European Private Company - guide

04 October 2007
by eub2 -- last modified 20 November 2007

Frequently Asked Questions (FAQs) about EU Company Law and the European Private Company (EPC)

1. European Private Company (EPC)

What is the EPC?

The objective of the European Private Company Statute is to make it easier for European small and medium-sized enterprises (SMEs) to conduct cross-border business by providing them with a European legal form, uniform in each Member State. The possibility 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 the European SMEs. The existing statute for a European Company (SE), designed for large companies, does not constitute a viable option for SMEs, in particular because of its minimum capital requirement of 120.000 euros.

What work has been done on it so far?

In 2004, the Commission launched a feasibility study on the European statute for SMEs and presented its results on 13 December 2005. A question on the need for the European Private Company statute 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 not clear. Even though the EPC received a considerable support from SMEs, there were still some sceptical voices about this initiative.

The European Parliament has been working on the EPC. 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 statute. It was adopted by the European Parliament on 1 February 2007.

The European Parliament adopted a Resolution on the European Private Company at the beginning of February 2007. Why has nothing been done for almost half a year?

The Commission has not been twiddling its thumbs. We have studied the European Parliament's report and recommendations as well as the feasibility study of 2005. Whilst doing this analysis the Commission discovered several issues which needed to be tested with the market. That is why the Commission launched a specific consultation on the European Private Company in July. This should give us the facts and evidence needed for a legislative proposal.

When will the Commission adopt a proposal for a European Private Company statute?

The public consultation will continue until the end of October. Its results will then be analysed and incorporated into the impact assessment, which will take a couple of months.

Time is also needed for the preparation of a possible proposal and consultation of the draft text with experts. Exact timing should be clearer before the end of this year, but a draft proposal could be ready in the first half of next year.

2. Communication on a simplified business environment for companies in the areas of company law, accounting and auditing

What is the overall context of 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 DG Internal Market and Services carried out the full review of the European company law, accounting and auditing directives. The objective of the exercise was not only to reduce the administrative burdens for companies (especially to SMEs) but to ascertain if the European rules are still adequate in today's business environment.

What is the content of the Communication?

The Communication contains the Commission's proposals that are based on the outcome of the review of the directives in the fields of company law, accounting and auditing.

In company law the Communication outlines two approaches. The first option would limit European legislation to matters that have cross-border relevance, e.g. registration of companies and branches, cross-border mergers, European Company. The directives that cover mainly domestic situations (e.g. Third Company law Directive on domestic mergers, Second Company law Directive on companies' capital) would be repealed.

The second option is a more detailed approach that would allow the analysis of individual provisions in the directives (e.g. reporting requirements in the case of a merger or a division) and would offer possibilities of simplification, repeal or introduction of alternative provisions.

In accounting and auditing the focus of the Communication is on reducing costs for SMEs. For this reason the following measures are set out

- To introduce a new, additional threshold for micro-enterprises (less than 10 employees, balance sheet total below 500.000 € and turnover below 1.000.000 €) 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.

What are the next steps?

The Communication has two objectives: Firstly, to gather the views of businesses, stakeholders on the proposals set out therein. The consultation runs until mid-October. 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 line with the principles of Better Regulation, impact assessments will then be prepared, possibly by the end of the year. Subject to the results of these documents and the outcome of the public consultation, legislative proposals are to be presented in the first quarter of 2008.

Source: European Commission