Tag: επενδύσεις

Business Angels – motivation and protection

The issue of the financing of startups has been covered in our previous article. In a previous article, we were given the opportunity to approach and, to a large extent, better understand the operation and importance of Business Angels for startups, in particular, operating in Europe, the US and in our country. In the present article we will focus on the incentives provided by the Greek state for the development of the relevant institution and, through it, for the development of entrepreneurship and the Greek economy. Also, to put it bluntly, in protecting what Business Angels and Businesses should enjoy.

Attracting investment funds from Business Angels-the incentives

Generally

The investment culture in our country is not at all typical for the US, nor for the European one. The presence, therefore, of Business Angels in our country could probably be characterized as non-existent. However, their importance in the economies in which they operate is quite obvious. In this context, it seemed necessary to have incentives to attract and involve them.

For a year now, albeit belatedly, there has been the appropriate legislation (: art. 49, law 4712/2020), which would create the necessary incentives for those who would be interested in acting as Investment Angels. With this legislative regulation, the necessary provision was added to the Income Tax Code (: art. 70A law 4172/2013).

The tax incentives

The specific provision, therefore, provides (: §1), that when a taxpayer-natural person contributes capital to a capital company, which is registered in the National Register of Startups, an amount equal to 50% of their contribution is deducted from their taxable income. -in fact, within the year in which the contribution was made.

It also provides (: §2), that:

(a) the specific tax reliefs may relate to contributions up to a total of € 300,000 per investor and per tax year;

(b) capital injections are made to a maximum of three (3) different start-ups; and

(c) up to the amount of € 100,000 per business.

Finally, in order to avoid problems, it records as necessary (: §3) the deposit of the financing through a bank. It also imposes severe administrative sanctions in the event that there is an intention to circumvent the law and obtain a tax benefit without a real intention to finance.

The long-awaited CMO and the way of capital injection

The problem with this legislation, however, was that a prerequisite for the start of its implementation, was (: §4) the issuance of a CMO for the necessary details. This CMO was finally published with a delay of one year (!). This is the CMO No. 39937 / 5.4.21 (Government Gazette B 1415 / 9.4.21), which indeed determines the necessary details for the implementation of the aforementioned provision. The provision of §2 of article 3 is interesting, as it stipulates that:

«2. The capital contribution to a start-up company is made through an increase of its share or corporate capital with the issuance of new shares or corporate shares, respectively, in accordance with the provisions of the existing regulations that regulate the capital increase process of SA, LTD and Private Limited Company”.

Restrictions on tax reliefs

The way in which Business Angels provide financial support is therefore important to them from a tax point of view. In order to achieve the tax reliefs mentioned above, it is necessary to carry out the financial support of the startups through, exclusively, a contribution to their share capital. More specifically, through an increase in share or corporate capital with the issuance of new shares or corporate shares. An increase which (in whole or in part) will be covered by the Business Angel.

It follows, by contrast, that the Business Angel do not qualify for tax relief when, among other things, they undertake to cover the financial needs of the startup in another way. Indicatively, through:

(a) a bond loan convertible into shares;

(b) common loan or bridge financing.

Let us clarify, moreover, that of course such a form of financing by the Business Angel is not excluded. They will simply be deprived of the tax advantages, which in case of acquisition of a part of the share capital they would be entitled to.

The protection of Business Angels and startups

The tax incentives provided by the relatively recent above-mentioned CMO for Business Angels’ investments are consistent with the legislation mentioned in the introduction. This is because only contributions to a capital company (: SA, LTD and Private Limited Company) provide tax incentives to Investment Angels. However, their participation in the share / corporate capital of startups is what calls for both the owners of start-ups and the Business Angels themselves to be alert (of course also from a legal point of view).

From the point of view of the first (: entrepreneurs) it should be completely understood that the involvement of a direct “partner” in the corporate capital means also their participation in the operation of the bodies of their company. It means running a company that is fairly formal and based on some, minimal, corporate governance rules – even if they are not formally subject to them. It means transparency and tolerance of monitoring. It means separation of the company’s finances from those of the entrepreneur. It means, in the end, that there should be a transition to a new mode of operation, different from the one that was, until recently, familiar to them.

From the point of view of the latter (: Business Angels) it should be understood that the necessary audits should take place (legal and other). Also they should review the statutory provisions (and possibly require adjustments) on a number of issues. Among them: those concerning the decision-making process, minority rights, quorum and majority percentages, management, transfer of shares or, as the case may be, corporate shares.

The binding recording of the initial agreement’s individual parameters, the manner of exit of the Business Angels from the investment as well as the safeguarding of both sides (legal and not only) is, of course, up to the provisions of their initial agreement,

The data regarding the role of Business Angels worldwide is impressive. Particularly important, therefore, is their assistance to the economies of the countries where their presence is expanding.

It is in this context that they were provided with the (mentioned in the introduction) – recent tax incentives. We hope, therefore, in the confirmation of the assessment for: “… revitalization of this institution, which will contribute to the strengthening of entrepreneurship and the economy of our country ” of the late President of EVEA-Konstantinos Michalos.

But the tax incentives, although they do not cover all the potential contingencies, do not seem enough. Nor is the absolutely necessary safeguarding of those involved (investors and businesses).

The first thing that should happen is to activate and change the perception of domestic investors-potential Business Angels. (Unless they fall behind and ultimately follow, as is usually the case, foreign Investment Angels, who will be the first to make a move – taking advantage of relevant business opportunities).

We will see…

Stavros Koumentakis
Managing Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 12th, 2021).

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.

September 14, 2021
Business Angels

The importance and value of Business Angels (: Angels Investors or Business Angels) in the development of entrepreneurship and the economy is well known worldwide. However, as the business and investment culture differs from country to country, the supply and use of funds from Business Angels appear different, respectively. We hope that the recent, albeit small, push of the relevant institution by the State will contribute to its (desirable) development. It is worth, on the occasion of the resurgence of the relevant discussions, to take a deep dive into the institution.

Who are the Business Angels?

Business Angels are, according to the European Commission, independent individuals with business experience, who choose to invest part of their fortune in new and promising (in their opinion) private companies. They invest individually or, alternatively, as part of a consortium, where one (possibly) most usually takes the lead.

Business Angels do not only offer funds to the business. They also offer their experience, skills and contacts, in order to expand the business activity and, of course, their personal benefit.

Business Angels and startups

Business Angels play an important role in the global economy. In many countries they have a significant position as external financing sources for startups.

In fact, they are proving to be increasingly important as providers of venture capital, contributing to economic growth and technological progress.

It is well known that startups hope for and aim to the financing of Business Angels – not unjustly, as the data shows.

The degree of penetration of Business Angels in the financing of startups in Europe is interesting as it results from a survey conducted on behalf of EBAN (: European Business Angels Network) and concerns the year 2018. The data presented in the table below are from this survey:

Based on the data of the reference year (: 2018), almost 1/3 of the startups in Europe (more precisely: 29% of the total) utilized the financing and assistance of Business Angels. It is noteworthy that the latter (: Business Angels) fall short only of those cases in which the founders contributed the necessary funds (77.8% of the total), while a respective percentage of funding derived from investors in the category “Family and Friends” (: 30.2% of the total).

The participation of Venture Capital in the financing of startups is significantly lower (: 26.3% of the total) while bank lending is rather negligible (: 7.4% of the total).

Business Angels: how many are there?

It is interesting, however, to focus on the numerically growing presence of Business Angels, over the years, in terms of the early stage of investment in Europe. Relevant research of the same Organization (EBAN) deals, among other things, with this issue. Hence the data in the table below.

From the above table we come, based on the available data, to two main conclusions: (a) that the approximately 240,000 Business Angels that were active in 2011 in Europe gradually reached 345,000 in 2018 & 2019 and (b) that their increase in numbers has been gradually halted in recent years.

Business Angels, Large, and Small and Medium Enterprises

And once we see the significant presence of Business Angels among the sources of funding for startups in Europe, it is worth taking a similar, quick look at Large and Small and Medium Enterprises (looking for them, respectively, among their sources of funding). Our source: The European Central Bank and its related research. Let’s focus on the table that lists their sources of funding:

So, although Business Angels are, as we have already seen, significantly involved in startups, their involvment in larger companies (Small and Medium and Large) is completely non-existent. This fact is logically expected: the needs of these companies are extremely high and, in any case, inversely proportional to the capabilities of the Business Angels.

The Business Angels in the USA

The investment culture that characterizes the USA is of course different from the corresponding European one – much more the corresponding one of our country.

The data from the Angel Funders Report 2020 seem very interesting:

According to the Angel Capital Association: (a) Business Angels invest approximately $ 2.5 million each year in various businesses in the United States, (b) Business Angels business and financial assistance generates the background for achieving total funding of 2 billion USD from startups, (c) the total funding of 25% of startups comes from Business Angels and (d) in 40% of the new agreements that took place in 2019, Business Angels held a position in the management of the companies with which they came to an agreement.

Business Angels in our country

From what has been mentioned above, the importance of Business Angels worldwide, in Europe, of course in our country as well, seems absolutely obvious. Efforts to create a relevant Network in our country but also to encourage investors to operate as such have already emerged, with the most important one coming from the Athens Chamber of Commerce and Industry, created by the Network of Business Angels.

However, in the context of the broader effort of the Athens Chamber of Commerce and Industry to restart the interest for the activation of Business Angels, it became the head of the Gazelle project. This project was created within the Interreg-Balkan Med Program and several countries participate (Greece, Cyprus, Bulgaria, Northern Macedonia). Its purpose: “the development and pilot implementation of a coherent framework for the design and implementation of joint sustainable measures aimed at creating, improving and accelerating the market of Business Angels in the Balkan-Mediterranean region”.

According to the assessment of the recently deceased Mr. Kon. Michalou (President of the Central Association of Chambers of Greece and the Athens Chamber of Commerce and Industry), who shared with the signatory-just before his unexpected loss: “With the activation of the recent, favourable, tax measures, regarding the investments by the Business Angels, we expect the revitalization of this institution, which will contribute to the strengthening of entrepreneurship and the economy of our country”. We look forward to confirming his prediction.

The investment culture in our country is not at all equivalent to the corresponding US and European one. The presence, therefore, of Business Angels in our country could be characterized as rather non-existent. However, their importance in the economies where they operate is obvious. In this context, it seemed necessary to provide them with incentives in our country, to attract and utilize them.

For a year now, albeit belatedly, there has been the appropriate legislation in place (: article 49 law 4712/2020) with significant tax incentives for those who would be willing to act as Investment Angels. Unfortunately, its coming into force was not quick, as a Joint Ministerial Decision was required, which was issued almost a year later.

The content of the specific provisions and, above all, the issues on which the owners of startups but also, of course, the Business Angels should focus on for their protection, will concern us in an article of ours to follow.

However, the substantial development of this institution and the assistance of its utilization is desirable for everyone, in the context of the (much desired) development.

The baton has already passed into the hands of the Business Angels.-

Stavros Koumentakis
Managing Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 22nd, 2021).

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.

August 22, 2021
Joint Investment Accounts

We all know the Joint Banking Account. By utilizing its capabilities, more than one depositor can bypass the inheritance procedure and avoid paying inheritance and donation tax. At first -at least. But what if the common asset of more than one person is intangibles, rather than cash deposits? We can look for the solution in the Joint Investment Accounts, which provide us with corresponding facilities, as they are reflected in the Regulation of the Hellenic Capital Market – which was recently approved by a decision of the Hellenic Capital Market Commission [: 6/904 / 26.2.2021 (Government Gazette B1007 /16.03.2021)]. But let’s start with the regulations of the Joint Bank Account that we will encounter in the Joint Investment Accounts.

The Joint Bank Account

The Joint Bank Account is under the provisions of the law (Law 5638/1932 “on deposit in a joint account”). The inflow of capital from abroad and, in particular, the inflow of capital of Greeks living abroad was the purpose of its introduction into the Greek reality. This goal, moreover, is explicitly stated in the Explanatory Memorandum of the relevant legislation.

The Greek legislator aimed, in particular, to make Greek banks competitive with their counterparts abroad. It sought to achieve this by introducing a deposit instrument, which would offer a number of favorable arrangements for depositors. Among them, the exemption from inheritance tax and the possibility of bypassing the inheritance.

As regards, in particular, the case of succession, the possibility of an agreement is provided for, according to which “… upon the death of any of the beneficiaries, the deposit and the account thereof automatically pass to the survivors, until the last one”. This term, in fact, is accompanied by a highly advantageous arrangement for the survivors. It is provided, in particular, that in the event of the death of one of the beneficiaries “… the deposit is owned by them (: the other survivors) free of any inheritance tax or other fee. On the contrary, this exemption does not extend to the heirs of the last remaining beneficiary “(article 2 of law 5638/1932).

The wording of the law provides, as we also mentioned in the introductory remarks, that the object of the joint account can be, exclusively, money (article 1 of law 5638/1932).

It is obvious that, based on the above data, non-monetary assets are not covered by this legislation. Securities and debt instruments-e.g. In some cases, however, the legislature opted for the proportionate application of the favorable provisions of the law on the joint account. Indicative: the securities of the State in accounting form. In the case of the Joint Investment Account as well. The latter concerns the possession of intangible securities-shares, ie, among others, that are listed on the Greek stock exchange.

The co-ownership of intangible securities

The possession of intangible securities and the development of investment activity in the Greek Capital Market through the opening of a Securities Account, presupposes for each investor to be legalized-to have a Share, ie in their name. The latter contains their identification data and receives from ATHEXCSD, when it opens, a Registry Serial Code Number (RSCN) which is unique to DSS and does not change (: Section III, Part 4, 4.1 and 4.3. Regulation of the Hellenic Central Securities Depository SA-ATHEXCSD, the content of which was approved by a recent decision of the Hellenic Capital Market Commission: 6/904 / 26.2 .2021 (Government Gazette B1007 / 16.03.2021), based on the provision of article 4 of law 4569/2018 and Regulation (EU) 909/2014 (CSDR)

It is possible that sometimes two or more investors are co-owners of some shares. In this case, it is presupposed, according to those that apply to the listed shares, the participation of all, without exception, the co-owners for each related transaction.

In case there is co-ownership in intangible securities, the possibility of forming a Co-ownership Share is provided. It is assumed that each of the co-owners has an independent Customer Share. The Share of Conjunctures is determined on the one hand by the co-owners and on the other hand by their percentage of co-ownership in the securities (Section III, Part 5, 5.2.2. Regulation of ATHEXCSD).

For the common securities that are registered in a Co-ownership Share, it is provided that in case of any change of the co-owners or the percentage of co-ownership in the specific values, the creation of a new Co-ownership Share is required. This new Share is also determined by the new data of the current times and the new percentages of ownership.

An exception is that it is not required to create a new Co-ownership Investment Share in the event of the death of one of the co-owners. In this case, ATHEXCSD changes the names of the co-beneficiaries by registering in the position of the co-owner who passed, their heirs. Obviously, it also changes, respectively, the percentages of co-ownership (: Section III, Part 5, 52.7. Regulation of ATHEXCSD).

What is mentioned immediately above does not apply, however, in the event that the possibility of registration in a Joint Investment Account is opted for.

The Joint Investment Accounts- In General

The Joint Investment Accounts (: JIA) can be created at the request of two or more natural persons if they act as co-beneficiaries of a joint securities account according to the provisions of par. 6 of article 13 of law 4569/2018. A legal entity, therefore, cannot participate in the creation of a JIA (: Section III, Part 5, 5.1.1. Regulation of ATHEXCSD).

The JIA is clearly identified by the co-beneficiaries, who -as provided- are joint owners of the values registered in it (: 5.2. Regulation of ATHEXCSD).

As we have already pointed out above, the peculiarity of JIA is the fact that this Share is governed by the provisions governing the Joint Bank Account (: Law 5638/1932).

The characteristics of the JIA

In General

The contract of the JIA contains the individual terms for its operation. The creation of a JIA, however, is distinguished for its specific characteristics.

Each Participant in a Joint Investment Account implements under their own responsibility any transaction related to the operation of the relevant Securities Account at DSS, acting (also) on behalf of the co-beneficiaries. Each co-beneficiary, therefore, can act individually, without the complicity of the others (: 5.1.6. Regulation of ATHEXCSD). Among the co-beneficiaries, however, their hierarchical order is determined, which indicates the one who is legitimized to act as a representative of all (: 5.1.5.b. Regulation of ATHEXCSD).

The case of death of one of the co-beneficiaries

The change of the co-beneficiaries of a JIA she is not possible. Specifically, in case of death of a co-beneficiary (and if the application of the condition of sub-paragraph a of article 2 of law 5638/1932 has not been implemented), the balance of Securities corresponding to the rights of the heirs or bequests is transferred to their own Securities Accounts (5.1.8. Regulation of ATHEXCSD).

However, the case in which the provision of article 2 of law 5638/1932 is applied is different. In the latter case, the securities are automatically transferred to the other co-beneficiaries. Specifically, ATHEXCSD modifies the details of the JIA, as it eliminates the deceased from the co-beneeficiaries. However, the hierarchical order of the co-beneficiaries, recorded from the beginning, is maintained (: 5.1.9. Regulation of ATHEXCSD).

It is possible, of course, as a logical consequence, after the death of the other co-beneficiaries, that only one survivor remains. In this case, the registered in JIA assets are owned by the beneficiary remaining. The latter is obliged, in this case, to proceed with the unification of the JIA with their unique Share (: 5.1.9. Regulation of ATHEXCSD).

The provisions for the Joint Bank Accounts (: Law 5638/1932) are favorable for the co-beneficiaries. Their application in the Joint Investment Accounts aims to provide (and it provides) to the latter and their co-beneficiaries corresponding facilities with those of the Joint Bank Account.

The possibilities presented by the creation of a JIA are clearly identified in matters of inheritance, as, in case of death of a beneficiary of a JIA, the assets that are in the Joint Investment Account automatically belong to their co-beneficiaries.

The advantages of the Joint Investment Account are multiple.

They can be enjoyed, without a doubt, (also) in the context of a wider tax (within a family or not) planning and scheduling, which (also) concerns the management of shares of listed companies and dividends.

But beware!

Utilizing the benefits and facilities of both the Joint Bank Account and the Joint Investment Account is not always without pitfalls…

Stavros Koumentakis
Managing Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July 18, 2021).

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.

July 18, 2021
Stock Option

Stock Option Plan for the distribution of shares to members of the Board of the Directors, employees and permanent associates

A. Generally

What are Stock Options?

Stock Options are an institution for which there is no long experience in our country. At an international level, however, there is not only a long experience, but also a number of categories of same.

Those that are most well known in Greece (and will be of interest to us here) are the ones that are intended to act as an incentive for senior and supreme executive staff. And in addition: the close-permanent associates of a business. Then, for reasons of brevity, all potential beneficiaries will be referred to as a whole as “executives”. The internationally accepted relevant terminology for stock options of this category is “Employee Stock Option” and abbreviated “ESO”.

These Stock Options, in practical terms, are only the option that an executive (or a group of executives) of an enterprise acquires (at one or more subsequent times) the company’s shares in a predetermined, attractive, price. At a price that the executive himself/ herself is called to pay.

Under the American model (:american options), this right is exercised at any time by the beneficiary, from the time of the issue of the Stock Option Plan up to its maturity. Under the European model (: european options or share options in the UK) this right is exercised by the beneficiary at the time of expiration and / or at predetermined, interim times.

Any withdrawal /removal of an executive before the time at which the right may be exercised shall, as a rule, result in its loss.

How do Stock Options work?

First of all, let’s note that the Stock Options do not (and must not) concern all executives.

But even with this constraint, we have to accept that the categories of executives to which they are addressed are two: To those which the company seeks to attract and those with whom it is already associated under some form of contractual relationship, more usually, labor.

On the other hand, companies that decide to issue ESO can be of all kinds: Start-ups, businesses with a history (with liquidity problems or limited financial capabilities), businesses that are developing (and promising) or even developed companies (with significant financial capacity). A common feature of all: An attempt to motivate executives to either start or continue working with them.

Both the core proposal of the company that decides to issue them and the specific parameters are known: “Come (or stay) with us and you will have serious expectations to derive significant benefits from the increase in the value of the business (in proportion to its part that corresponds to the stock option you receive)”.

Internationally, it is adopted (at least in terms of listed companies) also one more alternative to (direct) ESO provision. The business undertakes instead of delivering the Stock Options to the executive to pay him money at predetermined times in the future. In particular, the difference in the present value of an agreed number of shares relative to the price they will have at those predetermined future dates.

Stock Options on the side of the business and the executive

With the adoption of Stock Options, the company creates significant incentives to attract an “expensive” executive, as it no longer faces him as a mere employee. The executive is upgraded from the level of the simple (and least important) employee to the potential tomorrow’s shareholder, a participant in the vision, development and, as a result, profitable course of the business.

The enterprise (start-up, in difficulty, developing or developed) thus achieves a threefold goal: (a) to reduce the financial requirements of the executive in terms of his/her expected fixed earnings, (b) to increase his/her commitment to the firm (c) to raise (logically) his/her qualitative and quantitative performance.

The executive, on the other hand, “attaches” stronger ties to the company’s chariot as is no longer a simple worker but upgraded to a potential (or tomorrow) shareholder. And even more: Looking forward to the profits he/she could make from his/her stay in the business, he/ she would hardly think of not paying off his/her full potential or leaving before the “full limit of the time”.

By realizing the institution of Stock Options, the target of shareholders, management and executives becomes common: developing the value of the business and, consequently, the value of its stocks.

Especially: The worries of the entrepreneur and the way they can be dispelled.

However, there is also a serious (and quite reasonable) argument on the basis of which an entrepreneur (especially in companies with few shareholders) would not choose to make Stock Option available to his/her executives. Let’s note, among other things, the most common: What will happen if, once the relevant rights have been exercised, the executive (as a shareholder) leaves (resigns or be dismissed), bankrupts, dies or faces a mental health problem? Will then be as a partner an old friend and tomorrow’s enemy? Or will there be the widow and his orphans? Or maybe an insolvency administrator, someone irrelevant or even worse, the most important competitor of the business?

In these critical questions can be given not only satisfactory answers but also absolutely adequate safeguards. The combination of individual legal options can safely succeed in achieving this.

For example, the combination of stock options with the provisions on the issue of restricted stocks may create feelings of security for such concerns (For matters relating to the issue of restricted stocks, you may refer to our related article).

B. The regulations of the new Law on Sociétés Anonymes

On a procedural level, the issuance of Stock Options presupposes (Article 113 par.1) a General Assembly resolution on the beneficiaries of the plan (members of the Board of Directors, executives and / or persons providing their services on a stable basis) as well as on the details of such issuance. In this context, the decision of the General Assembly specifies (Article 113 par. 2) whether the Stock Options will be issued using the Company’s own shares or an increase in its share capital, the maximum number of shares to be issued, the subscription price or the method for its determination, the terms of sale of the shares, the duration and the beneficiaries of the plan, the manner in which the rights be exercised. However, especially with regard to the beneficiaries, the Board of Directors may be entrusted with the designation (by the Board of Directors) of either the beneficiaries, namely, or of the groups of beneficiaries

The Stock Οptions issued may not exceed a maximum of 10% of the share capital (Article 113 par.2), although in practice it would hardly exceed even 1% or 2%.

It is also noteworthy that the General Assembly may delegate (Article 113 par.4) for a period of five years its relevant power to the Board of Directors although such an assignment must be given sparingly as it could possibly lead to unpleasant reversals of sensitive balances between shareholders.

In any event, the Board of the Directors is that body (Article 113 par.3) to:

(a) issue the certificates of exercise of the relevant rights but also

(b) (per calendar quarter) to either deliver the shares involved in the exercise of the Stock Options or to increase the share capital and amend the Articles of Association (by issuing and delivering the newly issued shares and certifying the relative increase).

C. Epilogue

Making use by an enterprise of a modern tool, such as Stock Options, can be beneficial at various levels. Although this approach is simplified, the potential risks to the entrepreneur can be reduced to a significant level (using safe legal tools) – if not eliminated. At the same time, the design of the relevant product can greatly safeguard the central focus of the business: whether it is to attract skilled executives or to maintain the most competent ones and / or to maximize what the benefiting executives are able to offer.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 3rd, 2019).

February 3, 2019
Corporate Governance: Competitiveness and Growth

[vc_row][vc_column][vc_column_text] Corporate Governance is, in general, a set of principles and rules that must govern certain areas of the organization, operation and management of a Société Anonyme. But how are they related to Competitiveness and Growth?

The Regulations of Corporate Governance Codes

In the Greek Corporate Governance Code, these rules refer to the Board of Directors, internal control, fees and shareholders.

The Corporate Governance Codes are not mandatory unless some of their provisions (or all of them) have the form of the law (e.g. some of the provisions of Law 3016/2002 on listed companies, of the recent Law 4548/2018 concerning the reform of the law of Sociétés Anonymes, the commonly known law 2190/1920).

Objective and Purpose of Corporate Governance: The Component of Competitiveness

The purpose of Corporate Governance under the Greek Code is “to promote good governance in the conviction that it will enhance the long-term success and competitiveness of Greek companies”.

The reference to enhancing competitiveness is not accidental: We can be sure that there would be no investor to invest in a company that operates with the well-known methodology of most (family) businesses in Greece. A methodology in which the entrepreneur identifies the fund of the company with his “pocket”. The company, with his home.

To what extent is the entrepreneur willing to retreat from unwavering practice and habits of years?

Necessity and value of Corporate Governance. From theory…

Regarding the necessity and value of Corporate Governance, a great deal has been written. In the preface to the Greek Code of Corporate Governance, Iakovos Georganas (then President of HELEX – for the older the “Patriarch of the Hellenic Capital Market”) states: “… Strengthening corporate governance is a prerequisite for creating an attractive investment climate in Greece, as in every country and the adoption of the Code by the companies, helps restore investors’ and lenders’ trust, attract domestic and foreign capital, and enhancing business competitiveness …”.

…to practice. Indicatively: Roots Programme

Helping businesses to grow but also boosting their competitiveness requires, among other things, access to low-cost investment funds. The Athens Stock Exchange is pursuing an important step in this direction, through the Roots programme, which, with a modern methodology, attempts to facilitate the access of small and medium-sized companies to investment funds. Already, on 13.5.2018, the first event took place at the Thessaloniki Stock Exchange Center, with recipients, innovative startups and promising small and medium-sized companies in Northern Greece. Companies that think they have an interesting investment proposal and are looking for investors. “The success of the companies that will join this program will be judged by their ability to raise the funds needed to implement their investment proposal, meeting the requirements of organization, transparency and good corporate governance under the conditions demanded by investors”, says the President of HELEX Mr. Socrates Lazaridis.

Once again, corporate governance!

Is (quite) clear?

Without good corporate governance, there is no access to finance!

Without funding, there is no way for growth!

Stavros Koumentakis
Senior Partner

Υ.Γ. The article has been published in MAKEDONIA Newspaper (December 16, 2018)

December 16, 2018
Companies Vs Investors / Banks: Balance Of Interests

[vc_row][vc_column][vc_column_text] The financial data of the companies, the current circumstances each time, as well as the business plans often create the need to look for funds: more often in the form of a company’s capital strengthening and / or its financing.

The Expectations of The Parties

Business interest leads to the search for “cheap” funds (in the sense of the least possible financial burden). What is important is, on the one hand for no significant commitments and collateral to be, while on the other side for the repayment period (when it comes to lending) to be long.

Investors (most commonly individuals, funds, venture capital, etc.) and, just recently banks, are always looking for

a) the maximum possible return,

b) the earliest possible return of the investment,

c) the maximum possible collateral.

Collateral

Contractual undertakings and securities (guaranties, liens on mortgage, mortgage, pledges) have lost a significant part in the value scale of investors and banks. It is no longer the basic, and certainly not the only, security they are looking for. They often require (and, as a rule, achieve) important commitments from the company – contrary to their own interests and needs. The threatened sanction in the case of breach of these commitments is a kind of penalty (in the case of investors) or the recognition of a relative reason for terminating financing and claiming immediate return (in the case of banks).

Restrictions, Commitments and Obligations

The restrictions, commitments and obligations imposed are, generally, diverse. They may concern the company, its business activities, its management and its shareholders. Access to books and close monitoring of the company’s financial data is the minimum. It is quite indicative that one may (in the view of recent experiences) refer to the need for the investor’s or, as the case may be, the (bank) creditor’s assent in cases such as the following:

(a) Approval of the business plan.

(b) The composition of the Board of Directors (with the ultimate objective of the involvement of investors’ representatives in it).

(c) The major decisions making (e.g. merger, demerger, division, interim dividend and dividend distribution, return of capital, purchase, sale, lease, rental and leasing assets, entering into significant commitments, provision of securities, and so.).

(d) Third party financing either directly (e.g. loans) or indirectly (e.g. guarantees).

(e) Amendment of core provisions of the Articles of Association.

(f) Change in equity [transfers of shares either between shareholders or to third parties, including the provision of shares to executives as incentives, for example stock option (!)].

(g) Insurance of the assets of the company and ban on the transfer of the insurance indemnity, and so on.

The Multi-functional nature of Commitments

The undertaking of obligations and commitments such as those mentioned above, operate on three levels:

(a) The investor (or the Bank, as the case may be) feels the (really necessary for them) security in order to proceed with the useful, and sometimes critical, investment or financing of the company.

(b) The company, its management and its shareholders should be ready to accept control, limitations and / or (worst case) veto rights in their significant business decisions.

(c) The company on the one hand and the investor (or, as the case may be, the Bank), on the other hand, are linked with extremely strong ties throughout their co-operation, which cannot be broken without dramatic or even extreme adverse effects.

The Enforcement of Commitments

The commitments undertaken by the company are likely to prove problematic in a dual way – especially when the terms are imposed by a bank that finances:

(a) The ability to take business decisions is transferred by the company, even partially, to (middle or senior) bankers, who are neither entrepreneurs nor have significant knowledge of the subject. Most important: they never hold a real risk for their choices, they never compromise their own personal property.

(b) The freedom of the company, its management and its shareholders are limited regarding the implementation of its plans. The company binds to the creditor bank. No significant business decision can be taken without the consent of the latter. The bank even has the (normally uncontrolled) option to block or endorse any business move and any other funding. It also has the option to finance the company’s business itself – thus gaining a dominant position among its funding sources.

The Balance of Interests

In the context of a free economy like our country’s economy, nobody is obligated to conclude a contract and / or to accept specific unfavorable contractual provisions.

In the case of searching for funds, the strong party is not, normally, the company: It will be often “drawn” into concluding contracts and to undertaking extremely problematic commitments.

It often seems, logically, utopian to talk about “balance of interests”.

There is only one thing for sure: The company shall not be “heard” when it attempts , in the near or distant future, either to discuss on the “small print” or to reproduce the assurance of its creditor (bank, fund or venture capital): “Come on, do not pay attention: these are typical – we are here for you” …

Stavros Koumentakis
Senior Partner

P.S. This article has been published in MAKEDONIA Newspaper and makthes.gr (October 14, 2018)

October 17, 2018

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