What is the typical organizational structure of a company and does the structure typically differ if the company is public or private?
Most privately held companies in Austria are incorporated as limited liability companies (Gesellschaft mit beschränkter Haftung, GmbH). The legal form of a joint stock corporation (Aktiengesellschaft, JST) may be used for both private and public, i.e. exchange-listed, companies, whereby recent changes to the Austrian Stock Corporation Act introduced more stringent rules applicable to exchange-listed JSTs. The European Company (Societas Europea, SE) is a less frequently used form for a public company in Austria.
Considering the material differences between the regimes applicable to the various legal forms available, the focus of the following lies with the JST.
Brazilian law affords two main types of business organizations: the limited liability company (sociedade limitada) and the joint-stock corporation (sociedade por ações). Legal title of ownership in the former is represented by quotas indicated in the company’s article of association, whereas in the latter by shares registered in the company’s corporate books (in case of the vast majority of the closely-held corporations) or kept in a trust account by a trustee (in case of listed corporations). In both cases, the liability of partners is limited to the amount they contributed to pay up the company’s capital, except in the case of the limited liability companies where all the quotaholders are also jointly liable for paying-up the quota capital, in case it is not fully paid-up; in principle, the partners are not held liable for any amount in excess of such contributions, unless illicit acts are held to occur.
Typically, Brazilian business organizations are managed by a general meeting, a board of directors (in case of corporations, but which are not mandatory for closely-held companies), an executive office, a fiscal council (mostly in case of listed corporations) and committees that may be created by the board of directors, including the mandatory audit committee for corporations listed in the Novo Mercado segment.
The most common forms are the following limited-liability companies:
- société anonyme (“SA”) – This form, with rather rigid governance rules, is the prevalent form historically for large companies. An SA issues shares (actions) which are negotiable securities. It must have a minimum capital of €37,000 and at least two shareholders, or seven if it is publicy traded. (A variant of the SA is the European company or societas Europaea (“SE”), adopted by a few dozen companies in France.)
- société par actions simplifiée (“SAS”) – This form, like the SA, issues shares (actions) in the form of negotiable securities, but there is great freedom in choosing governance rules. Shares of an SAS may not be publicly traded. There is no minimum capital or minimum number of shareholders. (An SAS with only one shareholder is referred to as a “société par actions simplifiée unipersonnelle” or “SASU”.)
- société à responsabilité limitée (“SARL”) – This is a traditional form for closely held companies, with a certain flexibility of governance rules. Its shares (referred to as “parts sociales”) are not negotiable but may be transferred only by written contract. There is no minimum capital or minimum number of shareholders, but there is a maximum of 100. (An SARL with only one shareholder is referred to as an entreprise unipersonnelle à responsabilité limitée or “EURL”.)
Less frequently used forms for operating business entities are:
- limited partnership (société en commandite), with somewhat flexible governance rules, some partners/shareholders of which (commandités) have unlimited liability, the others (commanditaires) having limited liability. There are two types of such companies:
- société en commandite par actions (“SCA”), which issues negotiable shares (actions), and has somewhat flexible governance rules, allowing unlimited-liability partners to maintain control. A few publicly traded companies take this form;
- société en commandite simple (“SCS”), which issues shares in non-negotiable form (“parts sociales”).
- société en nom collectif (“SNC”), all partners of which have unlimited liability;
- société civile (which is not intended to engage in a business deemed to be “commercial”), each partner having unlimited liability for its rateable share of the company’s debts; and
- de facto companies (sociéte en participation and société créée de fait), members of which have unlimited liability.
The vast majority of publicly traded companies take the form of an SA, with a few taking the form of an SCA or SE (the rules for which are substantially those applicable to an SA).
The forms SCS, SNC and société civile, as well as de facto companies, all of which are infrequently used for major operating companies, are not discussed further in this paper.
This paper presents a non-exhaustive summary of certain relevant rules applicable to the SA, SCA, SAS and SARL. It does not describe special rules applicable to companies whose shareholders include the French state or other governmental entities or to regulated entities including financial institutions.
German companies listed on an EU/EEA regulated market ("listed companies") are typically established as German stock corporations (Aktiengesellschaft, AG), but some have chosen the legal form of a partnership limited by shares (KGaA), which will not be discussed further in this Guide, or a German SE (Societas Europaea). The form of the SE is usually chosen by larger companies and most choose to incorporate as an SE with dual board system ("dualistic SE"). Both AGs and dualistic SEs have Management Boards that are appointed and supervised by a Supervisory Board.
Private companies are mostly organized as a limited liability company (GmbH) or a limited partnership (Kommanditgesellschaft).
The information in this Guide refers to German stock corporations and applies largely also to a German dualistic SE.
The organizational structure of a company in the form of a societe anonyme (SA), equivalent to a corporation, consists of the General Meeting of shareholders and the Board of Directors. These are the main corporate actors. In principle, the organizational structure of public and private companies are similar although there are some differences and governance rules are more detailed in case of public companies.
Apart from the General Meeting and the Board of Directors, key corporate actors are also the Managing Director (which is a member of the Board) and any Committee.
The General Meeting of shareholders is the highest governing body of the Company and is the only only competent body to resolve on certain material issues (please refer to answer under 20 for more details).
The board of directors’ duty is to perform the management of the company, and to represent it judicially and out-of-court, i.e. in its relations with third parties. In general, the board is competent to administer the assets of the company and to perform the object of the company’s activity, within the limits of the law and except for matters decided by the general meeting of shareholders.
The board of directors may delegate the powers of management and representation of the company to one or more persons, members or non-members, if so permitted, in accordance with the articles of incorporation. The articles of incorporation may also authorize the board of directors or require the board to entrust internal control to one or more non-members.
Additionally, following a respective provision in the articles of incorporation or a resolution of the board of directors, an executive committee may also be elected and be delegated certain powers or functions of the board of directors. In such a case, the composition, responsibilities, tasks and manner of decision-making of the executive committee, as well as any matter relating to its operation, shall be governed by the articles of incorporation or the resolution of the board of directors that elected the committee.
The Hellenic Federation of Enterprises has also issued a Code of Corporate Governance (the CGC), which is not mandatory for companies but rather soft law. Such Code provides for companies admitted to a regulated market, that in addition to the board of directors, an audit committee shall be established for auditing the financial information, the efficient operation of the internal audit of the company, risk management and for auditing the independency and objectiveness of the auditors of the company.
In public companies thus, the Board of Directors operates through various committees, such as the audit committee, the remuneration committee and nomination committee. In addition, public companies have an (i) internal audit unit; (ii) a shareholders relations unit; and (iii) a corporate announcements unit. The board, nevertheless, remains fully responsible for decisions under its responsibilities. Unless the board decides expressly to delegate particular powers to the committees, the committees have an advisory role. Board committees aim at developing specialised knowledge, discuss issues within their remit in depth, and make recommendations to the board.
In public companies the internal auditor is also a key corporate actor. The internal auditor is appointed by the Board but is independent and is supervised by non-executive Board members. The internal auditor monitors the consistent compliance of the public entity with the applicable corporate governance legislation, the internal operation regulation and its articles of association and it reports any conflicts of interest between the company and the members of the Board. The internal auditor submits to the Board on a quarterly basis an internal audit report and is present at the shareholders’ general meetings.
Under the Companies Ordinance (Chapter 622 of the laws of Hong Kong) (“Companies Ordinance”), five types of companies can be formed: (1) private companies limited by shares; (2) public companies limited by shares; (3) companies limited by guarantee without a share capital; (4) private unlimited companies with a share capital; and (5) public unlimited companies with a share capital. Except for companies limited by guarantee without a share capital, a Hong Kong company typically comprises of shareholders, board of directors (the board), senior management and employees. Shareholders are owners of the company whose interest is directly protected and managed by the board. Normally, the board delegates its day-to-day management responsibilities, from business operations to personnel management, to the senior management.
Below is a table summarizing the number of shareholders and directors required for companies limited by share capital:
Private companies limited by shares
One (1) natural director (i.e. an individual) who must not also be the company secretary.
No maximum number of directors, but can be restricted by a company in its articles of association.
Private unlimited companies with a share capital
Public companies limited by shares
Nil (25% of the total number of issued shares of a listed company must be held by retail investors (i.e. the public)).
Two (2) directors, one of whom may also be the company secretary, but must not be a body corporate.
Public unlimited companies with a share capital
A private company can have corporate or natural directors (i.e. an individual) with a minimum of one natural director. Public companies and private companies which are members of a group of companies of which a listed company is a member, however, are not allowed to appoint body corporates as directors so as to ensure transparency and accountability. Public companies normally have executive and non-executive directors, and in particular, listed companies must have at least three independent non-executive directors. The law does not limit the maximum number of directors, but this can be restricted by a company in its articles of association.
The most common corporate entity form in Japan is a stock company (kabushiki kaisha or KK), and its organisational structure typically consists of (i) shareholders, (ii) a board of directors, (iii) representative directors and (iv) statutory auditors, with some notable exceptions (see question 2 below).
Stock companies may generally be divided into two groups according to the restrictions on the transfer of shares by their articles of incorporation:
Closed KKs. Closed KKs require the company's approval for any acquisition or transfer of the company's shares. In numbers, most existing KKs are closed KKs. Closed KKs may simplify the organisational structure, and some organs, like board of directors, representative directors, or statutory auditors may not be mandatory.
Open KKs. Open KKs are companies without articles of incorporation requiring the approval of the company for acquisition or transfer of all or part of their shares. Generally, only securities issued by open KKs can be listed on a securities exchange in Japan. The Tokyo Stock Exchange (TSE) is the most well-known securities exchange in Japan and is one of the largest equity markets in the world, listing over 3,600 companies (as of December 31, 2018), including major Japanese companies.
The applicable requirements and practice thereunder regarding corporate governance may significantly differ depending on whether a company is closed KK or open KK, and whether the company is listed or not. In order to simplify the discussion, however, we assume that the corporate entities mainly discussed herein are listed companies on the TSE, unless otherwise noted.
As an introductory remark, this article applies only to limited companies (sociedades por quotas) and stock companies (sociedades anónima), outside the public sector or state-owned, which are the most commonly used in the private sector in Portugal. Companies with shares admitted to trading in regulated market (hereinafter “public companies” or “listed companies”), public-interest entities (such as credit institutions, insurance companies and listed companies) and significant companies (considering for example its dimension and number of employees) are also legal qualifications under Portuguese laws to which specific governance rules apply.
Limited companies have the following corporate bodies: management (which may in certain cases be a single manager) and supervisory body (either a fiscal board or a statutory auditor, mandatory in certain larger companies).
Stock companies may be organised as follows:
- Classic model: board of directors and fiscal board (or a single director and a single statutory auditor in smaller companies). In listed companies and significant private companies a statutory auditor outside the fiscal board is mandatory;
- Anglo-Saxon model: board of directors, comprising an audit committee, and a statutory auditor; and
- Two-tier model: executive board (or a single executive director in smaller companies), supervisory board and statutory auditor. In listed companies and significant private companies a financial matters committee within the supervisory board is also mandatory.
Under the KCC, a Company has the following executive units: (i) the general meetings of the shareholders (“GMS”); (ii) the board of directors (“BOD”) comprised of registered directors of the Company(under the KCC, a director means a registered director); (iii) the representative director(s) appointed among the directors; and (iv) the statutory auditor(s) or the audit committee.
The GMS is the supreme decision-making body of a Company and determines fundamental matters. The BOD decides important matters related to daily operations of the Company not specially reserved for determination by the GMS. The representative director, being one of the directors but functionally equivalent to a chief executive officer, is the administrative arm responsible for implementing the decisions of the GMS and BOD with the authority to bind the Company. The amendment to the KCC effective April 15, 2012 has introduced the executive officer positions that are separate from the BOD and responsible for the daily operation of the Company and implementing GMS/BOD decisions. If a Company decides to have executive officers under its Articles of Incorporation (“AOI”), there will be no representative director. The statutory auditor supervises the management of the Company’s business and audits the Company’s accounts.
A listed Company with total assets of KRW 100 billion or more is required to have at least one (1) full-time statutory auditor or alternatively establish an audit committee. A listed Company with total assets of KRW 2 trillion or more is required to establish an audit committee in lieu of having statutory auditor(s). In such case, the audit committee must consist of three (3) or more directors with at least two-thirds of the committee members composed of outside directors, the representative of the audit committee must be an outside director and at least one (1) committee member must be an accounting or financial expert.
By law, both listed and non-listed companies are required to have three corporate bodies: the shareholders' meeting, the board of directors and the external auditors. Private companies may waive the requirement to perform an audit of their annual accounts (and, therefore, to appoint external auditors) if certain criteria are met.
In listed companies as well as larger private companies, the day-to-day management is typically delegated by the board of directors to the executive management, often called "executive committee" or similar (see question 5).
Further, listed companies are required to establish a compensation committee elected by the shareholders' meeting. The board of directors typically establishes further committees (see question 9).
In the United States, most public companies are organized as corporations. Private companies are typically organized either as a corporation or a limited liability company (“LLC”). Although the corporation was once the most common form of business entity in the United States, today in most states more LLCs are formed than corporations. A business entity may also be structured as a general partnership, a limited liability partnership or a sole proprietorship. However, those entity choices are far less common because of restrictions on transfers of equity and exposure to liability. In the remainder of the answers provided in this chapter of this guide, only corporations and LLCs will be addressed. Additionally, since about half of the U.S. companies listed on the New York Stock Exchange (“NYSE”) are incorporated in Delaware and Delaware corporate law is the most developed, this chapter will focus on Delaware state law.
There are two key differences between corporations and LLCs. First, they are taxed differently: corporations are subject to “double taxation,” meaning that income is taxed at the company level and taxed again after it is distributed to shareholders. LLCs, on the other hand, can elect to be taxed like a corporation or to have “flow through taxation,” meaning that there is no entity-level tax, but the members of the LLC are taxed on the income of the LLC on an individual level. The second material difference between the two types of entities relates to the requirements governing their operation. Corporations are required to comply with a rigid set of state laws and certain formalities. On the contrary, LLCs are subject to fewer formal requirements and are able to create a more flexible set of governing rules in their operating agreements. Private companies have more flexibility than public companies to choose between a corporation or a LLC structure.
Corporations are created under state statutes. Corporations have a two-tier management structure consisting of the executive officers and the board of directors. The shareholders, or owners, of the corporation elect the board of directors to develop corporate strategy and oversee the executive officers. Meanwhile, the executive officers manage the corporation’s day-to-day operations. This organizational structure shields the shareholders from personal liability for acts of the corporation. Like a corporation, an LLC is organized under state statutes and owners are not personally liable for the entity’s obligations. Unlike a corporation, LLCs are frequently structured such that the members, either collectively or through a managing member, also manage the day-to-day operations of the company.
The two most common forms of commercial company are private companies limited by shares and public limited companies. Companies offering their shares to the public are generally required to be public limited companies. The basic structure and functioning of all companies is similar and is governed by the Companies Act 2006 (although public companies are subject to stricter requirements in several respects, including in relation to maintenance of capital). Both public and private companies limited by shares have a share capital held by shareholders. While technically both can have multiple classes of shares, this is typically a feature of private companies.
Listed companies are subject to additional regulation pursuant to applicable securities laws and stock exchange regulations. In the UK, the level of regulation varies depending on whether the relevant company has a premium or standard listing on the Main Market, or is admitted to trading on AIM. Unless otherwise stated, the information in this Q&A applies to companies with a premium listing on the Main Market.
Leaving aside partnerships (società semplice, società in nome collettivo and società in accomandita semplice) and partnerships limited by shares (società in accomandita per azioni), Italian companies are in most cases incorporated and operating as corporations, i.e. limited liability company (società a responsabilità limitata) or joint stock company (società per azioni).
On the one hand, private companies are usually incorporated as limited liability companies – small and medium-sized enterprises (SMEs) or closely-held – or joint stock companies. On the other hand, public companies, i.e. companies with shares admitted to trading on a regulated market, are typically incorporated as joint stock companies or cooperative companies limited by shares (as limited liability companies cannot be listed).
It is worth noting that, while limited liability companies issue “quotas” – which are not securities from a legal standpoint, therefore investors are called “quotaholders” – joint stock companies issue shares.
There are two main different legal forms of a company, the organizational structure of which has been explained in Question 2, mostly preferred in Turkey and enacted in Turkish Commercial Code numbered 6102 (“TCC”):
- Joint Stock Company (JSC) – (Anonim Şirket)
- Limited Liability Company (LLC) – (Limited Şirket)
A JSC can be established by at least one shareholder with a minimum capital of TRY 50,000. Its capital is divided into shares, the company is liable for its debts up to its assets and the shareholders are liable only towards the company itself up to the subscribed capital. Therefore, the shareholders are not responsible for the debts in terms of their personal assets.
This legal form can be established both as a public and private company. A public JSC has a multi-shareholder company compared to the private one. Even, a private JSC is deemed as public automatically in case the number of the shareholders exceeds 500 except for the ones whose shares are traded on the stock exchange and the ones collecting money from the public through crowd funding. (Capital Markets Law numbered 6362 (“CML”), article 16) In addition, although private JSCs are only subject to TCC, the provisions of both TCC and CML will be applicable to publicly trades ones meaning that public JSCs will have more obligations and opportunities when compared to the private ones.
A LLC, whose principal capital is fixed, is established by one or more real or legal persons under a trade name. The shareholders are not liable for the debts of the company with their personal assets and are obliged to pay the share of the capital they committed. The number of the shareholders cannot exceed 50 and the minimum capital requirement is TRY 10,000. Unlike JSCs, LLCs are not able to offer shares to public.
Thus, in sum, the structure differs as public companies are established as JSC.
There are a number of Luxembourg company forms which each have their own specificity in terms of corporate governance. The below answers will only be limited to Luxembourg public limited liability companies (sociétés anonymes, "SA") and Luxembourg private limited liability companies (sociétés à responsabilité limitée, "SàRL") as these are the most commonly used forms in Luxembourg. It is to be noted that the shares of a Luxembourg SARL may not be issued by way of public offer, whereas the shares of a Luxembourg SA can.
The Luxembourg Act of 10 August 1915 on Commercial Companies, as amended from time to time, (Loi modifiée du 10 août 1915 concernant les sociétés commerciales - the "Companies Act") permits a SA to be organized either as a single-tier system, which consists of a board of directors (or a single director, in case of sole shareholder SA) as well as a double-tier system, which adds a supervisory board to the board of directors.
SàRLs are always organized in a single-tier system.
Ukrainian law provides for over 20 organizational forms of business entities. However, the majority of small and medium-sized enterprises in Ukraine are incorporated as a limited liability company (LLC). As of 2019, there are around 640 000 LLCs in Ukraine. Around 14 000 companies have the form of a public (listed) or private (non-listed) joint stock company (JSC). Other organizational forms are either outdated or designed for specific business purposes (e.g. farming enterprise, service cooperative etc.).
The organizational structure of a LLC includes a general meeting of participants and an individual or collective executive body (CEO or executive board). Although recently amended Ukrainian legislation allows to establish a supervisory board in a LLC, few LLCs have taken advantage of this opportunity.
All JSCs typically have a similar structure that includes a general meeting of shareholders, a supervisory board, an audit commission and an executive board or individual CEO. In contrast to public JSCs, private JSCs have the option not to establish a supervisory board if there are less than 10 shareholders in the company. JSCs with less than 100 shareholders may appoint a single auditor instead of an audit commission.
Generally, there are few public (listed) companies in Ukraine – only a few large companies and banks.
The most common type of company in Australia is a company limited by shares, either in the form of a proprietary company or a public company.
All companies must have at least one shareholder or member. Proprietary companies must have no more than fifty shareholders that aren’t employees of the company. There is no limit on the maximum number of shareholders of a public company.
A public company must have at least three directors, two of whom must ordinarily reside in Australia. A public company is also required to have a company secretary ordinarily resident in Australia. A proprietary company must have at least one director who must ordinarily reside in Australia.
Egyptian law identifies various forms of commercial enterprises. These are commercial companies divided into associations of persons (partnerships), and associations of capital (corporations), as well as sole proprietorships. The most important factor in distinguishing these legal forms is whether the partner in each form of company enjoys limited liability.
The Egyptian Companies Law no. 159 of the year 1981 as recently amended in 2018 (the “Companies Law”) allows the incorporation of four different types of companies as association of capital. According to the said law, persons either Egyptians or foreigners, may incorporate any of the following forms of companies:
- Joint Stock Company (“JSC”);
- Limited Liability Company (“LLC”);
- Company Limited by Shares; and
- The One-Person Company.
In accordance with the said law, all mentioned types of companies could be incorporated as a private company. However, public (listed) companies can only be in the form of JSC.