The formation of the corporate law of the European Union (hereinafter – EU) is inseparably linked with the process of harmonization of legislation on legal entities of EU Member States and the creation of new organizational-legal forms of entities that allow companies from different Member States to carry out business in the territory of the EU. Adoption of the company law directives played an important role in the elimination of legal barriers to the stable development of international trade within the European states and the establishment of the Single Market. At the same time, harmonization of company law of EU Member States did not fully address the need for the selection of the form for a new company set by the national law of one of the Member States. So the next step was the development and creation of supranational legal entities which could carry out their activities throughout the EU and obey common rules regulation.

There are three supranational legal entities created – the European Economic Interest Grouping, the European Company and the European Cooperative Society. The existing organizational-legal forms of supranational companies are adapted to large companies. Taking into account that plenty of companies in the EU are small and medium-sized enterprises (hereinafter – SMEs) as well as foundations’ significant role in most areas which are important for European citizens and the economy of the EU, there were initiatives of the creation of new European legal forms both for SMEs and foundations.

The Proposal on the Statute for a European Private Company sought to make the Single Market more accessible to SMEs by providing them with a mechanism that simplifies the expansion of their activities in national market and in other EU Member States. The Proposal on the Statute for a European Foundation aimed to facilitate foundations’ establishment and operation in the Single Market and allowed foundations more efficiently guiding private funds to public benefit purposes on a cross-border basis in the EU. Both proposals ensured the appropriate legal forms with the prominent features of existing supranational legal entities. Furthermore, each proposal had the specificity of regulation of activity of the legal entity and provided entrepreneurs with a number of advantages. The creation of proposals had contributed to the problem of the mobility of SMEs and foundations across the EU. But the problem of new legal forms’ conformity with the status of supranational company was formed. Also it was essential to solve the controversies on key matters related to these new legal entities under EU legislation.

The development and creation of two new proposals for the Statute for a European Private Company and for the Statute for a European Foundation predetermined further interest and appearance of studies and publications on these subjects. Study of the problems of regulation of European Private Company was conducted by the following authors: Teichmann C. (2013) [1], Hirte H. (2013) [1], Zaman D. (2009) [2], Schwarz C.A. (2009) [2]. Amongst the substantial publications concerning the regulation of the European Foundation are works of the following authors: Then V. (2006, 2009) [3, 4], Hopt Klaus J. (2006, 2009) [3, 4], von Hippel T. (2006, 2009) [3, 4], Anheier H.K. (2009) [4]. An important role in the study of foundations belongs to different researches made by European Foundation Centre.

Taking into account successful experience of the creation of supranational legal entities, it was planned to create new organizational-legal forms for SMEs and foundations with legal capacity which have a European origin.

The Proposal for a Council Regulation on the Statute for a European Private Company (hereinafter – SPE) was presented on 25 June 2008 [5].Creation of the Proposal became a serious step towards encouraging additional growth of SMEs in Europe. This Proposal aimed to establish a SPE Statute with limited liability in order to create a simplified legal form of company, which has a European legal capacity. It became a part of the program called the “Small Business Act” created by the Commission to improve access for SMEs to the Single Market and to promote their development in the EU [6].

The Proposal for a Council Regulation on the Statute for a European Foundation (hereinafter – FE) was presented almost four years later – on 8 February 2012 [7]. The Proposal was created in order to solve some key problems. The general problem was connected with the fact that the range of civil and tax rules on national level made foundations’ cross-border operations costly [7]. It should be noted, that foundations in each Member State of the EU carry out its activities based on national laws, without harmonization at EU level. There were also some specific problems, for example, uncertainty about recognition as a public benefit purpose foundation in other Member States of the EU, the costs of pooling and distributing funds on a cross-border basis as well as limited cross-border donations.

The provisions of the proposals ensured that the SPE and the FE were vested with the prominent features of existing supranational legal entities. The first feature was that the appropriate proposal relating to the status of supranational legal entity was directly applicable legal act and vested the supranational legal entity with legal capacity of European origin. Indeed, the regulation was used as the major legal act in the determination of activities of the SPE and the FE. The second feature was the availability of cross-border component in some circumstances for the foundation. Despite the fact that the initial Proposal for the Statute for an SPE had no requirement of cross-border component, later amendments on the Proposal were set up with the requirement of cross-border component. In contrast, the Proposal for the Statute for an FE from the beginning had a cross-border dimension in terms of activities or a statutory objective of carrying out activities in at least two Member States of the EU [7]. The third feature was the ability to change the location within the EU Member States without the need for passing the liquidation procedure of the company in the Member State of the original location. The SPE could transfer its registered office to another Member State of the EU, while maintaining its legal personality and not having to wind-up. The Proposal for the Statute for an SPE did not allow the transfer of the SPE’s registered office during winding-up, liquidation or similar proceedings [2]. This provision ensured the protection of the interests of third parties. The transfer procedure was inspired by the provisions on the transfer of the registered office of Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company [2]. As well as other supranational legal entities the FE could transfer its registered office to another EU Member State. In accordance to the Proposal such transfer should not result in the winding up of the FE or the creation of a new legal entity or affect any right or obligation that existed before the transfer [7].

Apart from the prominent features of existing supranational legal entities the SPE and the FE had specific features of the legal regulation of their establishment and operating activities.

The Proposal for the Statute for an SPE assigned SPE as a limited-liability company which had legal personality and share capital. As the SPE was a private company, the shares of the SPE could not be offered to the public or be publicly traded. The FE was assigned as a separately constituted entity for a public benefit purpose with legal personality and full legal capacity in all Member States of the EU. The public benefit foundation was the only type of foundation which was accepted in every Member State of the EU and in practice public benefit foundation was the most important type of foundation with the exception of Latvia, Estonia and the Netherlands [4]. The Proposal for the Statute for an FE required the establishment of the FE as an alternative legal form for foundations. This legal form would have existed in parallel with domestic foundations and its use would have been voluntary [8].

The minimum capital requirement settled in the Proposal for the Statute for an SPE is 1 euro [9]. Despite traditional approach in plenty of the EU Member States that high minimum of legal capital ensures better protection of creditors, there are some reasonable facts which confirmed substantiation of minimum capital. First, at the moment creditors put their attention on other items, for example, cash flow. Second, large companies or banks starting deals with SMEs ask for personal guarantees from shareholders of SMEs. Third, companies have different capital needs depending on their activity. That is why the question of determination of appropriate capital for all SMEs is very difficult and caused contentions between Member States of the EU. On the other hand, the shareholders of SMEs have to define the capital needs of their business for its development and stability.

In order to become an FE the Proposal for the Statute for an FE laid down certain requirements to minimum founding assets of at least 25,000 euro. On the one hand, such requirement made the FE trustworthy for donors and public authorities and proved the seriousness of its purpose. On the other hand, the requirement of a minimum value of assets should not have made the FE too costly to establish [7]. It should be noted, that the detection of the minimum level of assets required for registration of the FE also faced controversies between different approaches later, for example, some researchers supported the early idea presented by European Foundation Centre to set up the requirement for foundation’s assets of at least 50,000 euro [3].

An SPE might have been created by one or more natural persons and/or legal entities. Therefore, the Proposal for the Statute for an SPE did not have any restriction on the manner of creation of SPE comparing, for example, to the creation of the European Company. Indeed, the European Company may be formed only by at least two legal entities from different EU Member States. It should be noted, that the European Company or another SPE might have also participated in the creation of an SPE. The initial Proposal for the Statute for an SPE provided one of the most significant differences of an SPE comparing to other existing organizational-legal forms of supranational companies, that is, the creation of an SPE was not a subject to a cross-border requirement [5].

An FE might have been created by one or more natural or legal persons or public bodies. In accordance to the Proposal the FE might have been formed by one of four different methods:

1) a testamentary disposition of any natural person;

2) notarial deed or written declaration of any natural and/or legal person(s) or public body(ies) in accordance with the applicable national law;

3) the merger of public benefit purpose entities legally established in one or more Member States of the EU;

4) the conversion of a national public benefit purpose entity legally established in a Member State of the EU into the FE [7].

Registration procedures of the SPE and the FE were based on provisions of the First Company law Directive amended later by Directive 2009/101/EC of the European Parliament and of the Council of 16 September 2009. There were two important features concerning registration of the SPE. First, the Proposal for the Statute for an SPE ensured the possibility to apply for the registration of an SPE by electronic means. Second, the Proposal contained a closed list of documents which the EU Member States registries might have required for the registration of an SPE [5]. For the registration of a FE the national register of Member State of the EU might have required only a closed list of documents. Furthermore, the registries from different Member States of the EU had to assist to each other with regard to the documents of the FE [7].

Another specificity related to the field of finance. The Proposal for the Statute for an SPE provided uniform rules regarding distributions to shareholders from the assets of the SPE. Thus such distribution might have only been made only if after the distribution SPE’s assets had fully covered its liabilities [1]. Regarding the FE it was requirement to ensure its credibility and trustworthiness. It meant that the FE had to keep full and accurate records of all financial transactions and had to ensure auditing of the annual accounts of the foundation in accordance with the national rules adopted pursuant to Directive 2006/43/EC of 17 May 2006 [10].

Since Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company entered into force on 8 October 2004, creation of new proposals is linked with the question of employee participation. In respect that employee participation exists in SMEs only in a few Member States, for example, in Sweden, this question for the SPE was not as important as for the European Company. The only fact that has to be mentioned is that the SPE was subject to the employee participation rules of Member State of the EU where it had its registered office. The Proposal for the Statute for an FE did not contain rules on employee participation in the board, mainly because board-level participation in public benefit purpose entities exists only in some EU Member States.

Despite different features of the legal regulation of establishment and operating activities of the SPE and the FE, both legal forms had one important common feature. The SPE should have been governed primarily by the directly applicable provisions of the Regulation. Obviously these rules facilitated the creation and ensured the necessary uniformity of the SPE in EU Member States. The Regulation prescribed a variety of matters to be regulated in the articles of association. At the same time, national law governed those matters which are not covered by the Regulation or by the articles of association of the SPE, for example, such important matters as tax law, accounting, labor law or the insolvency of the SPE [5]. In fact, such a situation applied to the FE too. The FE should have been governed by the rules of Regulation and by the statutes of the FE. The practice of existing supranational legal entities to apply the appropriate provisions of national law on matters that were not regulated by the Regulation or the statutes or were only partly regulated by them was used. National law governed, for example, the liability of directors, formation methods, requirements of minimum content of the statute or auditing of the FE [7]. Additionally taking into account that both Proposal for the Statute for an SPE and Proposal for the Statute for an FE did not contain any provisions on a single registry at EU level, it means that the SPE and the FE rather had a “supranational” character.

Each legal form offers the entrepreneurs certain advantages in business activities that allow the companies to become profitable. By choosing SPE entrepreneurs might have received a number of advantages. The most important advantages were the following:

1) company’s relieved formation based on same and flexible provisions and company’s high mobility;

2) absence of restriction on the size of the company;

3) the opportunity for entrepreneurs to reduce costs on the creation of an SPE and operation of businesses, thus stimulating activities and the development of SPE;

4) absence of cross-border requirement allowed significantly increase the potential of SPE in the business environment (in the initial Proposal).

1) foundation’s relieved formation based on same and flexible legal provisions and certainty of legal process of foundations;

2) reduction of costs on cross-border operations, thus stimulating activities and the development of FEs within the EU Member States;

3) the application of the same tax treatment for the FE which has its registered office in Member State and for public benefit purpose entities established in that Member State of the EU.

1) the amount of the minimum capital requirement;

2) the required cross-border component;

3) the possibility of having the registered office and the central administration in different Member States of the EU;

4) the rules governing worker participation, especially at board-level.

1) an intention to do business in a Member State other than the one in which the SPE is registered;

2) a cross-border business object set out in the articles of association of the SPE;

3) a branch or a subsidiary registered in a Member State other than the one in which the SPE is registered;

4) a member or members being resident or registered in more than one Member State or in a Member State other than the one in which the SPE is registered” [13].

There was no consensus reached on legislative measures for the FE, among the most contentious issues included the following:

1) the terminology used to key terms of the Proposal;

2) the minimum period of time of activities of a FE and requirements on cross-border component and activities;

3) the minimum level of assets required for registration of a FE;

4) transparency and accountability provisions;

5) the possibility of having the registered office and the central administration or principal place of activities in different Member States of the EU.

1. The Proposal for a Council Regulation on the Statute for a European Private Company vested SPE as well as the Proposal for a Council Regulation on the Statute for a European Foundation vested this European legal form with the prominent features of supranational legal entity.

2. Both the SPE and the FE had a “supranational” character, because of the significant influence of the applicable national law of the EU Member States in the management of their activities and because of the lack of unified rules for governing all aspects of the activities of these legal entities.

3. The SPE and the FE had a number of advantages that may ensure the growth and development of these European legal forms in the Single Market. In addition to common advantage of the opportunity to conduct business throughout the EU Member States, the SPE, for example, had absence of restriction on the size of the company, but the FE – the application of the same tax treatment for the FE which had its registered office in the Member State and for public benefit purpose entities established in that EU Member State.

4. The Council had no feasible solutions of controversies on key matters: the amount of minimum capital requirement, the cross-border component, the place of registered office and central administration of SPE and employee participation. Therefore, the Commission withdrew Proposal on the Statute of a European Private Company.

5. Proposal for a Council Regulation on the Statute for a European Foundation was withdrawn by the Commission, because of deficiency of progress and unanimity in the Council and, therefore, prospects to reach an agreement.

6. Both proposals joined to Proposal on the Statute for a European association and Proposal on the Statute for a European mutual society, which also were withdrawn due to lack of progress in the legislative process. Taking into account that the existing supranational legal entities (the European Economic Interest Grouping, the European Company and the European Cooperative Society) have a wide range of disadvantages, above mentioned situation reflects an important defeat of the image of the legal entities under EU legislation as well as an increase of significance of legal entities founded under applicable national law of Member State of the EU. Granting the lack of economic growth in Europe and the political differences, the choice of business may be persuaded in favor of more familiar national forms of legal entities.

[1] Hirte H., Teichmann C. The European Private Company - Societas Privata Europaea (SPE). ECFR Special Volume 3. Berlin: Walter de Gruyter Gmbh, 2013.

[2] Zaman D., Schwarz C.A., Lennarts M.L., de Kluiver H.-J., Dorresteijn A.F.M. The European private company (SPE): a critical analysis of the EU draft statute. Antwerp: Intersentia, 2009.

[3] Hopt K. J., Walz W. R., von Hippel T., Then V. The European Foundation: A New Legal Approach. Cambridge University Press, 2006.

[4] Hopt K. J., von Hippel T., Anheier H.K., Then V., Ebke W., Vahlpahl T., Reimer E. Feasibility Study on a European Foundation Statute: Final Report. Centre for Social Investment at the University of Heidelberg; Max Planck Institute for Comparative and International Private Law, 2009.

[5] Proposal for a Council Regulation on the statute for a European private company {SEC (2008) 2098} {SEC (2008) 2099} /* COM/2008/0396 final - CNS 2008/0130 */. [Internet resource]. http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52008PC0396.

[6] Communication from the Commission to the European Parliament, the Council, the European economic and social committee and the Committee of the regions. “Think Small First”. A “Small Business Act” for Europe of 25 June 2008. [Internet resource]. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0394:FIN:EN:PDF.

[7] Proposal for a Council Regulation on the Statute for a European Foundation (FE) /* COM/2012/035 final - 2012/0022 (APP) */. [Internet resource]. http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52012PC0035&qid=1448836876909&from=EN.

[8] Cremers J., Stollt M., Vitols S. A decade of experience with the European Company. Brussels: European Trade Union Institute, 2013.

[9] Siems M., Herzog L., Rosenhäger E. The European Private Company (SPE): An Attractive New Legal Form of Doing Business? Journal of International Banking and Financial Law. 2009. [Internet resource]. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1350465.

[10] Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC. Official Journal of the European Union. No L 157, 09.06.2006.

[11] European Parliament legislative resolution of 10 March 2009 on the proposal for a Council regulation on the Statute for a European private company (COM (2008)0396 – C6-0283/2008 – 2008/0130(CNS)). [Internet resource]. http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+P6-TA-2009-0094+0+DOC+PDF+V0//EN.

[12] Revised Presidency compromise proposal for a Council regulation on the Statute for a European private company of 27 November 2009. [Internet resource]. http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2016115%202009%20ADD%201.

[13] Revised Presidency compromise text. Proposal for a Council regulation on the Statute for a European private company of 23 May 2011. [Internet resource]. http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2010611%202011%20INIT.

[14] European Social and Economic Committee and the Committee of the Regions Regulatory Fitness and Performance (REFIT): Results and Next Steps of 2 October 2013. [Internet resource]. http://ec.europa.eu/archives/commission_2010-2014/president/news/archives/2013/10/pdf/20131002-refit_en.pdf.

[15] Interim report on the proposal for a Council regulation on the Statute for a European Foundation (FE). [Internet resource]. http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&mode=XML&reference=A7-2013-223&language=EN.