June 7, 2013 The harmonisation of EU single-member companies
On 6 June 2013, the European Commission launched a consultation on the possibility of harmonising the rules relating to single-member limited liability companies; an area where there has been relatively little activity in the past. Here we briefly consider the background and possible implications of such a harmonisation.
The rules on company formation vary dramatically across the EU, with different registration requirements, minimum capital requirements and disclosure requirements. When compared with some of the other local regulatory requirements, such as employment legislation and regulatory compliance, these can seem relatively minor, but they still pose a significant barrier to cross-border activities by European small to medium sized enterprises (SMEs).
For the larger public organisations the Societas Europeae (SE) was set up in 2001 as a true European company. It was envisaged that this would provide a single company that could operate across the entire EU. However, the regulations and requirements of an SE are prohibitive for many organisations and it has not been embraced by many businesses, especially here in the UK. For SMEs, it is entirely inappropriate.
There have been ongoing negotiations regarding a European Private Company to complement the SE, however these have stalled and the current consultation acknowledges this lack of progress and presents it as one of the reasons for the consultation.
The consultation aims to gather information and views about the possible barriers to SMEs operating cross border in Europe. It is primarily seeking this information in respect of the possible harmonisation of rules across the EU, although we suspect that the information received may be used as part of the negoitations for the European Private Company. The consultation seeks information on the following items (amongst others):
- The current difficulties faced by SMEs in cross border trade/activities;
- The ability for SMEs to move the registered office or headquarters across the EU;
- The difficulties with setting up a branch or subsidiary in another EU country;
- The possible options and effectiveness of harmonisation;
- The costs of forming companies in different jurisdictions;
- The possibility of a harmonised online formation standard; and
- Harmonisation of minimum capital, dividend and other requirements.
The consultation is being undertaken by the Directorate General for Internal Market and Services and does not reflect the official view of the European Commission. The consultation can be found here and is open until 15 September 2013.
Elemental CoSec’s View
We would welcome the true harmonisation of private companies and subsidiaries across the European Union and feel that the EU as a whole would benefit hugely by such an occurrence. However, we doubt whether there is the political will in the foreseeable future to achieve an effective harmonisation.
In our experience, the UK is one of the easier jurisdictions to form and run a company, especially a single-member limited liability company. Online formation already exists, capital requirements are low, dividends are relatively easy to declare and the rules are already streamlined for single-member private limited companies. Many other European jurisdictions would strongly resist bringing their requirements in line with the UK as they would likely see it is a harmonisation to the lowest standard. Similarly, we doubt that the UK (and other similar jurisdictions) would be keen to make it harder to form a company as such a move would go against the principle of making it easier for SMEs to participate in cross-border activities.
If any action is taken, it is likely to involve either a new European private company (as has previously been discussed) or a set of minimum requirements with the ability for European jurisdictions to legislate for extra requirements. In order to achieve measurable results, either would need to offer significant improvements to the current situation, which could be difficult.
We will watch the results of the consultation with interest and wish them the best of luck but we remain sceptical about the ability of the European Commission to deliver in this area.