THE FRENCH STOCK EXCHANGE
& RELATED FINANCIALMARKETS
How they operate
and how they are regulated

Holding the power to issue securities is one of the most important keys to company life. Under French legislation this power was granted to general shareholders' meetings (ordinary or extraordinary depending on the type of issue). This may have guaranteed a certain degree of security but it involved a fairly cumbersome procedure. In practice, ways were found to delegate the power more pragmatically and the result was the 1994 law.

The fundamental principal whereby company law must protect both shareholders' interests and those of the company is perfectly illustrated in this situation. Shareholders' interests are inextricably linked to the company's interests and only a certain flexibility can really meet the needs of the market.

Therefore, although in principle equity securities can be issued by a decision of an extraordinary general meeting and debt securities can be issued by a decision of an ordinary general meeting, it is possible for these meetings to delegate their responsibility to other bodies within the company.

Certain proposals have even been made for the exclusive power of issuing debt securities to be granted to the board of directors: but the long duration of such issues seems to have led to the power being left in the hands of the shareholders during ordinary general meetings.

The legislated mechanism for delegating power is very complicated. The aim is to facilitate the mechanism and above all eliminate all ambiguity by guaranteeing the validity of powers of the person who acts on behalf of the company. A certain degree of formalism must exist so as to protect the actors and maintain the security of transactions on financial markets. For this reason sub-delegations of power must be carefully considered even though it would seem that sub-delegation is fairly common practice.

The most interesting cases of delegating power may appear during capital increases but the field of application of delegation is much wider. It is likely to be present from equity security issues through to debt security issues. In theory, the delegation of power can develop interesting constructions, but the question of the delegation of power is above all a vector for efficiency within companies.

Although this matter is regulated there is significant scope within the regulatory framework for contractual freedom. This freedom stems from sub-delegation and also from a number of hypothesis which are not covered by existing legislation.

If the importance of this subject needed further illustration, it would be sufficient to study the numerous proposals made to amend article 180 of the law of 24.07.1996 on trading companies. More flexibility and simplified provisions can be predicted and such developments are desirable.

Analysing the distribution of power for capital increases also furthers our understanding of debt securities. Therefore after examining the question of delegation, we shall look at its effects before examining other hypothesis.

I - The delegation of power in the framework of increases in capital

A - Organic delegations

1 - Conditions for delegation

2 - Special delegations during take-over bids and exchange offers

B - Sub-delegation

II - The effects of delegation during increases in capital

A - The powers of the delegates

B - The consequences of delegation

III - The delegation of power for issues of debt securities

François Guy Trébulle
Lecturer at Paris University
Researcher

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