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The European Private Company (SPE)

and the Cartesio case

11 June 2009

Judit Fischer – European Commission, DG Internal Market and Services

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What is the European Private Company (SPE)?

• The SPE is

– a new European legal form,

– designed for SMEs,

– may be set up and run following the same company law rules all over Europe.

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Context

• The proposal for an SPE Statute was adopted on 25 June 2008

• The idea of a European company for SMEs comes primarily from business and continues to be strongly supported – public consultations

• Embraced by the EP – Resolution with recommendations on the SPE in 2007

• It is a part of the Small Business Act for Europe

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What is the problem?

• More than 99% of EU companies are SMEs but only – 8% engage in cross-border trade– 5% have subsidiaries or joint ventures abroad

• Reasons are related to – language barriers and cultural differences– differences in company law, tax and labour systems

• Company law–related costs: setting up and running companies (subsidiaries) following different rules in every MS – administrative costs, cost of expert legal advice, etc.

• Lack of trust in foreign legal forms (esp. EU-12)

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Objectives of the SPE Statute

• Objectives: To reduce costs and to encourage entrepreneurs to do business in other MS

• According to the respondents to public consultations– savings could be up to € 10.000 – 20.000 when setting

up a subsidiary (reduced internal costs, consultant fees, notary fees, no start-up capital) and € 1.000 - 8.000 per year in relation to running the company

– the SPE would provide businesses with a European label

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The SPE Statute

• The main features of the SPE:– its name comes from Latin: Societas Privata Europaea –

no need to translate, European identity– it is designed for SMEs but there is no size limitation– it has legal personality– its shareholders have limited liability– it is a private company – its shares may not be publicly

traded – its registered office and headquarters may be in

different MS - it may transfer its registered office to another MS

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Which law governs the SPE?

• The mandatory provisions of the Regulation govern major company law matters such as the formation and the capital of the SPE or creditor protection

• Annex I lists the matters that shareholders must regulate in the articles of association (e.g. shares, management structure) – contractual freedom

• National law applies to insolvency, tax, labour and when it is specifically required by the Regulation

• Model articles of association – examples for entrepreneurs to facilitate start-up

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Formation of the SPE

• By any individual or legal entity in any MS • Single-member company or multiple shareholders• No cross-border requirement (e.g. shareholders from

different MS)• From scratch, by transformation, merger, division• Same registration procedure as national companies• Online application possible• A single legality check on formation

• Access to information in the BR from any MS

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Capital of the SPE

• Minimum capital requirement: €1 – to facilitate start-up– it has no role in creditor protection– shareholders are the best placed to define the capital

needs of their business• Instead, the assets of the SPE are to be protected

– broad definition of distributions– a balance-sheet test to precede any distribution– shareholders may also require the management to sign

a solvency statement (option)

+ transparency requirements

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Internal organisation of the SPE

• Most important decisions must be taken by the shareholders (e.g. amendments to the articles of association, capital increase or reduction, merger)

• Some by qualified majority (at least 2/3 of the votes)• But no need to hold meetings – decisions may be

taken in writing, by e-mail, etc.• Options for management: an individual director, one-

tier or two-tier board• Supervisory board – optional in two-tier system

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Employee participation

• Employees' participation rights are left to the national law of the MS where the SPE is registered

• The SPE should not be used to circumvent employees' participation rights

• In the case of cross-border operations pre-existing employee participation rights must be protected– Cross-border mergers – Directive 2005/56/EC applies– Transfer of the SPE's registered office to another MS –

obligation to start negotiations on participation rights – if no success, pre-existing rules to be maintained

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Adoption procedure – state of play

• Council: Article 308 – unanimity • Difficulties:

– Lack of cross-border requirement on creation– Minimum legal capital requirement of €1– Rules on employee participation– Seat of the SPE

• Czech Presidency presented a revised compromise proposal and a progress report to the Council

• Incoming Swedish Presidency is expected to reach a political agreement

• European Parliament: consultation procedure– Adopted its report on 10 March

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The Cartesio case

• 16 December 2008 – ECJ delivered its ruling in the Cartesio case

• The facts of the case:– In 2005 the Cartesio Bt. (limited partnership) filed an

application to the competent regional registering court to change the address of its seat to an address in Italy

– The court rejected the application on the following ground: Hungarian law does not allow a company incorporated in Hungary to transfer its seat abroad and remain subject to Hungarian law as its personal law

– Cartesio lodged an appeal against the decision

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The question to the ECJ

• Are the rules of national law that prevent a company from transferring its seat to another MS whilst retaining its status as a company under that national law incompatible with Articles 43 and 48 of the EC Treaty (freedom of establishment)?

• At the time of the case, Hungarian law defined the seat of a company as the place where the company's central administration (headquarters) is situated.

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The findings of the Court

• Seat transfer under Hungarian law would require the winding up of the company and subsequent re-incorporation in the MS of destination.

• Article 48 of the EC Treaty places the three possible connecting factors (the registered office, the central administration or the principle place of business) on equal footing.

• Distinction between two situations: – Seat transfer without a change in the national law

applicable to company form (Cartesio)– Seat transfer with a change in the national law

applicable to company form

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Seat transfer with/without a change in the applicable law

• Seat transfer without a change in the applicable law– MS are free to decide on the connecting factor– MS may prevent a company from transferring its seat

to another MS whilst retaining its status as a company governed by the law of the MS of incorporation

• Seat transfer with a change in the applicable law– MS cannot require the winding up of a company that

wants to relocate to another MS and convert itself into a form governed by the law of the MS of destination, if this is permitted under the law of the latter MS

– Such a barrier would be a restriction of freedom of establishment unless it serves public interest

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Situation in the Member States

• No Community law instrument to govern seat transfer

• Inbound and/or outbound seat transfer (with a change of the applicable law) is allowed in some MS, e.g. ES, LU, CY, IT (outbound)

• Allowing the transfer is under consideration in some MS, e.g. UK, NL, DK, HU, CZ

• Some MS and the EP would like to see a directive on seat transfer – up to the next Commission to decide

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Interconnection of business registers

• E-Justice + end of BRITE project• How to help the enforcement of the company law

directives? (cross-border mergers, seat transfer of the SE, branch disclosure, possibly the SPE)

• By October 2009 DG Internal Market and Services – will present a progress report on the state of play of

the interconnection of business registers– will outline different options for the way forward (EBR,

E-Justice, IMI, possible legislative changes)

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Thank you for your attention.

For more information: http://ec.europa.eu/internal_market/company/index_en.htm