European Private Company (SPE) and Cartesio Case

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

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