Article 1 Subject matter
This Directive lays down measures concerning the following: — the coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 54 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent, — the coordination of safeguards which, for the protection of the interests of members and third parties, are required by Member States of companies within the meaning of the second paragraph of Article 54 of the Treaty, in respect of disclosure, the validity of obligations entered into by, and the nullity of, companies limited by shares or otherwise having limited liability, with a view to making such safeguards equivalent, — the disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State, — mergers of public limited liability companies, — cross-border mergers of limited liability companies, — the division of public limited liability companies.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The EU economy needs healthy and flourishing companies which can easily operate in the Single Market. Such companies play a crucial role in promoting economic growth, creating jobs and attracting investment in the European Union. They help to deliver greater economic as well as social value for society at large. To achieve this end, companies need to operate in a legal and administrative environment which is both conducive to growth and adapted to face the new economic and social challenges of a globalised and digital world, while pursuing also other legitimate public interests such as the protection of employees, creditors and minority shareholders and providing authorities with all necessary safeguards to combat fraud or abuse. It is with this objective that the Commission is putting forward this proposal, to gether with the proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2017/1132 1 as regards the use of digital tools and processes in company law - a comprehensive set of measures for fair, enabling and modern compa ny law rules in the EU. The freedom of establishment plays a crucial role in the development of the Single Market as it allows corporate entities to pursue economic activities in other Member States on a stable basis. In order to foster the cross-border mobility of companies in the EU, it is essential to take into account their needs and characteristics. There are around 24 million companies in the EU, out of which approximately 80% are limited liability companies. Around 98-99% of limited liability companies are SMEs. However, in practice the exercise of the freedom of establishment by companies remains difficult. One of the reasons for these difficulties is that company law is not sufficiently adapted to cross-border mobility in the EU: it does not offer companies optimal conditions in terms of a clear, predictable and suitable legal framework which could lead to enhanced economic activity, in particular for SMEs as recognised by the 2015 Single Market Strategy 2 . Corporate restructurings and transformations such as cross-border conversions, mergers and divisions, are part of companies' life-cycle and represent a natural way for companies to grow, adapt to a changing environment and explore opportunities in new markets. At the same time, they also entail consequences for companies' stakeholders, in particular for employees, creditors and shareholders. Therefore, it is essential that the protection of stakeholders keeps pace with the ever-growing trans-nationalisation of the corporate world. However, today the legal uncertainty, partial inadequacy and also the lack of rules governing certain cross-border operations of companies means that there is no clear framework to ensure effective protection of these stakeholders. In this situation, the protection offered to stakeholders may therefore be ineffective or insufficient. The cross-border operations of companies can also be facilitated by a legal environment that creates trust in the Single Market by providing for safeguards against abuse. Therefore, it is important to unleash the potential of the Single Market by breaking down barriers to cross-border trade, facilitating access to markets, increasing confidence and stimulating competition while offering effective and proportionate protection to stakeholders. The objective of this proposal is two-fold: provide specific and comprehensive procedures for cross-border conversions, divisions and mergers to foster cross-border mobility in the EU while, at the same time, offering company stakeholders adequate protection in order to safeguard the fairness of the Single Market. Such action forms part of creating a deeper and fairer Single Market, which is one of the priorities of the current Commission. Cross-border conversions A cross-border conversion offers an efficient solution for companies that wish to move to another Member State without losing their legal personality or having to re-negotiate their business contracts. A conversion is particularly attractive for small companies that do not have enough financial resour ces to search for expensive legal advice and conduct a cross-border merger. 3 This reasoning applies in particular to cross-border conversions against the background of the recent jurisprudence of the European Court of Justice. The Court of Justice of the E uropean Union (ECJ) has considered that the freedom of establishment enshrined in Article 49 TFEU entails the right, for companies established in a Member State, to transfer their seat to another Member State through a cross-border conversion without losin g their legal personality. 4 In particular in its recent judgement Polbud 5 the ECJ confirmed the right of companies to carry out cross-border conversions on the basis of the freedom of establishment. The ECJ held that the freedom of establishment is applic able when the registered office alone, without the real head office, is transferred from one Member State to another if the Member State of new incorporation accepts the registration of a company even without the exercise of an economic activity there: in that case Article 49 TFEU does not require such an economic activity as a precondition for its applicability. 6 The ECJ also recalled that, in the absence of harmonisation, Member States are competent to decide the connecting factor of a company to its nati onal order and thus apply their own incorporation requirements to incoming companies. 7 The ECJ further recalled its previous jurisprudence whereby the fact that either the registered office or real head office of a company was established in accordance wit h the legislation of a Member State for the purpose of enjoying the benefit of more favourable legislation does not, in itself, constitute abuse. In Polbud , it was ruled that a national rule which imposes the winding-up prerequisite of cross-border transfe r of a company is an unjustified and disproportionate restriction and thus unlawful. 8 The Polbud judgement clarified the context for cross-border conversions. But the ECJ, being a judiciary organ, may not create any procedure for making such conversions possible or set out the related substantive conditions. In the absence of EU harmonisation on cross-border conversions, national legislation may still set out rules for the procedure to be followed and for the protection of minority shareholders, creditors or workers or for the fight against tax-related or other abuses in case of cross-border company conversion. However, it is necessary to assess case-by-case whether such rules comply with EU law and, in particular, with the right of establishment. This leads to an unsatisfactory situation in terms of legal certainty, which negatively affects companies, stakeholders and Member States. Currently, companies wishing to move their registered offices cross-border need to rely on Member States' laws. Such laws, where they exist, are often incompatible or difficult to combine with each other. Moreover, more than half of the Member States do not provide any specific rules allowing for cross-border conversions. SMEs are in particular negatively impacted since often they lack resources to perform cross-border procedures through costly and complicated alternative methods. This also means that the protection of stakeholders such as employees, creditors or minority shareholders is often ineffective or insufficient due to the lack of, overlapping or contradictory rules. As regards employee protection, in the absence of harmonised safeguards for employee participation rights, companies might use a cross-border conversion and the lack of relevant safeguards for employee participation rights, when moving to another Member State, to lower the level of participation or abandon it. Furthermore, the absence of harmonised rules may also lead to increased use of letterbox companies for fraudulent purposes, allowing for instance, in most serious cases, organised crime organisations to hide and obscure the beneficial ownership of companies to launder proceeds of crime. Therefore, the EU legislator needs to step in and provide for rules on cross-border conversion with adequate and proporti onate safeguards for employees, creditors and shareholders to create a dynamic and fair Single Market. The European Parliament 9 has already made calls for it. In particular, it is important that w orkers or their representatives are involved in the procedur e , in line with the 8 th principle of the Pillar of European Social Rights: notably, they should be informed and consulted in good time on matters relevant to them in the context of companies' cross-border conversions . The mobility of companies must go hand in hand with the protection of national social and labour law prerogatives. In light of the foregoing considerations, the main objectives of the harmonised rules for cross-border conversions are two-fold: - enabling companies, particularly micro and small, to convert cross-border in an orderly, efficient and effective manner; - protecting the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. The proposal would enable companies to convert cross-border by changing their legal form of one Member State into a similar legal form of another Member State. This should ensure that companies keep their legal personality throughout the process without the need to dissolve or liquidate in the departure Member State, and form a new entity in the destination Member State. The objective is to provide a specific, structured and multi-layered procedure for cross-border conversions which ensures a scrutiny of the legality of the cross-border conversion firstly by the competent authority of the departure Member State and secondly by the destination Member State in the light of all relevant facts and information. A crucial element of the procedure is that it would prevent a cross-border conversion where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. The first step in the procedure would be the preparation of the draft terms of the cross-border conversion and two targeted reports addressed to shareholders and employees on the implications that the cross-border conversion will have. In addition, medium size and large companies would need to apply to the competent authority for the appointment of an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company is to take a decision at the general meeting on whether to pursue the cross-border conversion. That decision, together with the relevant information and documents, would then be submitted to the competent national authority of the Member State of departure which is responsible to decide whether to issue a pre-conversion certificate or not. The scrutiny conducted by that authority would consist of two possible phases: during the first phase, which is limited to one month, the competent authority would examine whether the cross-border conversion is lawful. The authority would determine if all conditions for the cross-border conversion laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the conversion at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. During this phase, the authority would also determine whether there is an artificial arrangement. If at the end of the 1-month period laid down for the first phase of investigation the authority has no objections, it would issue a pre-conversion certificate. If at the end of 1 month it is certain that the cross-border conversion is unlawful, it would refuse to grant a pre-conversion certificate. Alternatively, if at the end of the 1-month period it has serious concerns that the conversion may be unlawful, it would inform the company that it will carry out an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months. If after such scrutiny, the pre-conversion certificate is issued, it would be transmitted without delay to the competent authority of the Member State of destination. Then, the Member State of destination would carry out a scrutiny as regards that part of the procedure which is governed by the law of the destination Member State. The competent authority of the destination Member State shall ensure that the converted company complies with provisions of its national law on the incorporation of companies (for example, whether the company has a real seat in its territory) and, where appropriate, that arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, a company would be registered in the register of a Member State of destination and de-registered in the register of a Member State of departure. The conversion shall then become legally effective. All contacts between the registers should be done via the system of interconnection of business registers (BRIS). Cross-border mergers A company may also wish to exercise their freedom of establishment and thereafter benefit from the opportunities offered by the Single Market by carrying out a cross-border merger. Companies may merge cross-border for various reasons including group reorganisations, cutting organisational costs as well as business-oriented considerations in order to enjoy greater returns to scale, consolidated branding, or other synergies between different business activities. The introduction of the Cross-Border Merger Directive 10 laid down a harmonised procedure at EU level for limited liability companies. It led to a substantial increase in cross-border merger activity in the EU and EEA. The number o f cross-border mergers rose by 173% between 2008 and 2012, which indicates that the procedure set up by the Directive substantially enhanced cross-border activity. Stakeholders (such as law firms, business registers and trade unions) interviewed for the 20 13 study on the application of the Directive welcomed the new procedures, the procedural simplification and reported lower costs and shorter timeframes thanks to the harmonised framework. However, despite the overall positive assessment, the evaluation 11 of the functioning of the Cross-Border Merger Directive identified certain problems which impede the full effectiveness and efficiency of the existing rules. The 2015 Single Market Strategy 12 mentioned uncertainties over company law as one of the obstacle s that SMEs complain about in the Single Market and announced that the Commission would " examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". The European Parliament stressed the positive effects of the Directive which has facilitated cross-border mergers between limited liability companies in the European Union and reduced the associated costs and administrative procedures 13 . However, the Europe an Parliament also noted the necessity to revise it in order to improve its functioning 14 . The main identified obstacles concern the lack of harmonisation of substantive rules in particular for creditor protection and minority shareholder protection as well as the lack of fast track (i.e. simplified procedures for less "complex" mergers). In addition, it was observed that the cross-border merger procedure does not sufficiently integrate digital tools and processes (e.g. as regards submitting the documents to public authorities or sharing those between them). It has also been criticised that employees are not sufficiently informed about the details and implications of a cross-border merger. These inefficiencies were confirmed by stakeholders throughout the consultation process. Concerning the protection of creditors and minority shareholders, the existing rules on cross-border mergers lay down minimum, mainly procedural rules and leave the substantive protection to national laws. Therefore, the differences between Member States laws persist. For example, the Directive only lays down that creditors shall be protected subject to national rules, without further specifications. Similarly, the Directive lays down some rules concerning shareholders in general (e.g. information via the draft merger terms, expert reports, voting during the general meetings) but leaves it to Member States to decide whether to introduce further protection for minority shareholders. As to the employee participation on board level, the existing rules set out a comprehensive framework. However, the rules do not require merging companies to provide any specific and comprehensive information about a cross-border merger to the employees. Currently, the situation of employees is only considered in a general manner in the management report addressed predominantly to shareholders. As to simplified procedures, the current rules offer limited possibilities. For example, the rules allow waiving an independent expert report if all shareholders agree and do not require an expert report or the approval by the general meeting in case of a merger between a parent company and its wholly-owned subsidiary. This proposal aims to address these shortcomings. It provides harmonised rules for protection of creditors and shareholders. The company would need to provide the envisaged protection of creditors and shareholders in the draft terms of the cross-border conversion. The creditors who would be dissatisfied with the protection offered, may apply to the appropriate administrative or judicial authority for adequate safeguards. Creditors of the merging companies should be presumed not to be prejudiced by a cross-border merger, if an independent expert assessed their situation and considered no prejudice or creditors were offered a right to payment, either against a third party guarantor, or against the company resulting from the merger. Member States may still apply their laws concerning the protection of payment of taxes or social security contributions, if such rules are different to the protection offered by this proposal. Shareholders who did not vote for the cross-border mergers or have no voting rights would have the right to exit the company (dispose of their shares) and receive the adequate compensation. Moreover, Member States should also ensure that shareholders of the merging companies who did not oppose the cross-border merger, but who considered that the proposed share-exchange ratio was inadequate may challenge that ratio set out in the common draft terms of the cross-border merger before a national court. In addition, the proposed rules ensure that employees will be duly informed about the implications of the planned cross-border merger on employees. The proposal also provides for use of digital tools and procedures throughout the cross-border merger procedure as well as for the exchange of the relevant information through the interconnection of business registers. Finally, where possible, the proposal introduces further possibilities for simplified procedures. Cross-border divisions A company may also wish to exercise their freedom of establishment by carrying out a cross-border division. In a similar manner to cross-border conversions and mergers, cross-border divisions offer a way for companies to chan ge or simplify their organisational structure, adapt to changing market conditions and realise new business opportunities in another Member State. This was confirmed by respondents to the 2015 consultation on cross-border mergers and division 15 . However, th e current situation concerning cross-border divisions across the EU Member States also provides a very fragmented picture. There is no harmonised legal framework for cross-border divisions of companies, although divisions also play an important role in the economic environment of Member States. The current EU legal framework provides rules only for cross-border mergers of companies, while cross-border divisions are subject to national rules if such rules exist. Today only less than half of the Member States have national rules on cross-border divisions of companies. In the absence of a reliable legal framework for cross-border divisions, companies have difficulties to access markets in other Member States and often need to find costly alternatives to direct procedures. Different national requirements make it difficult to structure the cross-border operations and render it more complex and costly. Even when Member States allow companies to divide cross-border, the relevant national provisions are often divergent or even incompatible. In a number of Member States carrying out a direct cross-border division is not possible. The legal uncertainty and lack or complexity of rules for cross-border mobility of companies also means that there is no clear framework to ensure effective protection of stakeholders. This may even lead to a situation whereby the freedom of establishment could be abused by some companies. Thus, it is crucial to create a legal framework that ensures a fair balance between the need to provide companies a favourable business environment in the EU and the need at the same time to protect legitimate interests of stakeholders. The 2015 Single Market Strategy 16 mentioned uncertainties over company law as one of the obstacles that SMEs complain about in the Single Market and announced that the Commission " examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". This part of the proposal aims to introduce a new legal framework regulating cross-border divisions. Its main objective is to address matters related to cross-border mobility by making it easier for any limited liability company to be able to divide cross-border. The provisions relating to cross-border divisions are inspired by the existing framework of the cross-border merger directive as well as the existing rules for domestic divisions. The rules are adapted to cater for a situation where a company is split instead of where one or more companies transfer all their assets and liabilities to another company. At the same time, the objectives of the harmonised rules on cross-border divisions remain similar to cross-border conversions: - enable companies to divide cross-border in an orderly, efficient and effective manner; - protect the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. Given the similar risks inherent to cross-border divisions as to cross-border conversions, the structured and multi-layered procedure as proposed for conversions would also be required for divisions. Such procedure would ensure the scrutiny of legality of the cross-border division by the competent authority of the company being divided and by the authorities of the recipient companies in the light of all relevant facts and information. As in conversions, a crucial element of the procedure would be preventing a cross-border division where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. Given the complexity of dealing with risks of abuse in a situation where a company being divided transfers assets and liabilities to existing companies in different Member States, it was decided to regulate a situation where new companies are created in a cross-border division and not to regulate at this stage the cross-border division by acquisition, i.e. the situation where a company transfers assets and liabilities to more than one existing company. In a domestic context (where such situations are addressed in the current rules), such a procedure involves the examination of the protection of interests of stakeholders in one Member State, whereas in the cross-border context, it could necessitate the involvement of many authorities from different Member States. Whether to also include cross-border divisions by acquisition into the scope of the directive could be evaluated once first experiences with the new rules on cross-border divisions have been gained. Similarly to cross-border conversions, the first step in the procedure would be the preparation of the draft terms of the cross-border division and two targeted reports addressed to shareholders and employees on the implications that the cross-border division will have for them. In addition, medium size and big companies would need to apply to the competent authority to appoint an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse as referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company being divided is to take a decision at the general meeting on whether to pursue the cross-border division. This decision, together with the relevant information and documents, would then be submitted to the competent authority of the Member State of the dividing company which is responsible to decide whether to issue a pre-division certificate or not. The scrutiny conducted by that authority would be divided into two phases: one being mandatory and the other one being optional. In the first phase, which is limited to one month, the competent authority would examine whether the cross-border division is lawful. The authority would determine if all conditions for the cross-border division laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the cross-border division at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. It would also determine whether there is an artificial arrangement being created which is aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. If at the end of a 1-month period, the authority has no objections, it would issue a pre-division certificate; if it is certain that the cross-border division is unlawful, it would adopt a decision refusing to grant a pre-division certificate; or if it has serious concerns that the division may be unlawful, it would inform the company being divided that it will carry out an in-depth investigation with a view to performing an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months from the start of the in-depth investigation. If after such scrutiny, the pre-division certificate is issued, it would be transmitted without delay to the competent authorities of the Member States of the recipient companies. Then, the competent authorities would carry out a scrutiny as regards that part of the procedure which is governed by their respective laws. The competent authorities of the Member States of the recipient companies must ensure that the companies comply with provisions of their national laws on the incorporation of companies where appropriate (for example, whether the company has a real seat in its territory). They should also check whether the arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, the division would be registered and recorded in all relevant business registers. All contacts between the registers should be done via the system of interconnection of business registers (BRIS).
Revised version (Article 1 Subject matter):
This Directive lays down measures concerning the following: — the coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 54 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent, — the coordination of safeguards which, for the protection of the interests of members and third parties, are required by Member States of companies within the meaning of the second paragraph of Article 54 of the Treaty, in respect of disclosure, the validity of obligations entered into by, and the nullity of, companies limited by shares or otherwise having limited liability, with a view to making such safeguards equivalent, — the rules on online formation of companies, on online registration of branches and on online filing of documents and information by companies and branches, — the disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State, — mergers of public limited liability companies, — cross-border mergers of limited liability companies, — the division of public limited liability companies.
Article 2 Scope
1. The coordination measures prescribed by this Section shall apply to the provisions laid down by law, regulation or administrative action in Member States relating to the types of company listed in Annex I.The name for any company of the types listed in Annex I shall comprise or be accompanied by a description which is distinct from the description required of other types of companies. 2. Member States may decide not to apply this Section to investment companies with variable capital and to cooperatives incorporated as one of the types of company listed in Annex I. In so far as the laws of the Member States make use of this option, they shall require such companies to include the words ‘investment company with variable capital’, or ‘cooperative’ in all documents indicated in Article 26. The term ‘investment company with variable capital’, within the meaning of this Directive, means only those companies: — the exclusive object of which is to invest their funds in various stocks and shares, land or other assets with the sole aim of spreading investment risks and giving their shareholders the benefit of the results of the management of their assets, — which offer their own shares for subscription by the public, and — the statutes of which provide that, within the limits of a minimum and maximum capital, they may at any time issue, redeem or resell their shares.
Article 3 Compulsory information to be provided in the statutes or instruments of incorporation
The statutes or the instrument of incorporation of a company shall always give at least the following information: (a) the type and name of the company; (b) the objects of the company; (c) where the company has no authorised capital, the amount of the subscribed capital; (d) where the company has an authorised capital, the amount thereof and also the amount of the capital subscribed at the time the company is incorporated or is authorised to commence business, and at the time of any change in the authorised capital, without prejudice to Article 14(e); (e) in so far as they are not legally determined, the rules governing the number of, and the procedure for, appointing members of the bodies responsible for representing the company vis-à-vis third parties, administration, management, supervision or control of the company and the allocation of powers among those bodies; (f) the duration of the company, except where this is indefinite.
Article 4 Compulsory information to be provided in the statutes or instruments of incorporation or separate documents
The following information at least shall appear in either the statutes or the instrument of incorporation or a separate document published in accordance with the procedure laid down in the laws of each Member State in accordance with Article 16: (a) the registered office; (b) the nominal value of the shares subscribed and, at least once a year, the number thereof; (c) the number of shares subscribed without stating the nominal value, where such shares may be issued under national law; (d) the special conditions, if any, limiting the transfer of shares; (e) where there are several classes of shares, the information referred to in points (b), (c) and (d) for each class and the rights attaching to the shares of each class; (f) whether the shares are registered or bearer, where national law provides for both types, and any provisions relating to the conversion of such shares unless the procedure is laid down by law; (g) the amount of the subscribed capital paid up at the time the company is incorporated or is authorised to commence business; (h) the nominal value of the shares or, where there is no nominal value, the number of shares issued for a consideration other than in cash, together with the nature of the consideration and the name of the person providing the consideration; (i) the identity of the natural or legal persons or companies or firms by which or in whose name the statutes or the instrument of incorporation, or where the company was not formed at the same time, the drafts of those documents, have been signed; (j) the total amount, or at least an estimate, of all the costs payable by the company or chargeable to it by reason of its formation and, where appropriate, before the company is authorised to commence business; (k) any special advantage granted, at the time the company is formed or up to the time it receives authorisation to commence business, to anyone who has taken part in the formation of the company or in transactions leading to the grant of such authorisation.
Article 5 Authorisation for commencing business
1. Where the laws of a Member State prescribe that a company may not commence business without authorisation, they shall also make provision for responsibility for liabilities incurred by or on behalf of the company during the period before such authorisation is granted or refused. 2. Paragraph 1 shall not apply to liabilities under contracts concluded by the company conditionally upon its being granted authorisation to commence business.
Article 6 Multiple-member companies
1. Where the laws of a Member State require a company to be formed by more than one member, the fact that all the shares are held by one person or that the number of members has fallen below the legal minimum after incorporation of the company shall not lead to the automatic dissolution of the company. 2. If, in the cases referred to in paragraph 1, the laws of a Member State permit the company to be wound up by order of the court, the judge having jurisdiction shall be able to give the company sufficient time to regularise its position. 3. Where a winding-up order as referred to in paragraph 2 is made, the company shall enter into liquidation.
Article 7 General provisions and joint and several liability
1. The coordination measures prescribed by this Section shall apply to the laws, regulations and administrative provisions of the Member States relating to the types of company listed in Annex II. 2. If, before a company being formed has acquired legal personality, action has been carried out in its name and the company does not assume the obligations arising from such action, the persons who acted shall, without limit, be jointly and severally liable therefor, unless otherwise agreed.
Article 8 Effects of disclosure with respect to third parties
Completion of the formalities of disclosure of the particulars concerning the persons who, as an organ of the company, are authorised to represent it, shall constitute a bar to any irregularity in their appointment being relied upon as against third parties, unless the company proves that such third parties had knowledge thereof.
Article 9 Acts of the organs of a company and its representation
1. Acts done by the organs of the company shall be binding upon it even if those acts are not within the objects of the company, unless such acts exceed the powers that the law confers or allows to be conferred on those organs. However, Member States may provide that the company shall not be bound where such acts are outside the objects of the company, if it proves that the third party knew that the act was outside those objects or could not in view of the circumstances have been unaware of it. Disclosure of the statutes shall not of itself be sufficient proof thereof. 2. The limits on the powers of the organs of the company, arising under the statutes or from a decision of the competent organs, may not be relied on as against third parties, even if they have been disclosed. 3. If national law provides that authority to represent a company may, in derogation from the legal rules governing the subject, be conferred by the statutes on a single person or on several persons acting jointly, that law may provide that such a provision in the statutes may be relied on as against third parties on condition that it relates to the general power of representation; the question whether such a provision in the statutes can be relied on as against third parties shall be governed by Article 16.
Article 10 Drawing up and certification of the instrument of constitution and the company statutes in due legal form
In all Member States whose laws do not provide for preventive administrative or judicial control, at the time of formation of a company, the instrument of constitution, the company statutes and any amendments to those documents shall be drawn up and certified in due legal form.
Article 11 Conditions for nullity of a company
The laws of the Member States may not provide for the nullity of companies otherwise than in accordance with the following provisions: (a) nullity must be ordered by decision of a court of law; (b) nullity may be ordered only on the grounds: (i) that no instrument of constitution was executed or that the rules of preventive control or the requisite legal formalities were not complied with; (ii) that the objects of the company are unlawful or contrary to public policy; (iii) that the instrument of constitution or the statutes do not state the name of the company, the amount of the individual subscriptions of capital, the total amount of the capital subscribed or the objects of the company; (iv) of failure to comply with provisions of national law concerning the minimum amount of capital to be paid up; (v) of the incapacity of all the founder members; (vi) that, contrary to the national law governing the company, the number of founder members is less than two. Apart from the grounds of nullity referred to in the first paragraph, a company shall not be subject to any cause of non-existence, absolute nullity, relative nullity or declaration of nullity.
Article 12 Consequences of nullity
1. The question whether a decision of nullity pronounced by a court of law may be relied on as against third parties shall be governed by Article 16. Where the national law entitles a third party to challenge the decision, he may do so only within six months of public notice of the decision of the court being given. 2. Nullity shall entail the winding-up of the company, as may dissolution. 3. Nullity shall not of itself affect the validity of any commitments entered into by or with the company, without prejudice to the consequences of the company's being wound up. 4. The laws of each Member State may make provision for the consequences of nullity as between members of the company. 5. Holders of shares in the capital of a company shall remain obliged to pay up the capital agreed to be subscribed by them but which has not been paid up, to the extent that commitments entered into with creditors so require.
Article 13 Scope
The coordination measures prescribed by this Section shall apply to the laws, regulations and administrative provisions of the Member States relating to the types of company listed in Annex II.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The EU economy needs healthy and flourishing companies which can easily operate in the Single Market. Such companies play a crucial role in promoting economic growth, creating jobs and attracting investment in the European Union. They help to deliver greater economic as well as social value for society at large. To achieve this end, companies need to operate in a legal and administrative environment which is both conducive to growth and adapted to face the new economic and social challenges of a globalised and digital world, while pursuing also other legitimate public interests such as the protection of employees, creditors and minority shareholders and providing authorities with all necessary safeguards to combat fraud or abuse. It is with this objective that the Commission is putting forward this proposal, to gether with the proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2017/1132 1 as regards the use of digital tools and processes in company law - a comprehensive set of measures for fair, enabling and modern compa ny law rules in the EU. The freedom of establishment plays a crucial role in the development of the Single Market as it allows corporate entities to pursue economic activities in other Member States on a stable basis. In order to foster the cross-border mobility of companies in the EU, it is essential to take into account their needs and characteristics. There are around 24 million companies in the EU, out of which approximately 80% are limited liability companies. Around 98-99% of limited liability companies are SMEs. However, in practice the exercise of the freedom of establishment by companies remains difficult. One of the reasons for these difficulties is that company law is not sufficiently adapted to cross-border mobility in the EU: it does not offer companies optimal conditions in terms of a clear, predictable and suitable legal framework which could lead to enhanced economic activity, in particular for SMEs as recognised by the 2015 Single Market Strategy 2 . Corporate restructurings and transformations such as cross-border conversions, mergers and divisions, are part of companies' life-cycle and represent a natural way for companies to grow, adapt to a changing environment and explore opportunities in new markets. At the same time, they also entail consequences for companies' stakeholders, in particular for employees, creditors and shareholders. Therefore, it is essential that the protection of stakeholders keeps pace with the ever-growing trans-nationalisation of the corporate world. However, today the legal uncertainty, partial inadequacy and also the lack of rules governing certain cross-border operations of companies means that there is no clear framework to ensure effective protection of these stakeholders. In this situation, the protection offered to stakeholders may therefore be ineffective or insufficient. The cross-border operations of companies can also be facilitated by a legal environment that creates trust in the Single Market by providing for safeguards against abuse. Therefore, it is important to unleash the potential of the Single Market by breaking down barriers to cross-border trade, facilitating access to markets, increasing confidence and stimulating competition while offering effective and proportionate protection to stakeholders. The objective of this proposal is two-fold: provide specific and comprehensive procedures for cross-border conversions, divisions and mergers to foster cross-border mobility in the EU while, at the same time, offering company stakeholders adequate protection in order to safeguard the fairness of the Single Market. Such action forms part of creating a deeper and fairer Single Market, which is one of the priorities of the current Commission. Cross-border conversions A cross-border conversion offers an efficient solution for companies that wish to move to another Member State without losing their legal personality or having to re-negotiate their business contracts. A conversion is particularly attractive for small companies that do not have enough financial resour ces to search for expensive legal advice and conduct a cross-border merger. 3 This reasoning applies in particular to cross-border conversions against the background of the recent jurisprudence of the European Court of Justice. The Court of Justice of the E uropean Union (ECJ) has considered that the freedom of establishment enshrined in Article 49 TFEU entails the right, for companies established in a Member State, to transfer their seat to another Member State through a cross-border conversion without losin g their legal personality. 4 In particular in its recent judgement Polbud 5 the ECJ confirmed the right of companies to carry out cross-border conversions on the basis of the freedom of establishment. The ECJ held that the freedom of establishment is applic able when the registered office alone, without the real head office, is transferred from one Member State to another if the Member State of new incorporation accepts the registration of a company even without the exercise of an economic activity there: in that case Article 49 TFEU does not require such an economic activity as a precondition for its applicability. 6 The ECJ also recalled that, in the absence of harmonisation, Member States are competent to decide the connecting factor of a company to its nati onal order and thus apply their own incorporation requirements to incoming companies. 7 The ECJ further recalled its previous jurisprudence whereby the fact that either the registered office or real head office of a company was established in accordance wit h the legislation of a Member State for the purpose of enjoying the benefit of more favourable legislation does not, in itself, constitute abuse. In Polbud , it was ruled that a national rule which imposes the winding-up prerequisite of cross-border transfe r of a company is an unjustified and disproportionate restriction and thus unlawful. 8 The Polbud judgement clarified the context for cross-border conversions. But the ECJ, being a judiciary organ, may not create any procedure for making such conversions possible or set out the related substantive conditions. In the absence of EU harmonisation on cross-border conversions, national legislation may still set out rules for the procedure to be followed and for the protection of minority shareholders, creditors or workers or for the fight against tax-related or other abuses in case of cross-border company conversion. However, it is necessary to assess case-by-case whether such rules comply with EU law and, in particular, with the right of establishment. This leads to an unsatisfactory situation in terms of legal certainty, which negatively affects companies, stakeholders and Member States. Currently, companies wishing to move their registered offices cross-border need to rely on Member States' laws. Such laws, where they exist, are often incompatible or difficult to combine with each other. Moreover, more than half of the Member States do not provide any specific rules allowing for cross-border conversions. SMEs are in particular negatively impacted since often they lack resources to perform cross-border procedures through costly and complicated alternative methods. This also means that the protection of stakeholders such as employees, creditors or minority shareholders is often ineffective or insufficient due to the lack of, overlapping or contradictory rules. As regards employee protection, in the absence of harmonised safeguards for employee participation rights, companies might use a cross-border conversion and the lack of relevant safeguards for employee participation rights, when moving to another Member State, to lower the level of participation or abandon it. Furthermore, the absence of harmonised rules may also lead to increased use of letterbox companies for fraudulent purposes, allowing for instance, in most serious cases, organised crime organisations to hide and obscure the beneficial ownership of companies to launder proceeds of crime. Therefore, the EU legislator needs to step in and provide for rules on cross-border conversion with adequate and proporti onate safeguards for employees, creditors and shareholders to create a dynamic and fair Single Market. The European Parliament 9 has already made calls for it. In particular, it is important that w orkers or their representatives are involved in the procedur e , in line with the 8 th principle of the Pillar of European Social Rights: notably, they should be informed and consulted in good time on matters relevant to them in the context of companies' cross-border conversions . The mobility of companies must go hand in hand with the protection of national social and labour law prerogatives. In light of the foregoing considerations, the main objectives of the harmonised rules for cross-border conversions are two-fold: - enabling companies, particularly micro and small, to convert cross-border in an orderly, efficient and effective manner; - protecting the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. The proposal would enable companies to convert cross-border by changing their legal form of one Member State into a similar legal form of another Member State. This should ensure that companies keep their legal personality throughout the process without the need to dissolve or liquidate in the departure Member State, and form a new entity in the destination Member State. The objective is to provide a specific, structured and multi-layered procedure for cross-border conversions which ensures a scrutiny of the legality of the cross-border conversion firstly by the competent authority of the departure Member State and secondly by the destination Member State in the light of all relevant facts and information. A crucial element of the procedure is that it would prevent a cross-border conversion where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. The first step in the procedure would be the preparation of the draft terms of the cross-border conversion and two targeted reports addressed to shareholders and employees on the implications that the cross-border conversion will have. In addition, medium size and large companies would need to apply to the competent authority for the appointment of an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company is to take a decision at the general meeting on whether to pursue the cross-border conversion. That decision, together with the relevant information and documents, would then be submitted to the competent national authority of the Member State of departure which is responsible to decide whether to issue a pre-conversion certificate or not. The scrutiny conducted by that authority would consist of two possible phases: during the first phase, which is limited to one month, the competent authority would examine whether the cross-border conversion is lawful. The authority would determine if all conditions for the cross-border conversion laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the conversion at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. During this phase, the authority would also determine whether there is an artificial arrangement. If at the end of the 1-month period laid down for the first phase of investigation the authority has no objections, it would issue a pre-conversion certificate. If at the end of 1 month it is certain that the cross-border conversion is unlawful, it would refuse to grant a pre-conversion certificate. Alternatively, if at the end of the 1-month period it has serious concerns that the conversion may be unlawful, it would inform the company that it will carry out an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months. If after such scrutiny, the pre-conversion certificate is issued, it would be transmitted without delay to the competent authority of the Member State of destination. Then, the Member State of destination would carry out a scrutiny as regards that part of the procedure which is governed by the law of the destination Member State. The competent authority of the destination Member State shall ensure that the converted company complies with provisions of its national law on the incorporation of companies (for example, whether the company has a real seat in its territory) and, where appropriate, that arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, a company would be registered in the register of a Member State of destination and de-registered in the register of a Member State of departure. The conversion shall then become legally effective. All contacts between the registers should be done via the system of interconnection of business registers (BRIS). Cross-border mergers A company may also wish to exercise their freedom of establishment and thereafter benefit from the opportunities offered by the Single Market by carrying out a cross-border merger. Companies may merge cross-border for various reasons including group reorganisations, cutting organisational costs as well as business-oriented considerations in order to enjoy greater returns to scale, consolidated branding, or other synergies between different business activities. The introduction of the Cross-Border Merger Directive 10 laid down a harmonised procedure at EU level for limited liability companies. It led to a substantial increase in cross-border merger activity in the EU and EEA. The number o f cross-border mergers rose by 173% between 2008 and 2012, which indicates that the procedure set up by the Directive substantially enhanced cross-border activity. Stakeholders (such as law firms, business registers and trade unions) interviewed for the 20 13 study on the application of the Directive welcomed the new procedures, the procedural simplification and reported lower costs and shorter timeframes thanks to the harmonised framework. However, despite the overall positive assessment, the evaluation 11 of the functioning of the Cross-Border Merger Directive identified certain problems which impede the full effectiveness and efficiency of the existing rules. The 2015 Single Market Strategy 12 mentioned uncertainties over company law as one of the obstacle s that SMEs complain about in the Single Market and announced that the Commission would " examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". The European Parliament stressed the positive effects of the Directive which has facilitated cross-border mergers between limited liability companies in the European Union and reduced the associated costs and administrative procedures 13 . However, the Europe an Parliament also noted the necessity to revise it in order to improve its functioning 14 . The main identified obstacles concern the lack of harmonisation of substantive rules in particular for creditor protection and minority shareholder protection as well as the lack of fast track (i.e. simplified procedures for less "complex" mergers). In addition, it was observed that the cross-border merger procedure does not sufficiently integrate digital tools and processes (e.g. as regards submitting the documents to public authorities or sharing those between them). It has also been criticised that employees are not sufficiently informed about the details and implications of a cross-border merger. These inefficiencies were confirmed by stakeholders throughout the consultation process. Concerning the protection of creditors and minority shareholders, the existing rules on cross-border mergers lay down minimum, mainly procedural rules and leave the substantive protection to national laws. Therefore, the differences between Member States laws persist. For example, the Directive only lays down that creditors shall be protected subject to national rules, without further specifications. Similarly, the Directive lays down some rules concerning shareholders in general (e.g. information via the draft merger terms, expert reports, voting during the general meetings) but leaves it to Member States to decide whether to introduce further protection for minority shareholders. As to the employee participation on board level, the existing rules set out a comprehensive framework. However, the rules do not require merging companies to provide any specific and comprehensive information about a cross-border merger to the employees. Currently, the situation of employees is only considered in a general manner in the management report addressed predominantly to shareholders. As to simplified procedures, the current rules offer limited possibilities. For example, the rules allow waiving an independent expert report if all shareholders agree and do not require an expert report or the approval by the general meeting in case of a merger between a parent company and its wholly-owned subsidiary. This proposal aims to address these shortcomings. It provides harmonised rules for protection of creditors and shareholders. The company would need to provide the envisaged protection of creditors and shareholders in the draft terms of the cross-border conversion. The creditors who would be dissatisfied with the protection offered, may apply to the appropriate administrative or judicial authority for adequate safeguards. Creditors of the merging companies should be presumed not to be prejudiced by a cross-border merger, if an independent expert assessed their situation and considered no prejudice or creditors were offered a right to payment, either against a third party guarantor, or against the company resulting from the merger. Member States may still apply their laws concerning the protection of payment of taxes or social security contributions, if such rules are different to the protection offered by this proposal. Shareholders who did not vote for the cross-border mergers or have no voting rights would have the right to exit the company (dispose of their shares) and receive the adequate compensation. Moreover, Member States should also ensure that shareholders of the merging companies who did not oppose the cross-border merger, but who considered that the proposed share-exchange ratio was inadequate may challenge that ratio set out in the common draft terms of the cross-border merger before a national court. In addition, the proposed rules ensure that employees will be duly informed about the implications of the planned cross-border merger on employees. The proposal also provides for use of digital tools and procedures throughout the cross-border merger procedure as well as for the exchange of the relevant information through the interconnection of business registers. Finally, where possible, the proposal introduces further possibilities for simplified procedures. Cross-border divisions A company may also wish to exercise their freedom of establishment by carrying out a cross-border division. In a similar manner to cross-border conversions and mergers, cross-border divisions offer a way for companies to chan ge or simplify their organisational structure, adapt to changing market conditions and realise new business opportunities in another Member State. This was confirmed by respondents to the 2015 consultation on cross-border mergers and division 15 . However, th e current situation concerning cross-border divisions across the EU Member States also provides a very fragmented picture. There is no harmonised legal framework for cross-border divisions of companies, although divisions also play an important role in the economic environment of Member States. The current EU legal framework provides rules only for cross-border mergers of companies, while cross-border divisions are subject to national rules if such rules exist. Today only less than half of the Member States have national rules on cross-border divisions of companies. In the absence of a reliable legal framework for cross-border divisions, companies have difficulties to access markets in other Member States and often need to find costly alternatives to direct procedures. Different national requirements make it difficult to structure the cross-border operations and render it more complex and costly. Even when Member States allow companies to divide cross-border, the relevant national provisions are often divergent or even incompatible. In a number of Member States carrying out a direct cross-border division is not possible. The legal uncertainty and lack or complexity of rules for cross-border mobility of companies also means that there is no clear framework to ensure effective protection of stakeholders. This may even lead to a situation whereby the freedom of establishment could be abused by some companies. Thus, it is crucial to create a legal framework that ensures a fair balance between the need to provide companies a favourable business environment in the EU and the need at the same time to protect legitimate interests of stakeholders. The 2015 Single Market Strategy 16 mentioned uncertainties over company law as one of the obstacles that SMEs complain about in the Single Market and announced that the Commission " examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". This part of the proposal aims to introduce a new legal framework regulating cross-border divisions. Its main objective is to address matters related to cross-border mobility by making it easier for any limited liability company to be able to divide cross-border. The provisions relating to cross-border divisions are inspired by the existing framework of the cross-border merger directive as well as the existing rules for domestic divisions. The rules are adapted to cater for a situation where a company is split instead of where one or more companies transfer all their assets and liabilities to another company. At the same time, the objectives of the harmonised rules on cross-border divisions remain similar to cross-border conversions: - enable companies to divide cross-border in an orderly, efficient and effective manner; - protect the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. Given the similar risks inherent to cross-border divisions as to cross-border conversions, the structured and multi-layered procedure as proposed for conversions would also be required for divisions. Such procedure would ensure the scrutiny of legality of the cross-border division by the competent authority of the company being divided and by the authorities of the recipient companies in the light of all relevant facts and information. As in conversions, a crucial element of the procedure would be preventing a cross-border division where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. Given the complexity of dealing with risks of abuse in a situation where a company being divided transfers assets and liabilities to existing companies in different Member States, it was decided to regulate a situation where new companies are created in a cross-border division and not to regulate at this stage the cross-border division by acquisition, i.e. the situation where a company transfers assets and liabilities to more than one existing company. In a domestic context (where such situations are addressed in the current rules), such a procedure involves the examination of the protection of interests of stakeholders in one Member State, whereas in the cross-border context, it could necessitate the involvement of many authorities from different Member States. Whether to also include cross-border divisions by acquisition into the scope of the directive could be evaluated once first experiences with the new rules on cross-border divisions have been gained. Similarly to cross-border conversions, the first step in the procedure would be the preparation of the draft terms of the cross-border division and two targeted reports addressed to shareholders and employees on the implications that the cross-border division will have for them. In addition, medium size and big companies would need to apply to the competent authority to appoint an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse as referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company being divided is to take a decision at the general meeting on whether to pursue the cross-border division. This decision, together with the relevant information and documents, would then be submitted to the competent authority of the Member State of the dividing company which is responsible to decide whether to issue a pre-division certificate or not. The scrutiny conducted by that authority would be divided into two phases: one being mandatory and the other one being optional. In the first phase, which is limited to one month, the competent authority would examine whether the cross-border division is lawful. The authority would determine if all conditions for the cross-border division laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the cross-border division at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. It would also determine whether there is an artificial arrangement being created which is aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. If at the end of a 1-month period, the authority has no objections, it would issue a pre-division certificate; if it is certain that the cross-border division is unlawful, it would adopt a decision refusing to grant a pre-division certificate; or if it has serious concerns that the division may be unlawful, it would inform the company being divided that it will carry out an in-depth investigation with a view to performing an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months from the start of the in-depth investigation. If after such scrutiny, the pre-division certificate is issued, it would be transmitted without delay to the competent authorities of the Member States of the recipient companies. Then, the competent authorities would carry out a scrutiny as regards that part of the procedure which is governed by their respective laws. The competent authorities of the Member States of the recipient companies must ensure that the companies comply with provisions of their national laws on the incorporation of companies where appropriate (for example, whether the company has a real seat in its territory). They should also check whether the arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, the division would be registered and recorded in all relevant business registers. All contacts between the registers should be done via the system of interconnection of business registers (BRIS).
Revised version (Article 13 Scope):
The coordination measures prescribed by this Section and by Section 1A shall apply to the laws, regulations and administrative provisions of the Member States relating to the types of companies listed in Annex II and, where specified, to the types of companies listed in Annexes I and IIA.
Article 14 Documents and particulars to be disclosed by companies
Member States shall take the measures required to ensure compulsory disclosure by companies of at least the following documents and particulars: (a) the instrument of constitution, and the statutes if they are contained in a separate instrument; (b) any amendments to the instruments referred to in point (a), including any extension of the duration of the company; (c) after every amendment of the instrument of constitution or of the statutes, the complete text of the instrument or statutes as amended to date; (d) the appointment, termination of office and particulars of the persons who either as a body constituted pursuant to law or as members of any such body: (i) are authorised to represent the company in dealings with third parties and in legal proceedings; it shall be apparent from the disclosure whether the persons authorised to represent the company may do so alone or are required to act jointly; (ii) take part in the administration, supervision or control of the company; (e) at least once a year, the amount of the capital subscribed, where the instrument of constitution or the statutes mention an authorised capital, unless any increase in the capital subscribed necessitates an amendment of the statutes; (f) the accounting documents for each financial year which are required to be published in accordance with Council Directives 86/635/EEC ( 26 ) and 91/674/EEC ( 27 ) and Directive 2013/34/EU of the European Parliament and of the Council ( 28 ) ; (g) any change of the registered office of the company; (h) the winding-up of the company; (i) any declaration of nullity of the company by the courts; (j) the appointment of liquidators, particulars concerning them, and their respective powers, unless such powers are expressly and exclusively derived from law or from the statutes of the company; (k) any termination of a liquidation and, in Member States where striking off the register entails legal consequences, the fact of any such striking off.
Article 15 Changes in documents and particulars
1. Member States shall take the measures required to ensure that any changes in the documents and particulars referred to in Article 14 are entered in the competent register referred to in the first subparagraph of Article 16(1) and are disclosed, in accordance with Article 16(3) and (5), normally within 21 days of receipt of the complete documentation regarding those changes including, if applicable, the legality check as required under national law for entry in the file. 2. Paragraph 1 shall not apply to the accounting documents referred to in Article 14(f).
Article 16 Disclosure in the register
1. In each Member State, a file shall be opened in a central, commercial or companies register (‘the register’), for each of the companies registered therein. Member States shall ensure that companies have a unique identifier allowing them to be unequivocally identified in communications between registers through the system of interconnection of central, commercial and companies registers established in accordance with Article 22(2) (‘the system of interconnection of registers’). That unique identifier shall comprise, at least, elements making it possible to identify the Member State of the register, the domestic register of origin and the company number in that register and, where appropriate, features to avoid identification errors. 2. For the purposes of this Article, ‘by electronic means’ shall mean that the information is sent initially and received at its destination by means of electronic equipment for the processing (including digital compression) and storage of data, and entirely transmitted, conveyed and received in a manner to be determined by Member States by wire, by radio, by optical means or by other electromagnetic means. 3. All documents and particulars which are required to be disclosed pursuant to Article 14 shall be kept in the file, or entered in the register; the subject matter of the entries in the register shall in every case appear in the file. Member States shall ensure that the filing by companies, as well as by other persons and bodies required to make or assist in making notifications, of all documents and particulars which are required to be disclosed pursuant to Article 14 is possible by electronic means. In addition, Member States may require all, or certain categories of, companies to file all, or certain types of, such documents and particulars by electronic means. All documents and particulars referred to in Article 14 which are filed, whether by paper means or by electronic means, shall be kept in the file, or entered in the register, in electronic form. To this end, Member States shall ensure that all such documents and particulars which are filed by paper means are converted by the register to electronic form. The documents and particulars referred to in Article 14 that have been filed by paper means up to 31 December 2006, shall not be required to be converted automatically into electronic form by the register. Member States shall nevertheless ensure that they are converted into electronic form by the register upon receipt of an application for disclosure by electronic means submitted in accordance with the measures adopted to give effect to paragraph 4 of this Article. 4. A copy of all or any part of the documents or particulars referred to in Article 14 shall be obtainable on application. Applications may be submitted to the register by paper means or by electronic means as the applicant chooses. Copies as referred to in the first subparagraph shall be obtainable from the register by paper means or by electronic means as the applicant chooses. This shall apply in the case of all documents and particulars already filed. However, Member States may decide that all, or certain types of, documents and particulars filed by paper means on or before a date which may not be later than 31 December 2006 shall not be obtainable from the register by electronic means if a specified period has elapsed between the date of filing and the date of the application submitted to the register. Such specified period may not be less than 10 years. The price of obtaining a copy of the whole or any part of the documents or particulars referred to in Article 14, whether by paper means or by electronic means, shall not exceed the administrative cost thereof. Paper copies supplied to an applicant shall be certified as ‘true copies’, unless the applicant dispenses with such certification. Electronic copies supplied shall not be certified as ‘true copies’, unless the applicant explicitly requests such a certification. Member States shall take the necessary measures to ensure that certification of electronic copies guarantees both the authenticity of their origin and the integrity of their contents, by means at least of an advanced electronic signature within the meaning of Article 2(2) of Directive 1999/93/EC of the European Parliament and of the Council ( 29 ) . 5. Disclosure of the documents and particulars referred to in paragraph 3 shall be effected by publication in the national gazette designated for that purpose by the Member State, either of the full text or of a partial text, or by means of a reference to the document which has been deposited in the file or entered in the register. The national gazette designated for that purpose may be kept in electronic form. Member States may decide to replace publication in the national gazette with equally effective means, which shall entail at least the use of a system whereby the information disclosed can be accessed in chronological order through a central electronic platform. 6. The documents and particulars may be relied on by the company as against third parties only after they have been disclosed in accordance with paragraph 5, unless the company proves that the third parties had knowledge thereof. However, with regard to transactions taking place before the sixteenth day following the disclosure, the documents and particulars shall not be relied on as against third parties who prove that it was impossible for them to have had knowledge thereof. 7. Member States shall take the necessary measures to avoid any discrepancy between what is disclosed in accordance with paragraph 5 and what appears in the register or file. However, in cases of discrepancy, the text disclosed in accordance with paragraph 5 may not be relied on as against third parties; such third parties may nevertheless rely thereon, unless the company proves that they had knowledge of the texts deposited in the file or entered in the register. Third parties may, moreover, always rely on any documents and particulars in respect of which the disclosure formalities have not yet been completed, save where non-disclosure causes them not to have effect.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The EU economy needs healthy and flourishing companies which can easily operate in the Single Market. Such companies play a crucial role in promoting economic growth, creating jobs and attracting investment in the European Union. They help to deliver greater economic as well as social value for society at large. To achieve this end, companies need to operate in a legal and administrative environment which is both conducive to growth and adapted to face the new economic and social challenges of a globalised and digital world, while pursuing also other legitimate public interests such as the protection of employees, creditors and minority shareholders and providing authorities with all necessary safeguards to combat fraud or abuse. It is with this objective that the Commission is putting forward this proposal, to gether with the proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2017/1132 1 as regards the use of digital tools and processes in company law - a comprehensive set of measures for fair, enabling and modern compa ny law rules in the EU. The freedom of establishment plays a crucial role in the development of the Single Market as it allows corporate entities to pursue economic activities in other Member States on a stable basis. In order to foster the cross-border mobility of companies in the EU, it is essential to take into account their needs and characteristics. There are around 24 million companies in the EU, out of which approximately 80% are limited liability companies. Around 98-99% of limited liability companies are SMEs. However, in practice the exercise of the freedom of establishment by companies remains difficult. One of the reasons for these difficulties is that company law is not sufficiently adapted to cross-border mobility in the EU: it does not offer companies optimal conditions in terms of a clear, predictable and suitable legal framework which could lead to enhanced economic activity, in particular for SMEs as recognised by the 2015 Single Market Strategy 2 . Corporate restructurings and transformations such as cross-border conversions, mergers and divisions, are part of companies' life-cycle and represent a natural way for companies to grow, adapt to a changing environment and explore opportunities in new markets. At the same time, they also entail consequences for companies' stakeholders, in particular for employees, creditors and shareholders. Therefore, it is essential that the protection of stakeholders keeps pace with the ever-growing trans-nationalisation of the corporate world. However, today the legal uncertainty, partial inadequacy and also the lack of rules governing certain cross-border operations of companies means that there is no clear framework to ensure effective protection of these stakeholders. In this situation, the protection offered to stakeholders may therefore be ineffective or insufficient. The cross-border operations of companies can also be facilitated by a legal environment that creates trust in the Single Market by providing for safeguards against abuse. Therefore, it is important to unleash the potential of the Single Market by breaking down barriers to cross-border trade, facilitating access to markets, increasing confidence and stimulating competition while offering effective and proportionate protection to stakeholders. The objective of this proposal is two-fold: provide specific and comprehensive procedures for cross-border conversions, divisions and mergers to foster cross-border mobility in the EU while, at the same time, offering company stakeholders adequate protection in order to safeguard the fairness of the Single Market. Such action forms part of creating a deeper and fairer Single Market, which is one of the priorities of the current Commission. Cross-border conversions A cross-border conversion offers an efficient solution for companies that wish to move to another Member State without losing their legal personality or having to re-negotiate their business contracts. A conversion is particularly attractive for small companies that do not have enough financial resour ces to search for expensive legal advice and conduct a cross-border merger. 3 This reasoning applies in particular to cross-border conversions against the background of the recent jurisprudence of the European Court of Justice. The Court of Justice of the E uropean Union (ECJ) has considered that the freedom of establishment enshrined in Article 49 TFEU entails the right, for companies established in a Member State, to transfer their seat to another Member State through a cross-border conversion without losin g their legal personality. 4 In particular in its recent judgement Polbud 5 the ECJ confirmed the right of companies to carry out cross-border conversions on the basis of the freedom of establishment. The ECJ held that the freedom of establishment is applic able when the registered office alone, without the real head office, is transferred from one Member State to another if the Member State of new incorporation accepts the registration of a company even without the exercise of an economic activity there: in that case Article 49 TFEU does not require such an economic activity as a precondition for its applicability. 6 The ECJ also recalled that, in the absence of harmonisation, Member States are competent to decide the connecting factor of a company to its nati onal order and thus apply their own incorporation requirements to incoming companies. 7 The ECJ further recalled its previous jurisprudence whereby the fact that either the registered office or real head office of a company was established in accordance wit h the legislation of a Member State for the purpose of enjoying the benefit of more favourable legislation does not, in itself, constitute abuse. In Polbud , it was ruled that a national rule which imposes the winding-up prerequisite of cross-border transfe r of a company is an unjustified and disproportionate restriction and thus unlawful. 8 The Polbud judgement clarified the context for cross-border conversions. But the ECJ, being a judiciary organ, may not create any procedure for making such conversions possible or set out the related substantive conditions. In the absence of EU harmonisation on cross-border conversions, national legislation may still set out rules for the procedure to be followed and for the protection of minority shareholders, creditors or workers or for the fight against tax-related or other abuses in case of cross-border company conversion. However, it is necessary to assess case-by-case whether such rules comply with EU law and, in particular, with the right of establishment. This leads to an unsatisfactory situation in terms of legal certainty, which negatively affects companies, stakeholders and Member States. Currently, companies wishing to move their registered offices cross-border need to rely on Member States' laws. Such laws, where they exist, are often incompatible or difficult to combine with each other. Moreover, more than half of the Member States do not provide any specific rules allowing for cross-border conversions. SMEs are in particular negatively impacted since often they lack resources to perform cross-border procedures through costly and complicated alternative methods. This also means that the protection of stakeholders such as employees, creditors or minority shareholders is often ineffective or insufficient due to the lack of, overlapping or contradictory rules. As regards employee protection, in the absence of harmonised safeguards for employee participation rights, companies might use a cross-border conversion and the lack of relevant safeguards for employee participation rights, when moving to another Member State, to lower the level of participation or abandon it. Furthermore, the absence of harmonised rules may also lead to increased use of letterbox companies for fraudulent purposes, allowing for instance, in most serious cases, organised crime organisations to hide and obscure the beneficial ownership of companies to launder proceeds of crime. Therefore, the EU legislator needs to step in and provide for rules on cross-border conversion with adequate and proporti onate safeguards for employees, creditors and shareholders to create a dynamic and fair Single Market. The European Parliament 9 has already made calls for it. In particular, it is important that w orkers or their representatives are involved in the procedur e , in line with the 8 th principle of the Pillar of European Social Rights: notably, they should be informed and consulted in good time on matters relevant to them in the context of companies' cross-border conversions . The mobility of companies must go hand in hand with the protection of national social and labour law prerogatives. In light of the foregoing considerations, the main objectives of the harmonised rules for cross-border conversions are two-fold: - enabling companies, particularly micro and small, to convert cross-border in an orderly, efficient and effective manner; - protecting the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. The proposal would enable companies to convert cross-border by changing their legal form of one Member State into a similar legal form of another Member State. This should ensure that companies keep their legal personality throughout the process without the need to dissolve or liquidate in the departure Member State, and form a new entity in the destination Member State. The objective is to provide a specific, structured and multi-layered procedure for cross-border conversions which ensures a scrutiny of the legality of the cross-border conversion firstly by the competent authority of the departure Member State and secondly by the destination Member State in the light of all relevant facts and information. A crucial element of the procedure is that it would prevent a cross-border conversion where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. The first step in the procedure would be the preparation of the draft terms of the cross-border conversion and two targeted reports addressed to shareholders and employees on the implications that the cross-border conversion will have. In addition, medium size and large companies would need to apply to the competent authority for the appointment of an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company is to take a decision at the general meeting on whether to pursue the cross-border conversion. That decision, together with the relevant information and documents, would then be submitted to the competent national authority of the Member State of departure which is responsible to decide whether to issue a pre-conversion certificate or not. The scrutiny conducted by that authority would consist of two possible phases: during the first phase, which is limited to one month, the competent authority would examine whether the cross-border conversion is lawful. The authority would determine if all conditions for the cross-border conversion laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the conversion at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. During this phase, the authority would also determine whether there is an artificial arrangement. If at the end of the 1-month period laid down for the first phase of investigation the authority has no objections, it would issue a pre-conversion certificate. If at the end of 1 month it is certain that the cross-border conversion is unlawful, it would refuse to grant a pre-conversion certificate. Alternatively, if at the end of the 1-month period it has serious concerns that the conversion may be unlawful, it would inform the company that it will carry out an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months. If after such scrutiny, the pre-conversion certificate is issued, it would be transmitted without delay to the competent authority of the Member State of destination. Then, the Member State of destination would carry out a scrutiny as regards that part of the procedure which is governed by the law of the destination Member State. The competent authority of the destination Member State shall ensure that the converted company complies with provisions of its national law on the incorporation of companies (for example, whether the company has a real seat in its territory) and, where appropriate, that arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, a company would be registered in the register of a Member State of destination and de-registered in the register of a Member State of departure. The conversion shall then become legally effective. All contacts between the registers should be done via the system of interconnection of business registers (BRIS). Cross-border mergers A company may also wish to exercise their freedom of establishment and thereafter benefit from the opportunities offered by the Single Market by carrying out a cross-border merger. Companies may merge cross-border for various reasons including group reorganisations, cutting organisational costs as well as business-oriented considerations in order to enjoy greater returns to scale, consolidated branding, or other synergies between different business activities. The introduction of the Cross-Border Merger Directive 10 laid down a harmonised procedure at EU level for limited liability companies. It led to a substantial increase in cross-border merger activity in the EU and EEA. The number o f cross-border mergers rose by 173% between 2008 and 2012, which indicates that the procedure set up by the Directive substantially enhanced cross-border activity. Stakeholders (such as law firms, business registers and trade unions) interviewed for the 20 13 study on the application of the Directive welcomed the new procedures, the procedural simplification and reported lower costs and shorter timeframes thanks to the harmonised framework. However, despite the overall positive assessment, the evaluation 11 of the functioning of the Cross-Border Merger Directive identified certain problems which impede the full effectiveness and efficiency of the existing rules. The 2015 Single Market Strategy 12 mentioned uncertainties over company law as one of the obstacle s that SMEs complain about in the Single Market and announced that the Commission would " examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". The European Parliament stressed the positive effects of the Directive which has facilitated cross-border mergers between limited liability companies in the European Union and reduced the associated costs and administrative procedures 13 . However, the Europe an Parliament also noted the necessity to revise it in order to improve its functioning 14 . The main identified obstacles concern the lack of harmonisation of substantive rules in particular for creditor protection and minority shareholder protection as well as the lack of fast track (i.e. simplified procedures for less "complex" mergers). In addition, it was observed that the cross-border merger procedure does not sufficiently integrate digital tools and processes (e.g. as regards submitting the documents to public authorities or sharing those between them). It has also been criticised that employees are not sufficiently informed about the details and implications of a cross-border merger. These inefficiencies were confirmed by stakeholders throughout the consultation process. Concerning the protection of creditors and minority shareholders, the existing rules on cross-border mergers lay down minimum, mainly procedural rules and leave the substantive protection to national laws. Therefore, the differences between Member States laws persist. For example, the Directive only lays down that creditors shall be protected subject to national rules, without further specifications. Similarly, the Directive lays down some rules concerning shareholders in general (e.g. information via the draft merger terms, expert reports, voting during the general meetings) but leaves it to Member States to decide whether to introduce further protection for minority shareholders. As to the employee participation on board level, the existing rules set out a comprehensive framework. However, the rules do not require merging companies to provide any specific and comprehensive information about a cross-border merger to the employees. Currently, the situation of employees is only considered in a general manner in the management report addressed predominantly to shareholders. As to simplified procedures, the current rules offer limited possibilities. For example, the rules allow waiving an independent expert report if all shareholders agree and do not require an expert report or the approval by the general meeting in case of a merger between a parent company and its wholly-owned subsidiary. This proposal aims to address these shortcomings. It provides harmonised rules for protection of creditors and shareholders. The company would need to provide the envisaged protection of creditors and shareholders in the draft terms of the cross-border conversion. The creditors who would be dissatisfied with the protection offered, may apply to the appropriate administrative or judicial authority for adequate safeguards. Creditors of the merging companies should be presumed not to be prejudiced by a cross-border merger, if an independent expert assessed their situation and considered no prejudice or creditors were offered a right to payment, either against a third party guarantor, or against the company resulting from the merger. Member States may still apply their laws concerning the protection of payment of taxes or social security contributions, if such rules are different to the protection offered by this proposal. Shareholders who did not vote for the cross-border mergers or have no voting rights would have the right to exit the company (dispose of their shares) and receive the adequate compensation. Moreover, Member States should also ensure that shareholders of the merging companies who did not oppose the cross-border merger, but who considered that the proposed share-exchange ratio was inadequate may challenge that ratio set out in the common draft terms of the cross-border merger before a national court. In addition, the proposed rules ensure that employees will be duly informed about the implications of the planned cross-border merger on employees. The proposal also provides for use of digital tools and procedures throughout the cross-border merger procedure as well as for the exchange of the relevant information through the interconnection of business registers. Finally, where possible, the proposal introduces further possibilities for simplified procedures. Cross-border divisions A company may also wish to exercise their freedom of establishment by carrying out a cross-border division. In a similar manner to cross-border conversions and mergers, cross-border divisions offer a way for companies to chan ge or simplify their organisational structure, adapt to changing market conditions and realise new business opportunities in another Member State. This was confirmed by respondents to the 2015 consultation on cross-border mergers and division 15 . However, th e current situation concerning cross-border divisions across the EU Member States also provides a very fragmented picture. There is no harmonised legal framework for cross-border divisions of companies, although divisions also play an important role in the economic environment of Member States. The current EU legal framework provides rules only for cross-border mergers of companies, while cross-border divisions are subject to national rules if such rules exist. Today only less than half of the Member States have national rules on cross-border divisions of companies. In the absence of a reliable legal framework for cross-border divisions, companies have difficulties to access markets in other Member States and often need to find costly alternatives to direct procedures. Different national requirements make it difficult to structure the cross-border operations and render it more complex and costly. Even when Member States allow companies to divide cross-border, the relevant national provisions are often divergent or even incompatible. In a number of Member States carrying out a direct cross-border division is not possible. The legal uncertainty and lack or complexity of rules for cross-border mobility of companies also means that there is no clear framework to ensure effective protection of stakeholders. This may even lead to a situation whereby the freedom of establishment could be abused by some companies. Thus, it is crucial to create a legal framework that ensures a fair balance between the need to provide companies a favourable business environment in the EU and the need at the same time to protect legitimate interests of stakeholders. The 2015 Single Market Strategy 16 mentioned uncertainties over company law as one of the obstacles that SMEs complain about in the Single Market and announced that the Commission " examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". This part of the proposal aims to introduce a new legal framework regulating cross-border divisions. Its main objective is to address matters related to cross-border mobility by making it easier for any limited liability company to be able to divide cross-border. The provisions relating to cross-border divisions are inspired by the existing framework of the cross-border merger directive as well as the existing rules for domestic divisions. The rules are adapted to cater for a situation where a company is split instead of where one or more companies transfer all their assets and liabilities to another company. At the same time, the objectives of the harmonised rules on cross-border divisions remain similar to cross-border conversions: - enable companies to divide cross-border in an orderly, efficient and effective manner; - protect the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. Given the similar risks inherent to cross-border divisions as to cross-border conversions, the structured and multi-layered procedure as proposed for conversions would also be required for divisions. Such procedure would ensure the scrutiny of legality of the cross-border division by the competent authority of the company being divided and by the authorities of the recipient companies in the light of all relevant facts and information. As in conversions, a crucial element of the procedure would be preventing a cross-border division where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. Given the complexity of dealing with risks of abuse in a situation where a company being divided transfers assets and liabilities to existing companies in different Member States, it was decided to regulate a situation where new companies are created in a cross-border division and not to regulate at this stage the cross-border division by acquisition, i.e. the situation where a company transfers assets and liabilities to more than one existing company. In a domestic context (where such situations are addressed in the current rules), such a procedure involves the examination of the protection of interests of stakeholders in one Member State, whereas in the cross-border context, it could necessitate the involvement of many authorities from different Member States. Whether to also include cross-border divisions by acquisition into the scope of the directive could be evaluated once first experiences with the new rules on cross-border divisions have been gained. Similarly to cross-border conversions, the first step in the procedure would be the preparation of the draft terms of the cross-border division and two targeted reports addressed to shareholders and employees on the implications that the cross-border division will have for them. In addition, medium size and big companies would need to apply to the competent authority to appoint an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse as referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company being divided is to take a decision at the general meeting on whether to pursue the cross-border division. This decision, together with the relevant information and documents, would then be submitted to the competent authority of the Member State of the dividing company which is responsible to decide whether to issue a pre-division certificate or not. The scrutiny conducted by that authority would be divided into two phases: one being mandatory and the other one being optional. In the first phase, which is limited to one month, the competent authority would examine whether the cross-border division is lawful. The authority would determine if all conditions for the cross-border division laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the cross-border division at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. It would also determine whether there is an artificial arrangement being created which is aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. If at the end of a 1-month period, the authority has no objections, it would issue a pre-division certificate; if it is certain that the cross-border division is unlawful, it would adopt a decision refusing to grant a pre-division certificate; or if it has serious concerns that the division may be unlawful, it would inform the company being divided that it will carry out an in-depth investigation with a view to performing an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months from the start of the in-depth investigation. If after such scrutiny, the pre-division certificate is issued, it would be transmitted without delay to the competent authorities of the Member States of the recipient companies. Then, the competent authorities would carry out a scrutiny as regards that part of the procedure which is governed by their respective laws. The competent authorities of the Member States of the recipient companies must ensure that the companies comply with provisions of their national laws on the incorporation of companies where appropriate (for example, whether the company has a real seat in its territory). They should also check whether the arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, the division would be registered and recorded in all relevant business registers. All contacts between the registers should be done via the system of interconnection of business registers (BRIS).
Revised version (Article 16 Disclosure in the register):
1. In each Member State, a file shall be opened in a central, commercial or companies register (‘the register’), for each of the companies registered therein. Member States shall ensure that companies have a European unique identifier (‘EUID’), referred to in point (8) of the Annex to Commission Implementing Regulation (EU) 2015/884CCC ( 5 ), allowing them to be unequivocally identified in communications between registers through the system of interconnection of registers established in accordance with Article 22 (‘the system of interconnection of registers’). That unique identifier shall comprise, at least, elements making it possible to identify the Member State of the register, the domestic register of origin and the company number in that register and, where appropriate, features to avoid identification errors. 2. All documents and information that are required to be disclosed pursuant to Article 14 shall be kept in the file referred to in paragraph 1 of this Article, or entered directly in the register, and the subject matter of the entries in the register shall be recorded in the file. All documents and information referred to in Article 14, irrespective of the means by which they are filed, shall be kept in the file in the register or entered directly into it in electronic form. Member States shall ensure that all documents and information that are filed by paper means are converted by the register to electronic form as quickly as possible. Member States shall ensure that documents and information referred to in Article 14 that were filed by paper means before 31 December 2006 are converted into electronic form by the register upon receipt of an application for disclosure by electronic means. 3. Member States shall ensure that the disclosure of the documents and information referred to in Article 14 is effected by making them publicly available in the register. In addition, Member States may also require that some or all of those documents and information are published in a national gazette designated for that purpose, or by equally effective means. Those means shall entail at least the use of a system whereby the documents or information published can be accessed in chronological order through a central electronic platform. In such cases, the register shall ensure that those documents and information are sent electronically by the register to the national gazette or to a central electronic platform. 4. Member States shall take the necessary measures to avoid any discrepancy between what is in the register and in the file. Member States that require the publication of documents and information in a national gazette or on a central electronic platform shall take the necessary measures to avoid any discrepancy between what is disclosed in accordance with paragraph 3 and what is published in the gazette or on the platform. In cases of any discrepancies under this Article, the documents and information made available in the register shall prevail. 5. The documents and information referred to in Article 14 may be relied on by the company as against third parties only after they have been disclosed in accordance with paragraph 3 of this Article, unless the company proves that the third parties had knowledge thereof. However, with regard to transactions taking place before the sixteenth day following the disclosure, the documents and information shall not be relied on as against third parties who prove that it was impossible for them to have had knowledge thereof. Third parties may always rely on any documents and information in respect of which the disclosure formalities have not yet been completed, save where non-disclosure causes such documents or information to have no effect. 6. Member States shall ensure that all documents and information submitted as part of the formation of a company, the registration of a branch, or a filing by a company or a branch, is stored by the registers in a machine-readable and searchable format or as structured data;
Article 17 Up-to-date information on national law with regard to the rights of third parties
1. Member States shall ensure that up-to-date information is made available explaining the provisions of national law pursuant to which third parties may rely on particulars and each type of document referred to in Article 14, in accordance with Article 16(5), (6) and (7). 2. Member States shall provide the information required for publication on the European e-Justice portal (‘the portal’) in accordance with the portal's rules and technical requirements. 3. The Commission shall publish that information on the portal in all the official languages of the Union.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The EU economy needs healthy and flourishing companies which can easily operate in the Single Market. Such companies play a crucial role in promoting economic growth, creating jobs and attracting investment in the European Union. They help to deliver greater economic as well as social value for society at large. To achieve this end, companies need to operate in a legal and administrative environment which is both conducive to growth and adapted to face the new economic and social challenges of a globalised and digital world, while pursuing also other legitimate public interests such as the protection of employees, creditors and minority shareholders and providing authorities with all necessary safeguards to combat fraud or abuse. It is with this objective that the Commission is putting forward this proposal, to gether with the proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2017/1132 1 as regards the use of digital tools and processes in company law - a comprehensive set of measures for fair, enabling and modern compa ny law rules in the EU. The freedom of establishment plays a crucial role in the development of the Single Market as it allows corporate entities to pursue economic activities in other Member States on a stable basis. In order to foster the cross-border mobility of companies in the EU, it is essential to take into account their needs and characteristics. There are around 24 million companies in the EU, out of which approximately 80% are limited liability companies. Around 98-99% of limited liability companies are SMEs. However, in practice the exercise of the freedom of establishment by companies remains difficult. One of the reasons for these difficulties is that company law is not sufficiently adapted to cross-border mobility in the EU: it does not offer companies optimal conditions in terms of a clear, predictable and suitable legal framework which could lead to enhanced economic activity, in particular for SMEs as recognised by the 2015 Single Market Strategy 2 . Corporate restructurings and transformations such as cross-border conversions, mergers and divisions, are part of companies' life-cycle and represent a natural way for companies to grow, adapt to a changing environment and explore opportunities in new markets. At the same time, they also entail consequences for companies' stakeholders, in particular for employees, creditors and shareholders. Therefore, it is essential that the protection of stakeholders keeps pace with the ever-growing trans-nationalisation of the corporate world. However, today the legal uncertainty, partial inadequacy and also the lack of rules governing certain cross-border operations of companies means that there is no clear framework to ensure effective protection of these stakeholders. In this situation, the protection offered to stakeholders may therefore be ineffective or insufficient. The cross-border operations of companies can also be facilitated by a legal environment that creates trust in the Single Market by providing for safeguards against abuse. Therefore, it is important to unleash the potential of the Single Market by breaking down barriers to cross-border trade, facilitating access to markets, increasing confidence and stimulating competition while offering effective and proportionate protection to stakeholders. The objective of this proposal is two-fold: provide specific and comprehensive procedures for cross-border conversions, divisions and mergers to foster cross-border mobility in the EU while, at the same time, offering company stakeholders adequate protection in order to safeguard the fairness of the Single Market. Such action forms part of creating a deeper and fairer Single Market, which is one of the priorities of the current Commission. Cross-border conversions A cross-border conversion offers an efficient solution for companies that wish to move to another Member State without losing their legal personality or having to re-negotiate their business contracts. A conversion is particularly attractive for small companies that do not have enough financial resour ces to search for expensive legal advice and conduct a cross-border merger. 3 This reasoning applies in particular to cross-border conversions against the background of the recent jurisprudence of the European Court of Justice. The Court of Justice of the E uropean Union (ECJ) has considered that the freedom of establishment enshrined in Article 49 TFEU entails the right, for companies established in a Member State, to transfer their seat to another Member State through a cross-border conversion without losin g their legal personality. 4 In particular in its recent judgement Polbud 5 the ECJ confirmed the right of companies to carry out cross-border conversions on the basis of the freedom of establishment. The ECJ held that the freedom of establishment is applic able when the registered office alone, without the real head office, is transferred from one Member State to another if the Member State of new incorporation accepts the registration of a company even without the exercise of an economic activity there: in that case Article 49 TFEU does not require such an economic activity as a precondition for its applicability. 6 The ECJ also recalled that, in the absence of harmonisation, Member States are competent to decide the connecting factor of a company to its nati onal order and thus apply their own incorporation requirements to incoming companies. 7 The ECJ further recalled its previous jurisprudence whereby the fact that either the registered office or real head office of a company was established in accordance wit h the legislation of a Member State for the purpose of enjoying the benefit of more favourable legislation does not, in itself, constitute abuse. In Polbud , it was ruled that a national rule which imposes the winding-up prerequisite of cross-border transfe r of a company is an unjustified and disproportionate restriction and thus unlawful. 8 The Polbud judgement clarified the context for cross-border conversions. But the ECJ, being a judiciary organ, may not create any procedure for making such conversions possible or set out the related substantive conditions. In the absence of EU harmonisation on cross-border conversions, national legislation may still set out rules for the procedure to be followed and for the protection of minority shareholders, creditors or workers or for the fight against tax-related or other abuses in case of cross-border company conversion. However, it is necessary to assess case-by-case whether such rules comply with EU law and, in particular, with the right of establishment. This leads to an unsatisfactory situation in terms of legal certainty, which negatively affects companies, stakeholders and Member States. Currently, companies wishing to move their registered offices cross-border need to rely on Member States' laws. Such laws, where they exist, are often incompatible or difficult to combine with each other. Moreover, more than half of the Member States do not provide any specific rules allowing for cross-border conversions. SMEs are in particular negatively impacted since often they lack resources to perform cross-border procedures through costly and complicated alternative methods. This also means that the protection of stakeholders such as employees, creditors or minority shareholders is often ineffective or insufficient due to the lack of, overlapping or contradictory rules. As regards employee protection, in the absence of harmonised safeguards for employee participation rights, companies might use a cross-border conversion and the lack of relevant safeguards for employee participation rights, when moving to another Member State, to lower the level of participation or abandon it. Furthermore, the absence of harmonised rules may also lead to increased use of letterbox companies for fraudulent purposes, allowing for instance, in most serious cases, organised crime organisations to hide and obscure the beneficial ownership of companies to launder proceeds of crime. Therefore, the EU legislator needs to step in and provide for rules on cross-border conversion with adequate and proporti onate safeguards for employees, creditors and shareholders to create a dynamic and fair Single Market. The European Parliament 9 has already made calls for it. In particular, it is important that w orkers or their representatives are involved in the procedur e , in line with the 8 th principle of the Pillar of European Social Rights: notably, they should be informed and consulted in good time on matters relevant to them in the context of companies' cross-border conversions . The mobility of companies must go hand in hand with the protection of national social and labour law prerogatives. In light of the foregoing considerations, the main objectives of the harmonised rules for cross-border conversions are two-fold: - enabling companies, particularly micro and small, to convert cross-border in an orderly, efficient and effective manner; - protecting the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. The proposal would enable companies to convert cross-border by changing their legal form of one Member State into a similar legal form of another Member State. This should ensure that companies keep their legal personality throughout the process without the need to dissolve or liquidate in the departure Member State, and form a new entity in the destination Member State. The objective is to provide a specific, structured and multi-layered procedure for cross-border conversions which ensures a scrutiny of the legality of the cross-border conversion firstly by the competent authority of the departure Member State and secondly by the destination Member State in the light of all relevant facts and information. A crucial element of the procedure is that it would prevent a cross-border conversion where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. The first step in the procedure would be the preparation of the draft terms of the cross-border conversion and two targeted reports addressed to shareholders and employees on the implications that the cross-border conversion will have. In addition, medium size and large companies would need to apply to the competent authority for the appointment of an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company is to take a decision at the general meeting on whether to pursue the cross-border conversion. That decision, together with the relevant information and documents, would then be submitted to the competent national authority of the Member State of departure which is responsible to decide whether to issue a pre-conversion certificate or not. The scrutiny conducted by that authority would consist of two possible phases: during the first phase, which is limited to one month, the competent authority would examine whether the cross-border conversion is lawful. The authority would determine if all conditions for the cross-border conversion laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the conversion at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. During this phase, the authority would also determine whether there is an artificial arrangement. If at the end of the 1-month period laid down for the first phase of investigation the authority has no objections, it would issue a pre-conversion certificate. If at the end of 1 month it is certain that the cross-border conversion is unlawful, it would refuse to grant a pre-conversion certificate. Alternatively, if at the end of the 1-month period it has serious concerns that the conversion may be unlawful, it would inform the company that it will carry out an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months. If after such scrutiny, the pre-conversion certificate is issued, it would be transmitted without delay to the competent authority of the Member State of destination. Then, the Member State of destination would carry out a scrutiny as regards that part of the procedure which is governed by the law of the destination Member State. The competent authority of the destination Member State shall ensure that the converted company complies with provisions of its national law on the incorporation of companies (for example, whether the company has a real seat in its territory) and, where appropriate, that arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, a company would be registered in the register of a Member State of destination and de-registered in the register of a Member State of departure. The conversion shall then become legally effective. All contacts between the registers should be done via the system of interconnection of business registers (BRIS). Cross-border mergers A company may also wish to exercise their freedom of establishment and thereafter benefit from the opportunities offered by the Single Market by carrying out a cross-border merger. Companies may merge cross-border for various reasons including group reorganisations, cutting organisational costs as well as business-oriented considerations in order to enjoy greater returns to scale, consolidated branding, or other synergies between different business activities. The introduction of the Cross-Border Merger Directive 10 laid down a harmonised procedure at EU level for limited liability companies. It led to a substantial increase in cross-border merger activity in the EU and EEA. The number o f cross-border mergers rose by 173% between 2008 and 2012, which indicates that the procedure set up by the Directive substantially enhanced cross-border activity. Stakeholders (such as law firms, business registers and trade unions) interviewed for the 20 13 study on the application of the Directive welcomed the new procedures, the procedural simplification and reported lower costs and shorter timeframes thanks to the harmonised framework. However, despite the overall positive assessment, the evaluation 11 of the functioning of the Cross-Border Merger Directive identified certain problems which impede the full effectiveness and efficiency of the existing rules. The 2015 Single Market Strategy 12 mentioned uncertainties over company law as one of the obstacle s that SMEs complain about in the Single Market and announced that the Commission would " examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". The European Parliament stressed the positive effects of the Directive which has facilitated cross-border mergers between limited liability companies in the European Union and reduced the associated costs and administrative procedures 13 . However, the Europe an Parliament also noted the necessity to revise it in order to improve its functioning 14 . The main identified obstacles concern the lack of harmonisation of substantive rules in particular for creditor protection and minority shareholder protection as well as the lack of fast track (i.e. simplified procedures for less "complex" mergers). In addition, it was observed that the cross-border merger procedure does not sufficiently integrate digital tools and processes (e.g. as regards submitting the documents to public authorities or sharing those between them). It has also been criticised that employees are not sufficiently informed about the details and implications of a cross-border merger. These inefficiencies were confirmed by stakeholders throughout the consultation process. Concerning the protection of creditors and minority shareholders, the existing rules on cross-border mergers lay down minimum, mainly procedural rules and leave the substantive protection to national laws. Therefore, the differences between Member States laws persist. For example, the Directive only lays down that creditors shall be protected subject to national rules, without further specifications. Similarly, the Directive lays down some rules concerning shareholders in general (e.g. information via the draft merger terms, expert reports, voting during the general meetings) but leaves it to Member States to decide whether to introduce further protection for minority shareholders. As to the employee participation on board level, the existing rules set out a comprehensive framework. However, the rules do not require merging companies to provide any specific and comprehensive information about a cross-border merger to the employees. Currently, the situation of employees is only considered in a general manner in the management report addressed predominantly to shareholders. As to simplified procedures, the current rules offer limited possibilities. For example, the rules allow waiving an independent expert report if all shareholders agree and do not require an expert report or the approval by the general meeting in case of a merger between a parent company and its wholly-owned subsidiary. This proposal aims to address these shortcomings. It provides harmonised rules for protection of creditors and shareholders. The company would need to provide the envisaged protection of creditors and shareholders in the draft terms of the cross-border conversion. The creditors who would be dissatisfied with the protection offered, may apply to the appropriate administrative or judicial authority for adequate safeguards. Creditors of the merging companies should be presumed not to be prejudiced by a cross-border merger, if an independent expert assessed their situation and considered no prejudice or creditors were offered a right to payment, either against a third party guarantor, or against the company resulting from the merger. Member States may still apply their laws concerning the protection of payment of taxes or social security contributions, if such rules are different to the protection offered by this proposal. Shareholders who did not vote for the cross-border mergers or have no voting rights would have the right to exit the company (dispose of their shares) and receive the adequate compensation. Moreover, Member States should also ensure that shareholders of the merging companies who did not oppose the cross-border merger, but who considered that the proposed share-exchange ratio was inadequate may challenge that ratio set out in the common draft terms of the cross-border merger before a national court. In addition, the proposed rules ensure that employees will be duly informed about the implications of the planned cross-border merger on employees. The proposal also provides for use of digital tools and procedures throughout the cross-border merger procedure as well as for the exchange of the relevant information through the interconnection of business registers. Finally, where possible, the proposal introduces further possibilities for simplified procedures. Cross-border divisions A company may also wish to exercise their freedom of establishment by carrying out a cross-border division. In a similar manner to cross-border conversions and mergers, cross-border divisions offer a way for companies to chan ge or simplify their organisational structure, adapt to changing market conditions and realise new business opportunities in another Member State. This was confirmed by respondents to the 2015 consultation on cross-border mergers and division 15 . However, th e current situation concerning cross-border divisions across the EU Member States also provides a very fragmented picture. There is no harmonised legal framework for cross-border divisions of companies, although divisions also play an important role in the economic environment of Member States. The current EU legal framework provides rules only for cross-border mergers of companies, while cross-border divisions are subject to national rules if such rules exist. Today only less than half of the Member States have national rules on cross-border divisions of companies. In the absence of a reliable legal framework for cross-border divisions, companies have difficulties to access markets in other Member States and often need to find costly alternatives to direct procedures. Different national requirements make it difficult to structure the cross-border operations and render it more complex and costly. Even when Member States allow companies to divide cross-border, the relevant national provisions are often divergent or even incompatible. In a number of Member States carrying out a direct cross-border division is not possible. The legal uncertainty and lack or complexity of rules for cross-border mobility of companies also means that there is no clear framework to ensure effective protection of stakeholders. This may even lead to a situation whereby the freedom of establishment could be abused by some companies. Thus, it is crucial to create a legal framework that ensures a fair balance between the need to provide companies a favourable business environment in the EU and the need at the same time to protect legitimate interests of stakeholders. The 2015 Single Market Strategy 16 mentioned uncertainties over company law as one of the obstacles that SMEs complain about in the Single Market and announced that the Commission " examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". This part of the proposal aims to introduce a new legal framework regulating cross-border divisions. Its main objective is to address matters related to cross-border mobility by making it easier for any limited liability company to be able to divide cross-border. The provisions relating to cross-border divisions are inspired by the existing framework of the cross-border merger directive as well as the existing rules for domestic divisions. The rules are adapted to cater for a situation where a company is split instead of where one or more companies transfer all their assets and liabilities to another company. At the same time, the objectives of the harmonised rules on cross-border divisions remain similar to cross-border conversions: - enable companies to divide cross-border in an orderly, efficient and effective manner; - protect the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. Given the similar risks inherent to cross-border divisions as to cross-border conversions, the structured and multi-layered procedure as proposed for conversions would also be required for divisions. Such procedure would ensure the scrutiny of legality of the cross-border division by the competent authority of the company being divided and by the authorities of the recipient companies in the light of all relevant facts and information. As in conversions, a crucial element of the procedure would be preventing a cross-border division where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. Given the complexity of dealing with risks of abuse in a situation where a company being divided transfers assets and liabilities to existing companies in different Member States, it was decided to regulate a situation where new companies are created in a cross-border division and not to regulate at this stage the cross-border division by acquisition, i.e. the situation where a company transfers assets and liabilities to more than one existing company. In a domestic context (where such situations are addressed in the current rules), such a procedure involves the examination of the protection of interests of stakeholders in one Member State, whereas in the cross-border context, it could necessitate the involvement of many authorities from different Member States. Whether to also include cross-border divisions by acquisition into the scope of the directive could be evaluated once first experiences with the new rules on cross-border divisions have been gained. Similarly to cross-border conversions, the first step in the procedure would be the preparation of the draft terms of the cross-border division and two targeted reports addressed to shareholders and employees on the implications that the cross-border division will have for them. In addition, medium size and big companies would need to apply to the competent authority to appoint an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse as referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company being divided is to take a decision at the general meeting on whether to pursue the cross-border division. This decision, together with the relevant information and documents, would then be submitted to the competent authority of the Member State of the dividing company which is responsible to decide whether to issue a pre-division certificate or not. The scrutiny conducted by that authority would be divided into two phases: one being mandatory and the other one being optional. In the first phase, which is limited to one month, the competent authority would examine whether the cross-border division is lawful. The authority would determine if all conditions for the cross-border division laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the cross-border division at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. It would also determine whether there is an artificial arrangement being created which is aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. If at the end of a 1-month period, the authority has no objections, it would issue a pre-division certificate; if it is certain that the cross-border division is unlawful, it would adopt a decision refusing to grant a pre-division certificate; or if it has serious concerns that the division may be unlawful, it would inform the company being divided that it will carry out an in-depth investigation with a view to performing an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months from the start of the in-depth investigation. If after such scrutiny, the pre-division certificate is issued, it would be transmitted without delay to the competent authorities of the Member States of the recipient companies. Then, the competent authorities would carry out a scrutiny as regards that part of the procedure which is governed by their respective laws. The competent authorities of the Member States of the recipient companies must ensure that the companies comply with provisions of their national laws on the incorporation of companies where appropriate (for example, whether the company has a real seat in its territory). They should also check whether the arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, the division would be registered and recorded in all relevant business registers. All contacts between the registers should be done via the system of interconnection of business registers (BRIS).
Revised version (Article 17 Up-to-date information on national law with regard to the rights of third parties):
1. Member States shall ensure that up-to-date information is made available explaining the provisions of national law pursuant to which third parties may rely on information and each type of document referred to in Article 14, in accordance with Article 16(3), (4) and (5). 2. Member States shall provide the information required for publication on the European e-Justice portal (‘the portal’) in accordance with the portal's rules and technical requirements. 3. The Commission shall publish that information on the portal in all the official languages of the Union.
Article 18 Availability of electronic copies of documents and particulars
1. Electronic copies of the documents and particulars referred to in Article 14 shall also be made publicly available through the system of interconnection of registers. 2. Member States shall ensure that the documents and particulars referred to in Article 14 are available through the system of interconnection of registers in a standard message format and accessible by electronic means. Member States shall also ensure that minimum standards for the security of data transmission are respected. 3. The Commission shall provide a search service in all the official languages of the Union in respect of companies registered in the Member States, in order to make available through the portal: (a) the documents and particulars referred to in Article 14; (b) the explanatory labels, available in all the official languages of the Union, listing those particulars and the types of those documents.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The EU economy needs healthy and flourishing companies which can easily operate in the Single Market. Such companies play a crucial role in promoting economic growth, creating jobs and attracting investment in the European Union. They help to deliver greater economic as well as social value for society at large. To achieve this end, companies need to operate in a legal and administrative environment which is both conducive to growth and adapted to face the new economic and social challenges of a globalised and digital world, while pursuing also other legitimate public interests such as the protection of employees, creditors and minority shareholders and providing authorities with all necessary safeguards to combat fraud or abuse. It is with this objective that the Commission is putting forward this proposal, to gether with the proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2017/1132 1 as regards the use of digital tools and processes in company law - a comprehensive set of measures for fair, enabling and modern compa ny law rules in the EU. The freedom of establishment plays a crucial role in the development of the Single Market as it allows corporate entities to pursue economic activities in other Member States on a stable basis. In order to foster the cross-border mobility of companies in the EU, it is essential to take into account their needs and characteristics. There are around 24 million companies in the EU, out of which approximately 80% are limited liability companies. Around 98-99% of limited liability companies are SMEs. However, in practice the exercise of the freedom of establishment by companies remains difficult. One of the reasons for these difficulties is that company law is not sufficiently adapted to cross-border mobility in the EU: it does not offer companies optimal conditions in terms of a clear, predictable and suitable legal framework which could lead to enhanced economic activity, in particular for SMEs as recognised by the 2015 Single Market Strategy 2 . Corporate restructurings and transformations such as cross-border conversions, mergers and divisions, are part of companies' life-cycle and represent a natural way for companies to grow, adapt to a changing environment and explore opportunities in new markets. At the same time, they also entail consequences for companies' stakeholders, in particular for employees, creditors and shareholders. Therefore, it is essential that the protection of stakeholders keeps pace with the ever-growing trans-nationalisation of the corporate world. However, today the legal uncertainty, partial inadequacy and also the lack of rules governing certain cross-border operations of companies means that there is no clear framework to ensure effective protection of these stakeholders. In this situation, the protection offered to stakeholders may therefore be ineffective or insufficient. The cross-border operations of companies can also be facilitated by a legal environment that creates trust in the Single Market by providing for safeguards against abuse. Therefore, it is important to unleash the potential of the Single Market by breaking down barriers to cross-border trade, facilitating access to markets, increasing confidence and stimulating competition while offering effective and proportionate protection to stakeholders. The objective of this proposal is two-fold: provide specific and comprehensive procedures for cross-border conversions, divisions and mergers to foster cross-border mobility in the EU while, at the same time, offering company stakeholders adequate protection in order to safeguard the fairness of the Single Market. Such action forms part of creating a deeper and fairer Single Market, which is one of the priorities of the current Commission. Cross-border conversions A cross-border conversion offers an efficient solution for companies that wish to move to another Member State without losing their legal personality or having to re-negotiate their business contracts. A conversion is particularly attractive for small companies that do not have enough financial resour ces to search for expensive legal advice and conduct a cross-border merger. 3 This reasoning applies in particular to cross-border conversions against the background of the recent jurisprudence of the European Court of Justice. The Court of Justice of the E uropean Union (ECJ) has considered that the freedom of establishment enshrined in Article 49 TFEU entails the right, for companies established in a Member State, to transfer their seat to another Member State through a cross-border conversion without losin g their legal personality. 4 In particular in its recent judgement Polbud 5 the ECJ confirmed the right of companies to carry out cross-border conversions on the basis of the freedom of establishment. The ECJ held that the freedom of establishment is applic able when the registered office alone, without the real head office, is transferred from one Member State to another if the Member State of new incorporation accepts the registration of a company even without the exercise of an economic activity there: in that case Article 49 TFEU does not require such an economic activity as a precondition for its applicability. 6 The ECJ also recalled that, in the absence of harmonisation, Member States are competent to decide the connecting factor of a company to its nati onal order and thus apply their own incorporation requirements to incoming companies. 7 The ECJ further recalled its previous jurisprudence whereby the fact that either the registered office or real head office of a company was established in accordance wit h the legislation of a Member State for the purpose of enjoying the benefit of more favourable legislation does not, in itself, constitute abuse. In Polbud , it was ruled that a national rule which imposes the winding-up prerequisite of cross-border transfe r of a company is an unjustified and disproportionate restriction and thus unlawful. 8 The Polbud judgement clarified the context for cross-border conversions. But the ECJ, being a judiciary organ, may not create any procedure for making such conversions possible or set out the related substantive conditions. In the absence of EU harmonisation on cross-border conversions, national legislation may still set out rules for the procedure to be followed and for the protection of minority shareholders, creditors or workers or for the fight against tax-related or other abuses in case of cross-border company conversion. However, it is necessary to assess case-by-case whether such rules comply with EU law and, in particular, with the right of establishment. This leads to an unsatisfactory situation in terms of legal certainty, which negatively affects companies, stakeholders and Member States. Currently, companies wishing to move their registered offices cross-border need to rely on Member States' laws. Such laws, where they exist, are often incompatible or difficult to combine with each other. Moreover, more than half of the Member States do not provide any specific rules allowing for cross-border conversions. SMEs are in particular negatively impacted since often they lack resources to perform cross-border procedures through costly and complicated alternative methods. This also means that the protection of stakeholders such as employees, creditors or minority shareholders is often ineffective or insufficient due to the lack of, overlapping or contradictory rules. As regards employee protection, in the absence of harmonised safeguards for employee participation rights, companies might use a cross-border conversion and the lack of relevant safeguards for employee participation rights, when moving to another Member State, to lower the level of participation or abandon it. Furthermore, the absence of harmonised rules may also lead to increased use of letterbox companies for fraudulent purposes, allowing for instance, in most serious cases, organised crime organisations to hide and obscure the beneficial ownership of companies to launder proceeds of crime. Therefore, the EU legislator needs to step in and provide for rules on cross-border conversion with adequate and proporti onate safeguards for employees, creditors and shareholders to create a dynamic and fair Single Market. The European Parliament 9 has already made calls for it. In particular, it is important that w orkers or their representatives are involved in the procedur e , in line with the 8 th principle of the Pillar of European Social Rights: notably, they should be informed and consulted in good time on matters relevant to them in the context of companies' cross-border conversions . The mobility of companies must go hand in hand with the protection of national social and labour law prerogatives. In light of the foregoing considerations, the main objectives of the harmonised rules for cross-border conversions are two-fold: - enabling companies, particularly micro and small, to convert cross-border in an orderly, efficient and effective manner; - protecting the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. The proposal would enable companies to convert cross-border by changing their legal form of one Member State into a similar legal form of another Member State. This should ensure that companies keep their legal personality throughout the process without the need to dissolve or liquidate in the departure Member State, and form a new entity in the destination Member State. The objective is to provide a specific, structured and multi-layered procedure for cross-border conversions which ensures a scrutiny of the legality of the cross-border conversion firstly by the competent authority of the departure Member State and secondly by the destination Member State in the light of all relevant facts and information. A crucial element of the procedure is that it would prevent a cross-border conversion where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. The first step in the procedure would be the preparation of the draft terms of the cross-border conversion and two targeted reports addressed to shareholders and employees on the implications that the cross-border conversion will have. In addition, medium size and large companies would need to apply to the competent authority for the appointment of an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company is to take a decision at the general meeting on whether to pursue the cross-border conversion. That decision, together with the relevant information and documents, would then be submitted to the competent national authority of the Member State of departure which is responsible to decide whether to issue a pre-conversion certificate or not. The scrutiny conducted by that authority would consist of two possible phases: during the first phase, which is limited to one month, the competent authority would examine whether the cross-border conversion is lawful. The authority would determine if all conditions for the cross-border conversion laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the conversion at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. During this phase, the authority would also determine whether there is an artificial arrangement. If at the end of the 1-month period laid down for the first phase of investigation the authority has no objections, it would issue a pre-conversion certificate. If at the end of 1 month it is certain that the cross-border conversion is unlawful, it would refuse to grant a pre-conversion certificate. Alternatively, if at the end of the 1-month period it has serious concerns that the conversion may be unlawful, it would inform the company that it will carry out an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months. If after such scrutiny, the pre-conversion certificate is issued, it would be transmitted without delay to the competent authority of the Member State of destination. Then, the Member State of destination would carry out a scrutiny as regards that part of the procedure which is governed by the law of the destination Member State. The competent authority of the destination Member State shall ensure that the converted company complies with provisions of its national law on the incorporation of companies (for example, whether the company has a real seat in its territory) and, where appropriate, that arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, a company would be registered in the register of a Member State of destination and de-registered in the register of a Member State of departure. The conversion shall then become legally effective. All contacts between the registers should be done via the system of interconnection of business registers (BRIS). Cross-border mergers A company may also wish to exercise their freedom of establishment and thereafter benefit from the opportunities offered by the Single Market by carrying out a cross-border merger. Companies may merge cross-border for various reasons including group reorganisations, cutting organisational costs as well as business-oriented considerations in order to enjoy greater returns to scale, consolidated branding, or other synergies between different business activities. The introduction of the Cross-Border Merger Directive 10 laid down a harmonised procedure at EU level for limited liability companies. It led to a substantial increase in cross-border merger activity in the EU and EEA. The number o f cross-border mergers rose by 173% between 2008 and 2012, which indicates that the procedure set up by the Directive substantially enhanced cross-border activity. Stakeholders (such as law firms, business registers and trade unions) interviewed for the 20 13 study on the application of the Directive welcomed the new procedures, the procedural simplification and reported lower costs and shorter timeframes thanks to the harmonised framework. However, despite the overall positive assessment, the evaluation 11 of the functioning of the Cross-Border Merger Directive identified certain problems which impede the full effectiveness and efficiency of the existing rules. The 2015 Single Market Strategy 12 mentioned uncertainties over company law as one of the obstacle s that SMEs complain about in the Single Market and announced that the Commission would " examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". The European Parliament stressed the positive effects of the Directive which has facilitated cross-border mergers between limited liability companies in the European Union and reduced the associated costs and administrative procedures 13 . However, the Europe an Parliament also noted the necessity to revise it in order to improve its functioning 14 . The main identified obstacles concern the lack of harmonisation of substantive rules in particular for creditor protection and minority shareholder protection as well as the lack of fast track (i.e. simplified procedures for less "complex" mergers). In addition, it was observed that the cross-border merger procedure does not sufficiently integrate digital tools and processes (e.g. as regards submitting the documents to public authorities or sharing those between them). It has also been criticised that employees are not sufficiently informed about the details and implications of a cross-border merger. These inefficiencies were confirmed by stakeholders throughout the consultation process. Concerning the protection of creditors and minority shareholders, the existing rules on cross-border mergers lay down minimum, mainly procedural rules and leave the substantive protection to national laws. Therefore, the differences between Member States laws persist. For example, the Directive only lays down that creditors shall be protected subject to national rules, without further specifications. Similarly, the Directive lays down some rules concerning shareholders in general (e.g. information via the draft merger terms, expert reports, voting during the general meetings) but leaves it to Member States to decide whether to introduce further protection for minority shareholders. As to the employee participation on board level, the existing rules set out a comprehensive framework. However, the rules do not require merging companies to provide any specific and comprehensive information about a cross-border merger to the employees. Currently, the situation of employees is only considered in a general manner in the management report addressed predominantly to shareholders. As to simplified procedures, the current rules offer limited possibilities. For example, the rules allow waiving an independent expert report if all shareholders agree and do not require an expert report or the approval by the general meeting in case of a merger between a parent company and its wholly-owned subsidiary. This proposal aims to address these shortcomings. It provides harmonised rules for protection of creditors and shareholders. The company would need to provide the envisaged protection of creditors and shareholders in the draft terms of the cross-border conversion. The creditors who would be dissatisfied with the protection offered, may apply to the appropriate administrative or judicial authority for adequate safeguards. Creditors of the merging companies should be presumed not to be prejudiced by a cross-border merger, if an independent expert assessed their situation and considered no prejudice or creditors were offered a right to payment, either against a third party guarantor, or against the company resulting from the merger. Member States may still apply their laws concerning the protection of payment of taxes or social security contributions, if such rules are different to the protection offered by this proposal. Shareholders who did not vote for the cross-border mergers or have no voting rights would have the right to exit the company (dispose of their shares) and receive the adequate compensation. Moreover, Member States should also ensure that shareholders of the merging companies who did not oppose the cross-border merger, but who considered that the proposed share-exchange ratio was inadequate may challenge that ratio set out in the common draft terms of the cross-border merger before a national court. In addition, the proposed rules ensure that employees will be duly informed about the implications of the planned cross-border merger on employees. The proposal also provides for use of digital tools and procedures throughout the cross-border merger procedure as well as for the exchange of the relevant information through the interconnection of business registers. Finally, where possible, the proposal introduces further possibilities for simplified procedures. Cross-border divisions A company may also wish to exercise their freedom of establishment by carrying out a cross-border division. In a similar manner to cross-border conversions and mergers, cross-border divisions offer a way for companies to chan ge or simplify their organisational structure, adapt to changing market conditions and realise new business opportunities in another Member State. This was confirmed by respondents to the 2015 consultation on cross-border mergers and division 15 . However, th e current situation concerning cross-border divisions across the EU Member States also provides a very fragmented picture. There is no harmonised legal framework for cross-border divisions of companies, although divisions also play an important role in the economic environment of Member States. The current EU legal framework provides rules only for cross-border mergers of companies, while cross-border divisions are subject to national rules if such rules exist. Today only less than half of the Member States have national rules on cross-border divisions of companies. In the absence of a reliable legal framework for cross-border divisions, companies have difficulties to access markets in other Member States and often need to find costly alternatives to direct procedures. Different national requirements make it difficult to structure the cross-border operations and render it more complex and costly. Even when Member States allow companies to divide cross-border, the relevant national provisions are often divergent or even incompatible. In a number of Member States carrying out a direct cross-border division is not possible. The legal uncertainty and lack or complexity of rules for cross-border mobility of companies also means that there is no clear framework to ensure effective protection of stakeholders. This may even lead to a situation whereby the freedom of establishment could be abused by some companies. Thus, it is crucial to create a legal framework that ensures a fair balance between the need to provide companies a favourable business environment in the EU and the need at the same time to protect legitimate interests of stakeholders. The 2015 Single Market Strategy 16 mentioned uncertainties over company law as one of the obstacles that SMEs complain about in the Single Market and announced that the Commission " examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". This part of the proposal aims to introduce a new legal framework regulating cross-border divisions. Its main objective is to address matters related to cross-border mobility by making it easier for any limited liability company to be able to divide cross-border. The provisions relating to cross-border divisions are inspired by the existing framework of the cross-border merger directive as well as the existing rules for domestic divisions. The rules are adapted to cater for a situation where a company is split instead of where one or more companies transfer all their assets and liabilities to another company. At the same time, the objectives of the harmonised rules on cross-border divisions remain similar to cross-border conversions: - enable companies to divide cross-border in an orderly, efficient and effective manner; - protect the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. Given the similar risks inherent to cross-border divisions as to cross-border conversions, the structured and multi-layered procedure as proposed for conversions would also be required for divisions. Such procedure would ensure the scrutiny of legality of the cross-border division by the competent authority of the company being divided and by the authorities of the recipient companies in the light of all relevant facts and information. As in conversions, a crucial element of the procedure would be preventing a cross-border division where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. Given the complexity of dealing with risks of abuse in a situation where a company being divided transfers assets and liabilities to existing companies in different Member States, it was decided to regulate a situation where new companies are created in a cross-border division and not to regulate at this stage the cross-border division by acquisition, i.e. the situation where a company transfers assets and liabilities to more than one existing company. In a domestic context (where such situations are addressed in the current rules), such a procedure involves the examination of the protection of interests of stakeholders in one Member State, whereas in the cross-border context, it could necessitate the involvement of many authorities from different Member States. Whether to also include cross-border divisions by acquisition into the scope of the directive could be evaluated once first experiences with the new rules on cross-border divisions have been gained. Similarly to cross-border conversions, the first step in the procedure would be the preparation of the draft terms of the cross-border division and two targeted reports addressed to shareholders and employees on the implications that the cross-border division will have for them. In addition, medium size and big companies would need to apply to the competent authority to appoint an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse as referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company being divided is to take a decision at the general meeting on whether to pursue the cross-border division. This decision, together with the relevant information and documents, would then be submitted to the competent authority of the Member State of the dividing company which is responsible to decide whether to issue a pre-division certificate or not. The scrutiny conducted by that authority would be divided into two phases: one being mandatory and the other one being optional. In the first phase, which is limited to one month, the competent authority would examine whether the cross-border division is lawful. The authority would determine if all conditions for the cross-border division laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the cross-border division at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. It would also determine whether there is an artificial arrangement being created which is aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. If at the end of a 1-month period, the authority has no objections, it would issue a pre-division certificate; if it is certain that the cross-border division is unlawful, it would adopt a decision refusing to grant a pre-division certificate; or if it has serious concerns that the division may be unlawful, it would inform the company being divided that it will carry out an in-depth investigation with a view to performing an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months from the start of the in-depth investigation. If after such scrutiny, the pre-division certificate is issued, it would be transmitted without delay to the competent authorities of the Member States of the recipient companies. Then, the competent authorities would carry out a scrutiny as regards that part of the procedure which is governed by their respective laws. The competent authorities of the Member States of the recipient companies must ensure that the companies comply with provisions of their national laws on the incorporation of companies where appropriate (for example, whether the company has a real seat in its territory). They should also check whether the arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, the division would be registered and recorded in all relevant business registers. All contacts between the registers should be done via the system of interconnection of business registers (BRIS).
Revised version (Article 18 Availability of electronic copies of documents and particulars):
1. Electronic copies of the documents and information referred to in Article 14 shall also be made publicly available through the system of interconnection of registers. Member States may also make available documents and information referred to in Article 14 for types of companies other than those listed in Annex II. 2. Member States shall ensure that the documents and particulars referred to in Article 14 are available through the system of interconnection of registers in a standard message format and accessible by electronic means. Member States shall also ensure that minimum standards for the security of data transmission are respected. 3. The Commission shall provide a search service in all the official languages of the Union in respect of companies registered in the Member States, in order to make available through the portal: (a) the documents and information referred to in Article 14, including for types of companies other than those listed in Annex II, where such documents are made available by Member States; (b) the explanatory labels, available in all the official languages of the Union, listing those particulars and the types of those documents.