European Private Company - guide

25 June 2008
by eub2 -- last modified 25 June 2008

European Commission proposal for a Regulation on a Statute for a European Private Company - guide

1. What is the European Private Company Statute?

It is a new legal instrument based on EU law designed for small- and middle-sized enterprises (SMEs). It gives entrepreneurs the option of forming a European Private Company, referred to also by its Latin name as 'Societas Privata Europaea' (SPE). The Statute, which will take the form of a Regulation, contains a set of uniform company law rules that would apply to any SPE across Member States.

2. What benefits can the European Private Company Statute bring to SMEs?

The SPE is a company form designed for SMEs. Entrepreneurs will be able to set up their business in the form of an SPE following the same company law rules throughout the EU. Thus they can set up an SPE instead of a 'GmbH' in Germany, an 'sp. z o o' in Poland and an 'SAS' or 'SARL' in France.

The advantages of the SPE are the following:

• it exists in all Member States
• it is a flexible yet transparent company form
• it allows entrepreneurs to set up all their companies and/or their subsidiaries with the same management structure, regardless where they are located
• it offers a European label that is easily recognisable throughout the EU

These features allow entrepreneurs to save time and reduce costs, especially legal costs related to setting up different company forms in different Member States.

3. Will the European Private Company be governed by the same rules in all Member States?

The SPE Statute provides a set of company law rules related to the company form. It does not regulate matters related to labour law, tax law, accounting, or the insolvency of the SPE. Nor does it deal with the contractual rights and obligations of the SPE or those of its shareholders other than those deriving from the articles of association of the SPE. These matters will continue to be governed by the relevant national and EU law.

4. Will the European Private Company Statute offer tax advantages to small companies?

The Statute does not provide any special tax rules for the SPE. However, the SPE should not be discriminated from the national legal forms and it is important to ensure that the SPE enjoys the same tax treatment as similar national legal forms. Therefore, the scope of the relevant tax directives, i.e. the Parent Subsidiary Directive (90/435/EEC) , the Merger Directive (90/434/EEC) and the Interest and Royalties Directive (2003/49/EC) have to be extended to also cover the SPE.

5. What is the scope of application of the Statute and its interface with national law?

The Statute will cover those matters which are essential to the corporate life of the SPE. It will also set out a list of items that must be covered by the SPE's articles of association, such as the name and initial capital of the SPE, the procedure and requirements for increasing or reducing the share capital, the method of adopting shareholder resolutions, the way the management of the SPE is organised etc. The SPE will be governed first by the Regulation and the articles of association. Other matters are governed by the national law which applies to private limited-liability companies in the Member State where the SPE has its registered office.

6. Isn't this the same solution as adopted for the European Company Statute?

No. First of all the range of company law issues covered by the SPE Statute is much broader than the European Company Statute (SE). This means it will be more uniform throughout the EU.

The SPE Statute prescribes a minimum list of matters to be covered by the articles of association and leaves shareholders freedom to decide how to regulate these matters, subject only to the rules of the Regulation, i.e. the provisions of the articles of association are not subject to national law. National law will only apply where this is specifically stated in the Regulation.

Both SE and SPE are governed by national law as regards accounting and tax law, procedures for insolvency and cessation of payments, labour and social security law and criminal law.

7. Who can set up a European Private Company and how?

The SPE may be set up by one or more founders, individuals or companies. There is no restriction as regards the formation method. The SPE may be set up from scratch, created by transformation or division of an existing company or by the merger of existing companies. Also an SE or another SPE may participate in the formation of an SPE. An application to set up and SPE may be made by electronic means, in the language of the Member State of registration.

8. Is there a limit on the size of a European Private Company?

No. The SPE is primarily designed for small companies, but it may also benefit larger companies, in particular cross-border groups. The SPE's flexible rules on the internal organisation would allow such groups to apply the same internal organisation model for all their EU subsidiaries.

However, the SPE is a private company, so its shares may not be offered to the public or publicly traded.

9. Is a cross-border element required to set up a European Private Company?

The proposal does not make the creation of an SPE subject to a cross-border requirement (e.g. shareholders from different Member States or evidence of cross-border activity). An initial cross-border requirement would significantly reduce the potential of the instrument, in particular among small companies. Usually entrepreneurs set up businesses in their own Member State before expanding to other countries. They should have a possibility to expand in the Single Market with the SPE's European label right from the start.

10. Why there is no minimum capital requirement? How will the SPE's creditors be protected?

The minimum capital requirement for the SPE is set at €1 in order to facilitate start-ups. This solution gives flexibility to companies to decide which capital suits their business' needs. It can be very different depending on the type of activity and the economy in which a company operates. This concept is new for some countries where a high minimum legal capital has traditionally been considered as a means of creditor protection. Studies show that creditors nowadays look rather at aspects other than capital, such as cash flow, which are more relevant to assess whether a company is solvent.

11. Does a European Private Company have to be registered in the same Member State in which it has its headquarters?

No. An SPE is allowed to have the registered office and the headquarters in different Member States. This solution is a consequence of the recent judgements of the European Court of Justice which allow that a company's registered office and its headquarters are in different countries.

12. Will a European Private Company be allowed to transfer its registered office to another Member State?

Yes. An SPE will have the right to transfer its registered office to another Member State without loosing its legal personality. The SPE could transfer its registered office with or without moving its headquarters at the same time.

13. Does a European Private Company Statute contain any rules to protect creditors?

Yes. The proposal provides uniform rules protecting SPE's creditors. In particular it requires that any kind of distribution of the SPE's assets to the shareholders (e.g. payment of dividend, purchase of the SPE's own shares) can only be made if the SPE's assets fully cover its liabilities (so-called balance-sheet test). Shareholders are free to introduce, in the articles of association, an additional requirement, i.e. they may require the SPE's directors to sign a so-called 'solvency certificate' before any distribution is made. It certifies that the SPE will be able to pay its debts when they become due.

The SPE Statute also requires that the most important decisions in relation to the company's capital (e.g. capital increase or reduction) are taken by the shareholders.

14. Does the European Company Statute contain any rules protecting minority shareholders?

Yes. The proposal contains a number of mechanisms aiming to protect minority shareholders. First of all, the most important decisions, such as approval of the annual accounts, reduction of capital, transformation or a merger of the SPE, will have to be taken by a qualified majority of at least two-thirds of all the SPE's voting rights. Furthermore, the minority shareholders will have the right to request a shareholder's resolution on a matter important for them. They could also request a court to appoint an independent expert to conduct an investigation in the SPE if they think the law or the articles of association were breached. The proposal also allows a shareholder to withdraw from the SPE under specific conditions.

The proposal contains a minimum level of minority protection. Shareholders may extend minority rights in the articles of association.

15. Will there be any rules on workers' participation in the SPE?

Yes. Even though workers' participation exists in small companies only in a few Member States (e.g. Sweden, Denmark), the SPE will also be open to larger companies and, therefore, the SPE Statute has to provide a mechanism to ensure that workers don't loose their rights if an SPE moves to another country or takes part in a cross-border merger. The proposal draws as much as possible on the existing European rules. The general principle, derived from the Directive on cross-border mergers (2005/56/EC), is that the SPE is subject to the employee participation rules of the Member State where it has its registered office. Cross-border mergers involving SPEs are governed by the Directive on cross-border mergers. In the absence of a directive on the cross-border transfer of the registered office, the proposal contains rules on workers' participation to protect pre-existing rights in the case of the transfer of the registered office of an SPE.

Source: European Commission