COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on single-member private limited liablity companies
Date: 2014-04-09
Institutions: European Commission
Subjects: business management, company member, partnership, private limited company, registration of a company, share capital













EUR-Lex - 52014SC0123 - EN











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52014SC0123

COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on single-member private limited liablity companies /* SWD/2014/0123 final  */










 Definition of the
     problem

Only 2 % of small and medium-sized
enterprises (SMEs) invest abroad by setting up companies in other countries.
This low level of investment can be explained by a number of factors, including
the disparity between national laws and the lack of
trust in foreign companies among potential customers and business partners. In
order to gain the trust of foreign clients and to be closer to the local market
in which they operate, SMEs, and other companies, often choose to act via
subsidiaries which they ‘wholly own’.[1]
However, establishing subsidiaries abroad is often burdensome.
Linguistic, administrative and legal differences between Member
States can make it expensive to set up and
run subsidiaries abroad. Firstly, direct costs (incurred due to mandatory requirements for establishing a company[2])
can be higher than in the company’s home country. Secondly, the differences
between national laws[3] often result in a greater need for
legal advice and thus in additional costs. Were the requirements more similar across
the EU, there would not be such a need for extra advice. All these
costs are likely to be particularly high for groups of companies, as a parent
company must currently fulfil different requirements for each country in which
it wishes to establish a subsidiary.
The European Commission aimed to address the
obstacles facing companies wishing to operate across borders in its 2008
proposal for a European Private Company (SPE) Statute. This proposal, however, required
unanimous agreement of the Member States in order to be adopted and, in view of
the lack of progress made during negotiations, the Commission decided to
withdraw it (a decision made within the context of the REFIT exercise[4]). It
was announced that the Commission would instead propose alternative measures to
address some of the problems faced by SMEs, and other companies, when trying to
operate across national borders. This approach is consistent with the 2012
Action plan on European company law and corporate governance[5], which
reaffirmed the Commission’s commitment to launching other initiatives, further
to the SPE proposal, in order to improve opportunities for companies to operate
across borders. This Impact Assessment (IA) fits into that context and focuses
especially on the difficulties experienced in setting up subsidiaries abroad.

 The need for an EU
     initiative

To date, the solutions adopted by Member States in
order to simplify the process and reduce the costs of setting up a company have
focused on their respective national situations (i.e. their current national
laws) and have not been coordinated with other Member States. Therefore, differences
remain between national rules and it is unlikely that Member States would
aim, by themselves, at introducing in national legal systems identical
requirements for a particular company law form in the near future. Instead, it
is likely that individual actions by Member States would continue to result in a
divergent set of national approaches. Conforming to
these different systems would therefore continue to impose additional costs on
SMEs and would discourage them from being more active abroad. In view of this
situation, the only possible way of overcoming the obstacles facing companies
at present is to address them at EU level.

 Objectives of the EU
     initiative

The general objective of the EU initiative would
be to stimulate entrepreneurial activity by allowing entrepreneurs, and in
particular SMEs, to set up companies abroad more easily, with the aim of stimulating
growth, job creation and innovation in the EU. The specific objective would
be to reduce certain costs typically associated with setting up and operating subsidiaries
abroad. The operational objective would be to harmonise some relevant
aspects of national laws in order to make it easier to set up companies abroad.

 Policy options

Given that this initiative would aim to tackle obstacles
faced by companies, and in particular SMEs, similar to those the 2008 SPE proposal
addressed, this IA considers similar policy options, but rejects at the outset
any that seem unrealistic, that are not directly related to the creation of
subsidiaries or that would create unjustified discrimination between companies.
In view of this, the option of setting out rules applying only to SMEs has been
rejected, as they would not be practical to implement and would unnecessarily
reduce the scope of the initiative. Instead, the aim would be to set out rules
which are particularly suitable for SMEs and groups of companies owned by SMEs,
but do not prevent larger companies from benefiting from them. Furthermore, the
IA has dismissed the possibility of establishing a new European legal form sensu
stricto or of harmonising the area of company law relating to the process
of setting up subsidiaries both in the form of public and private limited
liability companies.
The
policy options further considered relate to single-member private limited
liability companies, as this is the form of company most often used in setting
up subsidiaries. The proposed harmonisation of the relevant area of company law
would require Member States to make provisions within their national legislation
for a national company law form that would be legally defined in the same way
in all Member States and would have a common abbreviation, SUP (Societas
Unius Personae). The more detailed policy options were considered regarding
the following issues:
1) registration,
2) minimum capital requirement.
Different models of the registration process were reviewed,
with consideration given to the possible options for particular aspects of the model,
and the interaction of these aspects, e.g. online registration (registration
only possible online, or registration possible both online and on paper) and
the use of a template for the articles of association (compulsory if
registering online).
Different models of the minimum capital requirement
were also reviewed, likewise with consideration given to the interaction of the
different aspects e.g. the minimum capital requirement (setting the minimum
capital requirement equivalent to the average minimum capital requirement of EU
countries or equivalent to € 1), and the use of creditors’ protection
instruments (setting the minimum capital requirement at € 1 but with the
additional requirement of passing a balance sheet test and issuing a solvency statement).
5.     
Preferred options and their impacts
Registration

The
“no-action scenario” would not achieve the objective of the EU initiative, as
it would not reduce the costs associated with founding single-member private limited
liability companies. Furthermore, the potential changes to national company laws
not coordinated at EU level would not create sufficient consistency or
compatibility between Member States’ company laws.
The
option which would best achieve the objectives would be making on-line
registration available with a uniform template for the articles of association.
Of all the options considered, this would lead to the biggest reduction in
costs, with savings resulting from both the direct online registration procedure
and the use of a single EU-wide template by companies choosing to register
online. This option would be consistent with other EU policies.[6] It
would ensure the availability of an online registration procedure, for which an
EU-wide template would be provided, without forcing Member States and companies to accept it as the only registration procedure for SUPs. This option
would have the greatest positive impact on the founders of companies, without having
a more significant negative impact on other stakeholders than the other options.
In order to provide an indication of the magnitude of the potential cost saving
for the founders of single-member private limited liability companies, high-saving
and low-saving scenarios were calculated. The cost savings for the founders of
SUPs in the EU could vary from € 21 million in the low scenario to up to € 58
million in the high scenario in one year. 
Of
the measures proposed within the various options, the introduction of an online
registration procedure would have the greatest impact on Member States and other stakeholders. The level of effect would, however differ from one Member State
to another, depending on the extent to which the registration process is
currently digitalised at national level, on the human resources available, and
on the way in which the Member State chooses to conform to the standard imposed
by the initiative, as no particular method or means of achieving the desired ‘end
result’ would be imposed on Member States. They would still be fully responsible
for the quality of the necessary checks carried out on applicants and the
initiative would not lower any existing standards relating to such checks. This
should alleviate the concerns of certain groups of stakeholders, such as
notaries, that the level of control exercised within Member States would
decrease. As is already the case in many Member States, the registration
procedure could still be effectively controlled without the founder of the
company appearing in person before the notary in those Member States in which
such a requirement exists. Most Member States would
need to adapt their current national online registration systems rather than
creating new ones, and the only cost associated with the single template for the
articles of association would be that of making it available online.
Furthermore, these costs would be incurred by Member States once only, whereas
the benefits for the founders of companies would continue in the future.  
Minimum
capital requirement 
The
“no-action scenario” would not be effective in achieving the objectives of the
EU initiative as national measures may lead Member States in different
directions, as illustrated by examples of reforms in Hungary, the Czech Republic and Slovakia[7].
Moreover, such reforms adopted at national level usually relate to a national
context and would not be sufficiently coordinated across the EU.
The
option which would best achieve the objectives would be a minimum capital
requirement of € 1, without any additional
measures to protect creditors. This would lower the costs associated with fulfilling
the minimum capital requirement for companies in a number of Member States
without imposing any additional costs. However, this option is not as efficient
at achieving the objectives and does not offer the same degree of consistency with
other EU policies as would an option lowering the minimum capital requirement,
but also requiring companies to pass a balance sheet test and issue a solvency
statement. The latter option would still be beneficial, albeit to a lesser
extent, to companies and would at the same time act in the interest of
creditors. The impact of the two options on Member States, in terms of
introducing the new rules into their national legal systems, would not differ
significantly. The preferred option (a minimum capital requirement of € 1,
plus the requirement of passing a balance sheet test and issuing a solvency statement)
could save company founders in the EU between € 215 million and € 595
million in one year[8]
(deducting any costs for issuing solvency statements in the case of
distributions being made), whilst at the same time guaranteeing an adequate level
of protection for creditors.
This
option would have an impact on those Member States that do not currently have a
minimum capital requirement of € 1 and/or that do
not use solvency statements to regulate distributions in their national laws. These
Member States might not therefore be in favour of this initiative. The matter of
the minimum capital requirement of € 1 would however be discussed in a different
institutional context than was the withdrawn SPE proposal and would not be
linked to other sensitive issues such as employee participation and the
transfer of a company’s registered offices. This, and the introduction of more
robust protection for creditors than was included in the SPE proposal, should improve
the chances of an agreement being reached between Member States, especially since
a lack of compensatory measures to protect creditors is one of the reasons why many
Member States tend to be against lowering the minimum capital requirement. In
exchange for a low minimum capital requirement, companies would have to devote
greater attention to ensuring an adequate level of liquidity before making distributions
(e.g. paying out dividends or profits to the single member).
Preferred
combination of options
The
combination of the preferred options from each of the above headings — online
registration of SUPs, a uniform  EU-wide template for the articles of
association, a minimum capital requirement of € 1 and a requirement to
pass a balance sheet test and  issue a solvency statement — would have a
positive impact on the exercise of fundamental rights, and would in particular strengthen
the principle of the freedom to conduct business by providing another way of
exercising this right and by giving company founders greater choice as to how
they engage in business activities.
The
preferred options would also have positive economic and social effects. By
encouraging entrepreneurial activity, these options should lead to a wider choice
of goods and services for consumers, to the creation of more new jobs and to a
system of protection for creditors which would be better adapted to today’s business
environment. As the preferred options would not have any bearing upon the matter
of the transfer of registered offices or of employee participation, it would
not be necessary to introduce measures to minimise the potential circumvention
of the applicable social and other rights, since anti-abuse measures, are,
where necessary, laid down by national law.
The combination
of preferred options could lead to savings for company founders in the EU of
between € 236 million and € 653 million in one year. It is
difficult to predict the relative proportion of these savings for foreign and
domestic founders, but the overall savings should allow particularly SMEs to take
greater advantage of the opportunities to conduct business across national
borders. Although they would still have to comply with other than company laws in
Member States in which they would be operating, the simplification of the regulatory
environment with regard to the various issues addressed by the preferred policy
options should create more favourable conditions for business than currently in
place. 
6.     
Monitoring and evaluation
The European Commission
would assess the progress achieved with reference to the objectives set. Monitoring
would focus initially on the implementation of the proposal, after which more
specific information would be gathered on its effects, e.g. by monitoring the number
of single-member companies (including SUPs) created, trends in their
cross-border activities, their set-up and operational costs and the availability
of online registration. A subsequent evaluation would review the ways in which
the proposal has been implemented in national laws, and the effect it has had
on the typical costs of setting up and running a company abroad, as well as
reporting on any as yet unresolved practical problems.
[1] Subsidiaries
have a separate legal personality and apply the rules of the country of
registration. Therefore, while providing customers with the brand and
reputation of the parent company, they also offer them the security of dealing
with a company which has the legal status of a national rather than a foreign
company.
[2] e.g. minimum capital requirements, registration costs or
notary’s fees.
[3] e.g. differences in the articles of association, in the organisation
and structure of companies or in reporting requirements.
[4] The withdrawal of the SPE proposal was mentioned in the Annex to
the Communication on ‘Regulatory Fitness and Performance (REFIT): Results and
Next Steps’, COM(2013) 685, 2.10.2013.
[5] COM(2012) 740.
[6] Under
any of the options considered, the objectives could only be achieved at some
extra expense for Member States, the extent of which would depend on the
current registration arrangements in place at national level. Options offering
both online and paper registration would conform to the EU Digital Agenda, as
they provide the possibility – rather than the obligation - of registering a
company online.
[7] See the full text of IA.
[8] See calculations in the Annex to the IA.