An obvious, as well as necessary, condition for the achievement of the (corporate) objects of the SA is its financing. It may prove possible for the SA to finance itself-through its business activity and/or its reserves. And though often unfeasible, external financing is a safe alternative. Among the sources of the latter, in addition to the most obvious and common (:bank lending), is the issuance of securities. About them, as a foretaste, the present article. In more detail, for the individual securities and possibilities, see our articles to follow.
Types of Securities Issued
The SA is entitled to issue specific securities (: art. 33 §1 n. 4548/2018). The relevant list is in principle, and according to the Memorandum to the Law, restrictive (:“numerus clausus”). The types of securities, which can be issued by SA, are those listed below:
Shares
Their concept is important on so many levels!
A share means, first of all, a part of the share capital. The latter (: share capital ) of the SA is divided into equal, such, shares. The sum of the nominal value of the individual shares/shares constitutes the share capital.
A share also means the shareholder’s right, the shareholding, i.e., relationship.
In addition, it also means the title -the security, i.e., in which the share right is incorporated, if the SA issues shares.
Shares are regulated in articles 34 to 55 of Law 4548/2018.
Bonds
The bond loan issued by the SA is divided into bonds (art. 59 §1 a’ law 4548/2018). More specifically: the amount of the bond loan is divided into equal parts, each of which constitutes the nominal value of the bond, in which it is incorporated. Bonds can be nominal or anonymous. It is possible to issue a single bond for a bond loan.
Bonds are regulated in articles 59 to 74 of Law 4548/2018.
Warrants
These are also securities issued by the SA. They provide the transferable right to their beneficiaries (: option) to acquire, with just a declaration on their part, shares of the issuer for a pre-agreed price. This statement must be addressed to the SA within a (pre)determined deadline.
Warrants are regulated in articles 56 to 58 of Law 4548/2018.
Founders’ Shares
They are distinguished into ordinary (Article 75) and extraordinary (Article 76).
The first (:ordinary) are granted to founders of the SA, as a reward for services rendered during its formation. These securities have no nominal value and do not grant the right to participate in the management of SA nor in the product of its liquidation. However, they provide the right to withdraw up to ¼ of the net profits, after deducting the amounts for the formation of the regular reserve and the distribution of the first dividend.
The extraordinary founders’ shares, on the other hand, constitute consideration for the granting to the company, during its establishment or its operation, of specific objects (not money). These objects, however, do not constitute contributions in kind and their value does not represent part of the share capital.
The founders’ shares are regulated in articles 75 and 76 of Law 4548/2018.
Other(?) Securities
The law (art. 33) provides the possibility for the SA to issue, in addition to the above, other securities – which may be provided by special provisions. However, other securities, different from the above – ones that are not provided for by special legislation – cannot be issued.
It is argued, however, that the quoted principle of numerus clausus does not apply in an absolute manner: the SA can proceed to issue different securities or to issue their individual categories. The free transfer of property rights deriving from them is also possible.
The individual classes of securities may lead to new forms (:hybrids), which combine characteristics of several, e.g., shares and bonds. Such examples are bonds convertible into shares as well as redeemable shares (art . 71 & 39 respectively).
Possibility of Issuing More Classes of Securities
The law (art. 33 §2) allows the SA to issue securities of individual categories – however, within the context of the decisions of its competent bodies and the law. In the case of shares, for example, such categories are preference and redeemable.
At the same time, shares of the same “type”, e.g. the preference shares, may be distinguished in more categories – depending on the privilege they provide.
Furthermore, the SA may issue securities of the same category in consecutive, chronological, series. This issue of them may result in the different nominal value of the shares of each series. Shares of different series, however, are not necessarily required to be issued at different points in time.
Ability to Connect More Securities
The law on SAs (art. 33 §3) introduces an innovative possibility: that of connecting several types or classes of securities (stapling). As pointed out in the Memorandum to the Law, on the specific provision, this is a practice known in the international markets.
This practice can take place in case of simultaneous issuance of several types or classes of shares. If this condition is met, it is possible to stipulate in the conditions of issuance of these securities (e.g. in the articles of association for shares or in the bond issuance program for bonds) that: “…the acquisition of a security of a type or category is only permitted with the condition of simultaneous acquisition of a certain number of issued securities of another type or another category”.
At the same time, in the terms of issue of the securities in question, it may also be provided that the linked securities may be transferred or encumbered only jointly. The obligation, in fact, of common disposition, can be provided for a certain time or until the fulfillment of a certain condition. However, it can also be provided for the entire duration of the SA. This obligation to share the securities may reduce their marketability and ultimately make their transfer more difficult. In particular, if it is set without a time limit or under the fulfillment of a condition.
This particular practice “…allows for a relaxation of the closed number principle” (see Memorandum to the Law on Article 33). This does not mean, however, that the exercise of this practice creates a new kind of title. It creates, on the contrary, beneficiaries of different titles, in the person of whom different qualities co-exist vis-à-vis the SA.
It is possible, for example, for someone to become a shareholder and a creditor of the SA at the same time. This will be the case when the link is for stocks and bonds. In this case, however, there may be conflicting interests in the specific beneficiary.
Such conflicts of interest appear, above all, in times of financial difficulty. During these periods, shareholders are likely to resort to entering into high-risk investments. They may also decide on distributions or the payment of additional dividends in favor of themselves. This practice has the effect of reducing the amounts available for the SA itself and the bondholders. Therefore, the operator of linked securities will be asked, each time, to choose the interests that they will attempt to satisfy.
The (Non?) Possibility of Separate Disposal of Securities Rights
The law (art. 33, §§4 & 5) maintains the principle, in the first place, of the indivisible security. This means that the rights to the securities can only be disposed of in their entirety. A security, therefore, cannot be broken down into individual rights, subject to the provisions on partnership, pledge and usufruct.
However, the above rule is not strictly followed. Exceptionally, the possibility of separate transfer of property rights deriving from the security is provided. Specifically: “…claims to withdraw profits, interest or debts, as well as other independent property rights arising from the securities are freely transferable”. This specific possibility, which also existed under the previous law, does not, however, cover the management rights of the SA (e.g. the right to vote).
The Explanatory Report of Law 4587/2018 -which amended §5- lists among the other independent property rights, indicatively, the preference right , the right to the product of the capital reduction or amortization and the right to the liquidation product.
However, the above exceptions can be excluded, resulting in a return to the rule of indivisibility. In particular, the law provides that the aforementioned exceptions are subject to the different provision of the articles of association or the terms of issuance of the relevant securities (article 33 §5 in fine).
However, this prediction has been criticized. This criticism is based on the fact that the articles of association or the terms of issuance of the other securities may, in this way, interfere and set barriers in the decisions concerning the property of the holder of the security. Also, in the creation of an insecurity regime in transactions. And this is because it is possible for the holder of the security to transfer rights without even having the relevant right.
SA may issue more classes of securities, utilizing the facilitations granted to it by law. Despite the fact that the law refers to their limited number, it is nevertheless possible to create and exploit their hybrids – securities with characteristics of more categories. In any case: the possibilities provided by the law for SAs are multiple and can be utilized in the direction of satisfying the corporate interest and its individual (financial and other) needs. It is up to them (the SAs) and their advisors to choose the best; also: to design them (in the optimal way).
Regarding those topics, however, see our articles to follow.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (June 12th, 2022).
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.