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2. 2 The European Private Company (SPE) and the Cartesio case 11 June 2009 Judit Fischer – European Commission, DG Internal Market and Services

3. 3 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.

4. 4 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

5. 5 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)

6. 6 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

7. 7 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

8. 8 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

9. 9 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

10. 10 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

11. 11 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

12. 12 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

13. 13 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

14. 14 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

15. 15 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.

16. 16 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

17. 17 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

18. 18 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

19. 19 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)

20. 20 Thank you for your attention. For more information: http://ec.europa.eu/internal_market/company/index_en.htm