An Analysis and Critique of the European Union's Minimum Capitalization Requirement
Fritz N. Ewang
Charles Sturt University - Faculty of Law
September 20, 2007
This article reviews the case for and against the capital maintenance doctrine and specifically, the Second EU Company Law Directive's minimum capitalization requirement. There is a general consensus in the academic literature that the capital maintenance doctrine and the minimum paid-up capital are no longer very useful as a creditor protection mechanism. However, previous studies do not provide a coherent and universal system of regulation of legal capital. Using a regulatory strategy applied by financial institutions and company law systems of comparable jurisdictions, this paper suggests the abolition of the capital maintenance doctrine on the argument that it provides illusory protection to creditors against corporate failure and limited liability and, it is not a capital adequacy requirement.The paper suggests a paradigm shift from share capital to a cumulative dual solvency-based requirement as a universal and efficient regulatory design for creditor protection.
Number of Pages in PDF File: 42
Keywords: legal capital, minimum capital requirement, capital maintenance, creditor protection, solvency requirement, reformworking papers series
Date posted: September 21, 2007
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