EUROPEAN PRIVATE COMPANY AND EUROPEAN FOUNDATION: THE NEW EUROPEAN LEGAL FORMS
EUROPEAN PRIVATE COMPANY AND EUROPEAN FOUNDATION: THE NEW EUROPEAN LEGAL FORMS
28.03.2022 Prof. Dr.iur. Valery Reingold, Master of Law Vladimir Dolotov

ABSTRACT
The aim of this research paper is the study of legal status of the European Private Company and the European Foundation, the identification of features of the legal regulation of their establishment and operating activities, the identification of their advantages, as well as the historical analysis of proposals’ development and analysis of underlying controversies on key matters of European legal forms developed for small and medium-sized enterprises and foundations.

The methodological basis of the research is historical, comparative-legal, particular-legal analysis, as well as secondary data analysis.

One of the most important findings is that the European Private Company and the European Foundation are vested with the prominent features of existing supranational legal entities. Firstly, the appropriate proposal relating to the status of supranational legal entity is directly applicable legal act and vest the supranational legal entity with legal capacity of European origin. The second feature is the availability of cross-border component in some circumstances for the foundation. The third feature is 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. At the same time, these European legal forms have a supranational character, because of the influence of the applicable national law of the EU Member States in the management of their activities, due to the lack of unified rules for governing all aspects of their activities, and because of the need to identify a single registry at EU level.

Both the European Private Company and the European Foundation have a number of advantages that may ensure the growth and activities of these legal forms and their development in the Single Market. But because of the lack of feasible solutions of substantial controversies on several key matters both proposals were withdrawn.

The research paper presents the conclusions and suggestions which can be presented as potential solutions of existing controversies.

INTRODUCTION
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.

DISCUSSION AND RESULTS
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].

An FE should have been set up for an indefinite period of time or for a specified period of time of not less than two years, where expressly laid down in its statute. Despite the requirement of the provision that the FE might have been created only for the closed list of purposes, foundation was allowed to engage in economic activities as long as the profit was used in pursuance of its public benefit purposes, unless restricted by its statutes. The Proposal also prescribed the rule that economic activities unrelated to the public benefit purpose of the foundation were allowed up to 10% of the FE’s annual net turnover [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).

It should be noted, that the SPE and the FE had a common advantage, that is, the opportunity to conduct business throughout the EU Member States and the “European label” of legal entity. The most important advantages of the FE were the following:

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.

Notwithstanding the SPE’s ability to ensure the development of SMEs in the EU Member States, so far, no political consensus had been reached on legislative measures, because of deep controversies on four key matters:

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.

The main bone of contention was the issue on the amount of the minimum capital requirement. European Parliament legislative resolution of 10 March 2009 on the Proposal for a Council regulation on the Statute for a European private company set up amendments on the Proposal. Minimum capital requirement was amended by the provision to increase the minimum capital till at least 8,000 euros if the articles of association do not contain the requirement that the executive management body sign a solvency certificate [11]. During the Czech Presidency this amendment was reversed. Revised proposal created during the Swedish Presidency was amended with the provision that the EU Member States might have set a higher minimum capital requirement for SPEs registered in their territory, but it should not exceed 8,000 euros [12]. France considered capital requirement of 8,000 euros to be too high, but Austria considered it to be too low, because of capital requirement for private limited companies of 35,000 euros in this country. At the end, the Hungarian Presidency compromised suggestion which set out that the capital of the SPE should have been at least 1 euro, while allowing the EU Member States to set a higher minimum capital requirement of a maximum of 8,000 euros for SPEs registered in their territory could be acceptable to all but one delegation [13].

Despite the initial Proposal for the Statute for an SPE had no requirement of cross-border component, the latest revised version of the Proposal provided, that “an SPE shall have a cross-border component at the time of its registration, demonstrated by one of the following:

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].

One of the provisions causing most of the disagreements was the possibility of having the registered office and central administration in different Member States of the EU. In order to ensure the provisions of the real seat doctrine and the incorporation theory the latest revised version of the Proposal set up that the registered office and the central administration or principal place of business of the SPE should have been in the EU in accordance with the applicable national law.

The different trade unions were among the strongest critics of the Proposal for the Statute for an SPE, which had found plenty of arguments to prove that the SPE could have been used by companies to avoid national rules on worker involvement. Although some attempts had been made in revised versions of the Proposal to provide safeguards for worker participation arrangements, these safeguards had been seen by trade unions as too weak for protecting many types of existing arrangements.

Unfortunately, the Council had no feasible solutions of these deep controversies on above mentioned key matters. Once again it approved inability to create unified provisions applicable in all EU Member States and deep controversies between national legislations. As a result, in 2013 in the Communication from the Commission to the European Parliament, the Council, the European Social and Economic Committee and the Committee of the Regions Regulatory Fitness and Performance (REFIT): Results and Next Steps, the Commission included the Proposal on the Statute of a European Private Company in the list of proposals it intended to withdraw [14].

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.

Additionally to the comments of the European Economic and Social Committee and initiatives of the Committee of the Regions, the most substantial recommendations were made in an Interim report on the Proposal for a Council Regulation on the Statute for a European Foundation adopted by the Committee on Legal Affairs in June 2013 [15]. This report had the following recommendations. First, the existence of an FE in any Member State of the EU should have been open-ended or set for a specified period of time of not less than 4 years (with an exception in some cases – 2 years). Second, the minimum level of assets of 25,000 euro should have been maintained throughout the lifetime of the foundation. Third, the threshold for auditing of foundations should have taken into account the total assets, the annual income and the number of employees. Fourth, the registered office and the central administration or principal place of activities of an FE should have been in the EU Member State in which it was established, in order to ensure effective oversee. The European Parliament in its resolution of 2 July 2013 on the Proposal for a Council regulation on the Statute for a European Foundation accepted recommendations made in Interim report of the Committee on Legal Affairs.

With the adoption of the Commission's Work Programme for 2015 in December 2014, the Commission decided the withdrawal of the Proposal for a Council Regulation on the Statute for a European Foundation. The official reason of withdrawal was deficiency of progress and unanimity in the Council and, therefore, prospects to reach an agreement.

CONCLUSION
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.

REFERENCES
[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.

Dalieties ar šo rakstu

Citas publikacijas