be protected in share issues, given the need to balance shareholder protection with flexibility. The research combines the method of comparative law with the economic analysis of law and incorporates fairness arguments as well.