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Harmonizing company law

20th April 1973, Page 44
20th April 1973
Page 44
Page 50
Page 44, 20th April 1973 — Harmonizing company law
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Which of the following most accurately describes the problem?

THE legal basis, purpose and responsibilities of companies is currently the subject of intense debate partly because of changed public attitudes but also because of the growth of world trade. The trading philosophies of multi-national companies affects governments as well as employees and consumers. In Europe, a legal background and a trade union structure very different from the British set-up, has resulted in company structures which seem strange to many British accountants and company secretaries.

The laws and rules governing incorporation differ widely throughout the nine member countries. Since most industrial concerns are in corporate form the tangle of conflicting rules and attitudes hinders the achievement of a common industrial policy.

Five draft directives have been prepared by the Commission. One, on the form of company accounts, has been adopted by the Council of Ministers (and is incorporated in clause nine of Britain's European Communities Act). Argument about the other directives continues. Aspects of company law involved include minimum capital required, workers' participation, mergers, and the information companies must provide in their annual reports.

Harmonizing company taxation is important because different systems can distort management decisions on mergers, the opening of subsidiaries and the siting of companies.

The contribution of corporation tax in relation to total tax revenue averaged 7.5 per cent for the original six countries compared with 7.9 per cent in Great Britain. The Commission seek to avoid double taxation in this field and has issued two draft directives.

The first would grant exemption from tax on dividends received by parent companies from their subsidiaries abroad. In addition, such dividends would be exempt from witholding tax at the subsidiaries' level.

Mergers

The second draft, applicable to mergers, would eliminate any taxation on the transfer of property and on hidden reserves. If after the merger the activities of the absorbed company are carried on by its merger partner, all double taxation of profits is excluded.

Merged companies would be able to opt for being taxed in their homeland for all profits and losses made either within the Community or in non-member countries, deduction being allowed for local taxes.

There have been a few attempts to create large genuinely European trans-national enterprises. The AngloFrench collaboration over Concorde and the European consortia for the A300 are well known. Other notable examples are Agfa-Gevaert (Dutch-German), FokkerVFW (Dutch-German), Fiat-Citroen (Italian-French), Dunlop-Pirelli (BritishItalian) and Hoesch-Hoogovens (DutchGerman). Extraordinary contortions were necessary for these enterprises to come into being, pointing to the need for a European company statute if Europe's industry is to grow big enough to compete with the Americans on level terms.

In June 1970 the Commission made proposals to the Council of Ministers for a new, uniform type of legal company, the European company. The Commission urged the Council to embody this in a regulation directly applicable in each member country. Discussions continue. Briefly the Commission's proposals are:

1. Only existing limited companies with registered offices within the Community would be able to achieve European company status, and then only where: (a) a merger takes place between companies from different member countries; (b) two existing limited companies from different Community countries wish to set up a holding company.

2. The European company would have legal personality recognized in all member countries.

3. It would be able to transfer its seat from one part of the Community to another and could even have a seat in more than one member country, but not outside the Community.

4. Its capital would have to be divided into shares.

5. In the case of a merger or the creation of a holding company, a minimum capital of 500,000 units of account would be required (one unit of account is equivalent to one US dollar before the latter's devaluation in 1971). In the case of a joint subsidiary the capital would have to be at least 250,000 units.

6. European companies would be entered in a register kept by the European Court of Justice.

7. Following the Dutch and German patterns, power within the company would be shared by three separate bodies, the Board of Management, the Supervisory Board and the Shareholders' meeting.

(a) a majority of the Board of Management would have to be citizens of one of the Community countries; (b) the Supervisory Board would have at least 12 members. At least one-third would have to be

representatives of the company's employees and the other two-thirds would be elected by the shareholders;

(c) the employees' representatives on the Supervisory Board would be elected by the company's central works counci4 which in turn would be elected by local councils formed by employees from all the different places where the company carried on its business. The central council would defend the interests of all the employees of the business. It would have the right to be informed about the company's economic position and general situation. Its consent would be needed for decisions by the management in so far as they directly affected the position of the employees.

8. The company's balance sheet, its profit and loss account, and a financial report explaining these documents and commenting on the company's situation would have to be published after being independently audited.

9. Relations with other companies would have to be fully disclosed.

10. The European company would enjoy no special tax advantages. It would be subject to taxation where its management was carried on.

11. To prevent tax evasion, the European company would not be able to move its national domicile more than once every five years.

The Commission feels that the proposed new legal form would not only smooth legal obstacles but help remove psychological and chauvinistic factors which often prevent firms from joining forces with firms of another nationality.

CBI report

In Britain, the debate on company structure and responsibilities has been furthered recently by the publication of an interim discussion report by the Confederation of British Industry. The report, "A new look at the responsibilities of the British public company", is highly critical of certain aspects of the EEC proposals.

The CBI is firmly opposed to the introduction of any form of mandatory two-tier board structure but it accepts that companies and their directors must take account of wider aspects than has been the case in the past. On the stress laid by the EEC Summit Meeting of October 1972 on involvement and participation — including proposals to give proprietorial rights to workers of their representatives — the CBI thinks this will take years to establish in Britain; without due safeguards, the performance of companies and national competitiveness could be affected adversely. Wonder Ltd, the potato crisp manufacturer, might help the waverer to make up his mind.

One of the distribution operations of the company involves the transport of nut products from Scotland, returning to the North with crisp products.

Formerly, the company used hired transport to take nut products from its Broxburn factory, near Edinburgh, to Corby, Northamptonshire, and to Widnes in Lancashire. But the haulier did not return loaded to Scotland.

In 1971, after evaluating the possible operating and financial advantages, it was decided that Golden Wonder should acquire two drawbar trailer outfits. The operation was also changed slightly.

The vehicles chosen were AEC Mandators and York trailers grossing 32 tons. Though a dolly is used, this is bolted to the trailer chassis during the trunking operation and the trailer has been plated as a drawbar trailer. The coupling used is the Swedish VGB.

The outfits are used alternately on the Broxburn to Corby run and the Broxburn to Widnes journey.

One outfit leaves Broxburn with nut products on Monday morning arriving at Corby, the same day. The driver then books off. The outfit is divided at Corby and the unit is taken to Watford by a night driver. The trailer is unbolted from the dolly so that it can be shunted about by a tractive unit within the premises for unloading and reloading with crisp products.

The prime mover arrives back from Watford on Monday night and is given a service and the outfit starts back to Broxburn with crisp products on Tuesday arriving there on Wednesday morning.

It then goes to Widnes and St Helens on Thursday and arrives back at Broxburn on Friday. Here it is given a preventive maintenance check periodically.

In the meantime, the other outfit has been used between Broxburn and Widnes on Monday and Tuesday and between Broxburn and Corby /Watford on Wednesday. Thursday and Friday.

Cost per mile In the 12 months beginning November 1971, the two outfits have covered 121,200 miles at a total cost of £16,105. This is equivalent to a cost per mile of 13.29p.

Surprisingly, the fuel consumption at 8.355 mpg compares very favourably with an artic of the same gross weight.

These figures do not include head office administration and terminal handling costs, however.

Company transport m an ager Mr D. D.

Boote, was able to provide detailed information about the various cost factors. He told me that over the year depreciation based on 20 per cent for the chassis and 10 per cent for the body and trailer has been established at £2564, diesel fuel cost £3999, driver's wages and overtime £5000, provision for tyres of which there are 14 to each vehicle £880, maintenance including provision for plating and testing £1216, road fund licence £728, insurance £100, oil £18, driver's subsistence £600 which, with a reserve of £1000 for maintenance, totals £16,105.

Expressed as a cost per mile, these figures represent for depreciation 2.12p, fuel 3.30p, driver's wages and overtime 4.12p, tyres 0.73p, maintenance 1.00p and driver's subsistence 0.50p.

This is after only one year on the road, however, and one could expect some of these costs to increase. For instance, both tyre costs and maintenance are very low though the cost per mile shown does not take into account the £1000 which has been wisely set aside for any maintenance contingency.

Good record

The insurance factor, too, is comparatively low. It would seem that the company must have a very good past record to be able to negotiate an insurance premium of but £50 a vehicle. The secret is,. of course, that the company mostly bears its own insurance and the sum quoted represents third party insurance premiums, plus reserve for own damage.

The overall effect on Golden Wonder's transport expenditure has on the whole been advantageous.

Though it spent in the region of £2000 more on transport in 1971-72 than in 1970-71, against this it was able to transport crisps to Scotland for distribution there.

If, therefore, the cost of running its own vehicles from Scotland to Northamptonshire was assumed as half the total cost, then a substantial saving was made on that part of the operation.

So far as cost per package is concerned, this has worked out for transport by its own units as 3p per case for crisps and 1.24p per case for nut products.

Apart from the cost consideration, Golden Wonder has also been able to reap the benefit of being able to trunk its products to two different destinations on each leg of the operation without undue delay at either point.

It has also observed a certain amount of driver satisfaction and pride from the acquisition of these units.


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