Life Without Legal Capital: Lessons from American Law

Abstract

The Commission of the European Union contemplates abolishing the legal capital regime. Critics of legal capital have referred to American corporation law as an example of a more efficient approach. In this paper, I conduct a comparative analysis of the EU second company law directive and its functional equivalents under American law. There are two principal conclusions: First, the greater part of the second directive has little if anything to do with legal capital; at its heart, the legal capital concept is (only) about regulating distributions to shareholders. Second, the American approach to corporate distributions relies more on the law of fraudulent transfers than on corporation law. Therefore, simply replacing European legal capital with a U.S.-style "solvency test" would likely result in weaker creditor protection than under American law.

Keywords: Legal capital, fraudulent conveyance, fraudulent transfer, capital directive, European company law, comparative law, corporation law

JEL Classification: K22