Commercial Law – European Private Company Legislation – Consultation – Communication

The objective of the European Private Company (“EPC”) legislation is to make it easier for European small and medium-sized enterprises (“SMEs”) to conduct cross-border business. This is achieved by providing SMEs with a special European legal form equalled across each Member State.

It is intended that the ability to operate in various Member States according to the same corporate rules should significantly reduce compliance costs and therefore enhance the mobility and competitiveness of European SMEs. The existing statute applicable to European Companies has been designed for large companies, and does not constitute a viable option for SMEs. This is particularly due to the fact that a minimum capital requirement of 120.000 EUR is stipulated.

Work has been carried out on the EPC legislation over the last three years. In 2004, the Commission launched a feasibility study for the EPC legislation targeting SMEs. It presented its results on the 13th of December 2005. In addition to this feasibility study, a question on the need for the EPC legislation was also asked in the public consultation on the future of the Company Law and Corporate Governance Action Plan (December 2005 to March 2006). The outcome of the study and the consultation were, however, unclear.

Even though the EPC legislation received a considerable support from SMEs, there were still some who were sceptical about it. The European Parliament has been working on the EPC legislation and the Committee of Legal Affairs has drafted an own-initiative report and a resolution on this issue together with recommendations on possible content of the EPC legislation. It was adopted by the European Parliament on the 1st of February 2007.

It is interesting to note that the European Parliament adopted a Resolution on the European Private Companies at the beginning of February 2007, yet little had been done for almost 6 months. The Commission has studied the European Parliament’s report and recommendations as well as the feasibility study conducted in 2005. Whilst doing this analysis the Commission discovered several issues which needed to be tested in the market. This is why the Commission launched a specific consultation on European Private Companies in July. It is intended that it should give the Commission the facts and evidence needed for a legislative proposal.

The public consultation continued until the end of October. Its results will then be analysed and incorporated into the impact assessment, which is likely to take a number of months. The next step would be the preparation of a possible proposal and consultation of the draft text with experts. Exact timing on these matters is likely to be made clearer by the end of 2007, but a draft proposal could only be ready in the first half of next year.

The Commission has also considered issues relating to a simplified business environment for companies in the areas of company law, accounting and auditing. This was highlighted by the Commission’s Communication published in July 2007. An important part of the Commission’s Better Regulation agenda is the revision of the existing European legislation. In this context a full review of European company law, accounting and auditing directives was carried out.

The objective of the exercise was not only to reduce the administrative burdens for companies, specifically SMEs, but to ascertain if the European rules are still adequate in today’s business environment. The Communication published in July contains the Commission’s proposals based on the outcome of the review of the directives in the fields of company law, accounting and auditing.

With regard to company law, the Communication outlines two approaches:

§ The first option would limit European legislation to matters that have cross-border relevance. For example: The registration of companies and branches as well as cross-border mergers. The directives that cover mainly domestic situations (For example: The Third Company law Directive on domestic mergers and the Second Company law Directive on companies’ capital) would be repealed.

§ The second option is a slightly more detailed approach that would allow for the analysis of individual provisions in the directives, such as reporting requirements in the case of a merger or a division. It would offer possibilities of simplification, repeal or introduction of alternative provisions.

With regard to accounting and auditing, the focus of the Communication is on reducing costs for SMEs. The following measures are accordingly set out:

§ To introduce a new, additional threshold for micro-enterprises (Namely those with less than 10 employees, balance sheet total below 500,000 EUR and turnover below 1,000,000 EUR ) in order to exempt them completely from any requirements on accounting and auditing under the two directives.

§ To extend the transition period for SMEs crossing the thresholds from two to five years.

§ To exempt small entities from the requirement to publish their account.

§ To give certain medium sized companies easier access to the exemptions for small companies.

Aside from the above, the Communication has had two further objectives:

§ Firstly, to amalgamate the views of businesses and stakeholders on the proposals. This consultation ran until mid-October 2007.

§ Secondly, to find a common ground with the Member States and the European Parliament on the matters future legislative proposals should cover in order to simplify business environment for companies. In accordance with the principles of Better Regulation, impact assessments will then be prepared. Subject to the results of these documents and the outcome of the public consultation, legislative proposals are expected to be presented within the first few months of 2008.

© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.