A New Legal Entity of a European Private Company - Spring 2007

01 April 2007

Since 1958 Europe has worked towards creating a single European Market with fewer barriers to trade and more opportunities.

For businesses to benefit from the internal market, the Commission is now aiming for standardisation of company law, so that when dealing with businesses in different Member States, parties do not have to worry about the differences between the different nations’ private company laws.

There is already a statute in force which applies to public limited companies, but the Commission has now turned its attention to the needs of the small and medium sized enterprises (SME’s.)

Currently, setting up a company in another Member State is often an expensive and protracted process. Transactions and joint ventures with other European companies are complicated by the need for local legal advice, and lenders and suppliers to smaller companies are often uncomfortable in dealing with unfamiliar structures.

The Brussels authorities have been aware of the important part that SMEs play in the development of the European economy and they have addressed the need for simple and effective legal tools.

The Commission proposed a European Private Company (EPC) as a European Legal form, free of reference or dependence on the national laws of the Member States. The aim is to create a simple, flexible, legal form easily adaptable to different businesses in different stages of growth, which would facilitate a partnership between SME’s from different Member States, and hopefully increase the economic activity of the SME at European level. The rules for the company will be set out in the proposed regulation and the specially drafted Articles of Association.

The advantage that this would have for the SME’s is that it may be easier to penetrate other markets by having a neutral European identity. It is proposed that there will be flexibility in incorporation so that EPC’s can be created by cross-border mergers. A uniform structure will be a cheaper and efficient alternative for SME’s operating in the EU, as they can be established in several Member States. The EPC will of course remain subject to the general rules of the Member States such as employment, accountancy and insolvency. So to some extent there will be a difference in the treatment of EPC’s organised in different Member States.

On the 21 November 2006, the European Parliament Legal Affairs Committee passed a non legislative resolution setting out the recommendations to the Commission for an EPC. Further feasibility studies will take place, and whilst the Commission have not yet come up with a proposal, they hope to do so by 2008. If the EPC form became widely recognised and used in the EU, it will provide an alternative for SME’s wanting to establish subsidiaries or to merge and operate throughout the EU, on the basis of a single set of rules, and a unified management and reporting system.
 

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