Company Law Review - Githubissues

The Cabinet has adopted the Company Law as the Interim Law 01/2021.

Currently, we are undergoing a review based on 6+ months of practice with this Interim Law. The review takes place in this document.

There are new requirements due to the evolving environment:

new legal forms
fiduciary duty
adjustments to fit the blockchain
DAOs
make the option to not be a Ltd. if desired
split bankruptcy, make it a new Bankruptcy Law

and there are additional requirements for higher transparency and

Drafted review based on most requirements. Outstanding requirements:

split bankruptcy law

Definitions Added a new Section after the Preface and before Section 1, called Definitions, which states:

"Definitions Articles of Incorporation shall be the Company's founding document, describing its core bylaws, functions, institutions, operations, and purpose.

Bylaws are rules that the Shareholders of a Company agree upon that govern the operations of the Company, especially towards themselves and towards third persons.

Capital shall be wealth in the form of money or other Assets, such as the promises of Persons to regularly perform work owned by a person or organization or available for a purpose such as starting a company or investing. In the sense of this Law, Capital shall be held by a Company or another entity with Legal Personality and shall constitute its operating assets and the means by which it acts in the world. The sum of all Capital of a Company is its Total Registered Capital.

Charitable Organization shall be a legal person, domestic or foreign, the main or the only purpose of which shall be to serve as a charity, mutual aid or conservation organization.

Company is an association of Persons and Capital formed by Persons or by other Companies for the purpose of business or another kind of undertaking.

Cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned enterprise.

Corporate Governance is how the Founders and the Shareholders decide the Company should be managed. Corporate Governance consists of the Persons acting in the capacity of Corporate Governance, the rules by which they are bound, and the processes they must follow. They might work in that capacity themselves or hire professionals who are not the Company's Owners. Company Name is the primary name of the Company, which uniquely identifies it and under which it is registered in the Company Registry. There shall be not more than one Company Name to one Company, and no two Companies shall have the same Company Name.

Creditors shall be the persons or entities to which an entity is a due debt or other obligation.

E-Residency is a status where one undergoes the Know Your Customer (KYC) process and commits certain resources to gain access to Liberland Company Services, including the ability to Found, Own and be the Ultimate Beneficiary Owner or the Shareholder of a Liberland Company.

Foundation is an organisation that does not aim to make a profit. The money raised by a foundation consists of donations, loans, subsidies and legacies. Its primarily purpose is to support a social or non-profit cause. It may also be a business, but its profits must be allocated to the foundation's cause or purpose.

Legal Personality means that the Law of Liberland and the State Courts of Liberland treat a fictitious entity as if it was a real person of a specific type, as defined in this Law. Given that this entity is not "real" in the sense of the natural world, it can't make decisions on its own and, therefore, must have owners and (ultimately) Ultimate Beneficiary Owners (i.e. Natural Persons) who decide in its stead. This is a sharp distinction from the obligatory self-ownership of Natural Persons, who may not be owned in Liberland by anyone else but by themselves.

Owners are, for this Law, the Persons or entities who have property in an entity possessed of Legal Personality.

Founder shall be a Person or another entity which approaches the Company Registry.

Incorporation is the process prescribed by this Law whereby an entity gains Legal Personality apart from that of its owners.

Principal shall be a Person or entity designated according to the Articles of Incorporation to represent a Company in matters of regular management and act in its name towards third persons. Together or apart where stipulated in the Articles of Incorporation, the Principal form the Statutory Organ of the Company.

Person means a human being or another entity possessed of Legal Personality in Liberland. A human being shall also be known as a Natural Person.

Registrar of Companies is an Agency under the Ministry of Interior designated to operate, set up and maintain the Liberland Company Registry; an information system used to record Liberland Companies and other entities possessed of Legal Personality other than those of their Owners.

Registered Office is the address under which the Company stands registered in the Company Registry. It must be, in fact, reachable at that given address.

Trade Name is one of the names by which a Company presents itself. Trade Names shall be registered in the Company Registry for transparency's sake.

Ultra Vires is where a person of whom the third person may rationally assume that they act in the name of a Company either has no right to perform the given act or acts beyond their mandate from the Company.

Ultimate Beneficiary Owner (UBO) shall be the owner or the person who is effectively in control of an organization. Who is a UBO of a company shall be determined using internationally accepted standards and is in itself beyond the scope of this Law.

Shares are the proportional division of the ownership of a company. Shares are denominated in a currency and are fungible, but there could be different types of shares as defined in the Articles of Incorporation.

Shareholder is a person or an entity holding Shares of a Company or another entity possessed of legal Personality apart from its Owners.

In addition to the above, this Law uses terms defined in the Constitution, such as Liberland, Property, Citizenship, Law or Administration."

Add a new Section 1 and include Article 1 in it.

Section 1:

Replace Art. 1 with the following article: "Paragraph 1 Liberland shall have the power to grant to certain entities that are not Natural Persons a Legal Personality of their own apart of the Legal Personality of their Owners or Founders. This power shall be exclusive and reserved for the State of Liberland within Liberland’s jurisdiction.

Paragraph 2 1) All entities to which Liberland grants a Legal Personality apart from their owners shall be written in the Registry as prescribed by this Law. 2) A Liberland entity not written in the Registry or not written according to the process prescribed by this Law shall not possess a Legal Personality apart from its owners.

Paragraph 3 Where a Law speaks of Persons, it shall also mean Legal Persons, unless it speaks of Natural Persons specifically or unless it is otherwise clear from the text that other than Natural Persons should be excluded."

Section 2

After Article 4, add the new Art. 5 and Art. 6 that state:

"Art. 5 Mandatory Incorporation 1) For an entity that is not a Natural Person to be granted the privilege of a Legal Personality by Liberland, the Founders must incorporate the entity using the process described in this Law. The entity shall acquire its Legal Personality in Liberland upon its Incorporation. 2) Upon completing the Incorporation, the Founders become the first Owners of the new Legal Person.

Art. 6 Subsidiary Use of the Company Where the Founders do not choose the entity's form, the Incorporation shall result in their entity becoming a Company. What applies to Companies in this Law shall also apply to other entities with Legal Personality as described in this Law, unless the specific provisions regarding those entities stipulate to the contrary."

In Article 8 paragraph 1 remove the words "These shall be the Trade Names of the Company".

In Article 8 paragraph 2 alinea 1 remove the words "be obliged to". In Article 8 paragraph 2 alinea 2 replace the second instance of the word "Company" for the words "or changed Trade".

In Article 8 paragraph 3, split the paragraph into two alineas, where alinea 1 begins in the beginning and alinea 2 begins with the words "trade names shall likewise not be fraudulent,". In Article 8 paragraph 3 new alinea 1, replace the words "There shall be no" with the words "No new"; capitalize all instances of the words "trade names"; after the words "too similar to" place the words "an already existing"; before the words "existing company" place the word "an"; the replace the word "company" in the expression "existing company" with the word "companies"; after the words "existing company" place the words "to a name of a"; capitalize the word "persons"; replace the word "persons" with "person"; add the word "änother" before the word "institutions"; replace the word "institutions" with the word "institution"; after the words "and the like" remove the word "and". In Article 8 paragraph 3 new alinea 2 capitalize the word "trade names"; replace the words "which would mean clearly " for the words "hence they shall not be clearly"; add the word "express" before the word "purpose"; and add the word "committing" before the word "fraud".

In Article 9 paragraph 1 alinea replace the word "One" in the beginning with the words "The Founders shall choose one"; remove the words "of the Company shall be chosen"; and replace the words "primary name of the Company and it shall be known as the Company Name. A Company shall always have only one Company name" with the words "Company Name". In Article 9 paragraph 1 add the new alinea 4 which states: "A Company shall always have only one Company Name."

In Article 9 paragraph 2 remove the alinea markers and remove the former alinea 2.

After the current Article 10, add a new Article 11, which states:

"Art. 11 Fiduciary Duty Each Principal is responsible to the Company by an implicit duty to: a) perform the task pertaining the regular management of the Company as described in their job description or in other documents such as the Articles of Incorporation; they must perform this duty with proper prudence of a motivated and rational person and in a professional manner; b) act in good faith, meaning being sincere in one's business dealings and without a desire to defraud, deceive, take undue advantage, or in any way act maliciously towards the Company, its Shareholders or others."

In Article 12 paragraph 1 replace the word "Owners" with the word "Principals".

In Article 13 alinea 1 remove the words "Founder or the".

In Article 15, after paragraph 1 add a new paragraph 2 with the words: "A shareholder shall be liable for the obligations of their Company by their Share and further only up to the amount of the unpaid nominal value of their Shares unless the Owners stipulated otherwise in the Articles of Incorporation."

In Article 15 paragraph 3 at the end, add the words: " "The Fiduciary Duty shall entail: a) Duty of loyalty, whereby the Principal must put the interests of the company and its stockholders their own personal interests in making decisions for the Company and evaluating opportunities. This includes and is not limited to not taking opportunities that arise for themselves before offering them to the company, and not divulging or using company confidential information for personal gain. b) Duty of care, whereby the Principal must exercise care in making decisions as a director, based on adequate information and a good faith belief that their decisions are in the best interest of the company and its stockholders "

In Article 17, divide the article into two alineas, with alinea 1 beginning with the words "A Principal, a Shareholder who is a Natural Person and"; and add the new alinea 2, which states: "2) Where the E-Residency or Citizenship status is lost, the Person in the Company must ensure succession to another Person or entity which fulfils this requirement. If this is not achieved without unnecessary delay, at the latest 6 months from having lost the capability, the Registrar shall sell the Share in the Company on behalf of the Person in a forced auction."

Section 3

Replace the Article 18 with the following paragraph: "Art. 18 Registrar of Companies "1) The Registrar of Companies, henceforth “the Registrar”, shall be an Agency under the Ministry of Interior to operate, set up, and maintain the Liberland Company Registry. 2) The Company Registry shall be an information system holding records of all the Companies and other Liberland entities posessed of Legal Personality apart of their Owners or Founder."

In Article 19 paragraph 2, replace the current paragraph with the following test: "Certain Company Data in the Registrar shall be made publicly available to Third Persons for reasonable Remuneration. The Remuneration shall be set in such a way so as the amount of which should not discourage repeated attempts to view the information in the Registrar."

In Article 19, add a new paragraph 3, stating: "The Company Data in the Registrar shall enjoy the presumption of correctness vis a vis the Public Administration and vis a vis Third Persons before the Law in Liberland."

Replace the current Article 20 with the following text: "A Company shall be responsible for actively maintaining its Company Data. In the event of any change to that Data, the company shall send a written Notice of Change of Company Data to the Registrar containing the new Data and any information which should replace the previous Data and the date on which it should be replaced."

Remove the last article of this section "Information Systems" without replacement.

Section 4

In Article 24, add a new letter c), stating: "The Public key of the KYC-collected Wallet of each Founder, Owner, Shareholder and Ultimate Beneficiary Owner; or their ID number, the QR code from their identification document or their name, surname and birthdate."; remove the words: "certified photocopies of passports verified by a notary of good repute or by a similarly reputable institution of all the members of the Statutory organ, all the Shareholders and all the Ultimate Beneficiary Owners (UBOs) of the Company, including the Ultimate Beneficiary Owners of the shareholder companies, where applicable."

Remove the article after Article 24, with the topic "Filing the Registration", without replacement.

In Article 25 remove the words "The Registrar of Companies shall draft a Regulation regarding the specific procedures and criteria of the required KYC procedure according to the best available standards for KYC used in comparable situations."

Remove the article after Article 26 with the topic "Company Registered in another State", without replacement.

Section 5

Add a new Article 32 after the current Article 31, which states: "Art. 32 Tokens Tokens issued as cryptocurrency to the customers of the Company shall not be seen as Bearer Shares under the following conditions: a) the owners of the Company have regular Share next to their tokens and they register the real Shares in the Company according to this Law; and b)The Company uses in fact those registered Shares as opposed to the tokens as the real instrument to determine relationships of the Owners in the Company. "

In Article 33, remove the words: "§ 48 Shares shall be registered by name only and no Share shall be registered without the name of the Shareholder. Every Share shall belong to only one Shareholder. "

Add a new Article 34, which states: "Art. 34 Publicly Traded Company

Paragraph 1 1) A Company that registers a part of its Share at a reputable exchange or other such institution and follows the rules of reporting given out by such institution might waive the Shareholder of the publicly traded Shares to be a Liberland E-Resident or Citizen. 2) A Publicly Traded Company shall also have no duty regarding the Publicly Traded Shares to register their owners by the Registrar, as the exchange has already registered the Owner.

Paragraph 2 Where the Court deems an exchange as not reputable by failing to provide equal or higher levels of transparency than Liberland’s standard requires, the provisions of this Article shall not apply. The Company shall have three months to register all its shares, after which the Publicly Traded portion of its Shares becomes null and void."

Section 6

In Article 36 alinea 1 replace the word "transferred" for the word "transferrable".

In Article 37 paragraph 1, replace the words "and any provision agreed to the contrary amongst the Shareholders or with another Person or in a Regulation of any kind, public or private, except for a Law or the Constitution of Liberland, shall be null and void" with words "despite any stipulation to the contrary"

In Article 37 paragraph 2, add an alinea structure, where alinea 1 begins in the beginning of the paragraph with the words "In order to transfer a Share" and add a new alinea 2, which states: "2) The Transferer and the Transferee shall then submit the Contract for Registration by the Registrar of Companies. The Transfer shall gain legal effect by the moment it is published in the Company Registry"

In Article 37 paragraph 3, remove the words: "2) The Transferer and the Transferee shall then submit the Contract for Registration by the Registrar of Companies. The Transfer shall gain legal effect by the moment it is published in the Company Registry. A Transfer of a Share shall only gain Legal Effect at the point of its Registration by the Registrar of Companies in Liberland. A Transfer of a Share performed without this Registration shall always be null and void. "

Remove the article "Mandatory KYC", that states: "Art 3 Mandatory KYC § 54 1) Persons who are not yet Citizens, e-residents in Liberland or are not yet registered in the Registrar of Companies shall undergo a mandatory KYC procedure such as the one necessary for the founders upon the first Incorporation of a company, before the ownership of their Share can be registered. 2) The same applies to the UBOs of a Company which should become a shareholder of a Company in Liberland."

In Article 38 paragraph 2 replace the second instance of the word "the" after the words "null and void" with the word "a"; after the words "should offer mechanism" add the word "clearly"; and replace the words "abundantly clear" with the words "supported by evidence".

Sections 8 and 9

Add a new Section 8, which states: "Section 8 Cooperative

Art. 52 Cooperative The Cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned enterprise.

Art. 53 Ownership The Cooperative shall be owned by persons and entities called Members who shall each own exactly one ownership Share. The Members shall pay the amount of the Share in addition to any other contributions the Cooperative might require for joining.

Art. 54 Capital

Paragraph 1 1) The Cooperative shall have Capital divided into a Share structure such as it is with a Company.
2) In a Cooperative, each Member shall have exactly one Share. The per-Share value shall be the division of the Capital by the number of all Members.

Paragraph 2 There shall be no Share Classes in a Cooperative, and a Cooperative shall not be Publicly Traded."

Add a new Section 9, which states: "Section 9 Foundation

Art. 55 Foundation A Foundation is an organisation that does not aim to make a profit. The money raised by a foundation consists of donations, loans, subsidies and legacies. Its primarily purpose is to support a social or non-profit cause. It may also be a business, but its profits must be allocated to the foundation's cause or purpose.

Art. 56 Articles of Association The Articles of Incorporation of a Foundation shall be known as Articles of Association. They should include a) Foundation Name, including the word 'Foundation' b) Purpose/cause; c) Procedures for appointing and removing officers; d) Location; e) Decision-making procedures; and f) Procedures and payments in the event of dissolution.

Art. 57 Registered Capital A Foundation shall have Registered Capital, a Foundation’s Capital still needs to be registered. A Foundation’s Capital shall, however, not be divided into Shares, but it will be registered as a whole.

Art. 58 No Members and No Shareholders A Foundation shall have no Members and no Shareholders. Consequently, this Law regarding Shares, Shareholders, registration of Shares, Shareholder register, etc., shall not apply to such an organization.

Art. 59 Directorate A Foundation shall have a Board of Directors as the highest organ. This organ shall be comprised of the highest managers as defined by the Articles of Incorporation of the Foundation and shall have the powers a Shareholder Meeting would have in a Company.

Art. 60 Pseudo UBOs A Foundation shall not have UBOs, as the beneficiaries of its operations are those in need or members of the general public. Instead of Owners, the members of the Board of Directors and the persons who have, in fact, the power to influence the operation of the Charitable Organization will register in place of the UBOs.

Art. 61 Registration The following items shall be registered in the Registry on behalf of a Foundation: a) Foundation Name, including the word 'Foundation' b) Purpose/cause; c) Procedures for appointing and removing officers; d) Location; e) Decision-making procedures; f) Procedures and payments in the event of dissolution; g) the name, surname, date of birth, address and passport number of each member of the Directorate; h) the Articles of Association or any similar document or documents which factually governthe functioning of the Foudantion; i) the list of Ultimate Beneficial Owners (UBOs) of the Foundation where they are other than the Directorate members; and j) other types of information which shall not be mandatory to Register.

Art. 62 Foundations for the Purpose of Doing Business A part of the purpose of the Foundation may also be doing some kind of business, but its profits must be allocated to the foundation's cause or purpose."

Section 10

In Article 64, change the topic name "Distinctive Characteristics" for the words "Legal Form"

Remove the Articles after Article 64, which state: "Registered Capital 1) A Charitable Organization does not need to have Shares or Shareholders if the Founders decide so at its incorporation. In that case, all its Capital shall be seen as intended for the benefit of those served by the operation of the Charitable Organization. 2) This organization's Capital still needs to be registered; it will not be divided into Shares, but it will be registered as a whole. 3) The provisions of this Law regarding Shares, Shareholders, registration of Shares, Shareholder register, etc., do not apply to such an organization. 4) Where the money would be distributed amongst Shareholders of a regular Company, such as during liquidation or by means of a dividend, in this kind of Charitable Organization, the money will instead be distributed to the intended recipients or purpose based on the role of the organization. Directorate A Charitable Organization without Shares or Shareholders shall have the Directorate as its highest organ, which shall be the meeting of all the members of its Statutory organ. Pseudo UBOs A Charitable Organization does not need to have UBOs, as the beneficiaries of its operations are those in need or members of the general public and not the owners. In that case, the members of the Statutory organ and the persons who have, in fact, the power to influence the operation of the Charitable Organization will register in place of the UBOs."

Section 11

Add after Section 10 a new Section 11 which states: "Section 11 Decentralized Autonomous Organization

Art. 70 Decentralized Autonomous Organization A Decentralized Autonomous Organization (DAO) is an organization constructed by rules encoded as a computer program, whose decisions are made electronically through a written computer code or via the vote of its members. In a DAO, hard-coded rules define all the actions that take place in the organization.

Art. 71 DAOs Without Legal Personality Where these organizations don’t wish for a Legal Personality apart of its owners, they may operate as Partnerships between the Token Holders.

Art. 72 DAOs With Legal Personality

Paragraph 1 Where the DAOs wishes to aquire a Legal Personality, they shall register according to this Law. Where this Law mentions a DAO, it shall henceforth be the DAO with a Legal Personality distinct from the Legal Personality of its owners.

Paragraph 2 An organization that wishes to register as a DAO in Liberland shall be required to maintain the characteristics of a DAO during the time of its registration. These include and are not limited to: a) being based on an open-source software; b) making all of its decision by the means of a blockchain transaction; c) issuing tokens which represent membership; d) members being represented by their blockchain address to hold the specific tokens; and e) not having a paralell structure that would in fact make the decisions in the DAO instead of the token holders.

Paragraph 3 Upon finding that an organization has failed to meet the criteria of a DAO, the Registrar shall give it three months to correct the situation. Where the situation is not corrected, the organization shall be given a choice between a) becoming a Company; or b) losing its Legal Personality.

Art. 73 Tokens

Paragraph 1 Instead of having Shares or Shareholders, the DAO issues Tokens, freely trade on decentralized and centralized platforms, to represent membership in the DAO. Token Holders typically remain anonymous and are only identified by their blockchain public keys.

Paragraph 2 Instead of the Shareholder Meeting, the Dao shall set up processes which allow for a regular decision making of the Token-Holders. These processes shall have the powers the Shareholder Meeting would have in a Company, but also might assume the role of the Principals.

Art. 74 Registered Principals The Persons who in fact habitually act in the name of the DAO, no matter their Token-holder status, shall be Registered as the Principals of the DAO. The Registered Principals shall be E-Residents or Citizens of Liberland.

Art. 75 UBOs The DAO shall register any token holder who accrues more than 25 % deciding power over the organization or who owns more than 25 % of the Tokens despite a lack of sufficient deciding power as the UBOs of the DAO. These UBOs shall be E-Residents or Citizens of Liberland.

Art. 76 Liability All DAO members shall be liable for the losses of the DAO. up to the amount of unpaid Tokens they hold.

Art. 77 Registration The following items shall be registered in the Registry on behalf of a DAO: a) DAO Company Name, including the word 'DAO', “Decentralized Organization” or “Decentralized Autonomous Organization”; DAO Trade Names; b) True scope of Business; c) Procedures for appointing and removing Principals; d) Address is applicable or webpages where the DAO is in fact reachable for an effective human-to-human communication with the Managing Directors; e) Decision-making procedures; f) Procedures and payments in the event of dissolution; g) the name, surname, date of birth, address and passport number of each Principal; h) the White Papers or any similar document or documents which factually govern the functioning of the DAO; i) the list of Ultimate Beneficial Owners (UBOs) of the DAO where they are other than the Principals; and j) other types of information which shall not be mandatory to Register.

Art. 78 Compliance

Paragraph 1 The DAO shall set up internal processes which allow it to ensure effective compliance with the norms of this Law.

Paragraph 2 1) A DAO found in non-compliance with this Law or lacking in internal processes to ensure effective compliance shall be given 3 months to rectify the situation at its own expense and to prove it actively to the Registrar. 2) Where this is not done, the DAO shall be struck out of the Registry and shall lose its Legal Personality."

Closing because further drafting will take place in the repository itself, as it should be with GitHub. Please feel free to open new issues for particular problems or ideas regarding this particular law.

liberland / laws

Company Law Review #25