Don't we already have single member companies?

At EU level there is already an existing Directive on single-member private limited liability companies. The existing Directive was adopted in 1989 and codified in 2009. It provides for limited harmonisation of relevant national laws by requiring that companies may have a single shareholder in all member states and regulating the powers of that single member in relation to the company. The existing Directive does not, however, address certain key issues such as formation, registration requirements, creditors’ protection or minimum capital requirements.

Why is change needed?

Small and medium sized enterprises (SMEs) are important to the economic health of the EU as they account for a high proportion of its GDP and jobs. However, it is perceived that it is not always easy, both from a cost and a time perspective, for SMEs to set up business in other member states. In part, this is due to legal, administrative or linguistic constraints. From the perspective of company law, setting up subsidiaries abroad is often burdensome due to divergent requirements in national legislation across the EU. Obtaining specialist local advice and translation often adds an additional layer of cost.

The European Commission aimed to address such problems in its 2008 proposal for a European Private Company (SPE). However, it proved impossible to reach unanimous agreement on the proposal among member states, and the Commission decided to withdraw it. In view of that withdrawal, the current proposal aims to address some of the obstacles that SMEs face by facilitating the setting up of companies with a single shareholder across the EU.

What is proposed?

A new Directive (which will replace the existing Directive) is proposed. It aims to make it easier and less costly to set up single member companies across the EU. Importantly, the proposal focuses on the harmonisation of national laws and avoids the creation of a new legal form at European level. Instead, member states will be required to make available a form of national company for single member private limited liability companies with a number of harmonised main requirements, the Societas Unius Personae (SUP).

The proposal is, therefore, limited to harmonisation of those areas of national law which are deemed essential to reduce the burden of setting up a company. The other areas of company law, which are less relevant to this objective but which proved to be contentious in the negotiations on the SPE statute, are left to national law.

Key features

The new Directive will provide an EU-wide set of harmonised rules for SUPs including:

  • on-line incorporation

member states will be obliged to allow for direct on-line registration of SUPs. This will mean that any founder resident or having a seat in the EU will be able to establish a subsidiary in another member state without needing to be physically present before any authorities (including a notary) in in that country

  •      common constitution

there will be a uniform template across the EU for the articles of association of SUPs. The new Directive sets out the main contents of the template, namely that it should cover the questions of

  •   formation
  •  shares
  •  capital
  •  organisation
  •  accounts and
  •  dissolution.

the content of the template will be identical across the EU, available in all EU languages and will contain the necessary elements to run single-member private limited liability companies. Its more detailed content and its format will be established by the Commission in delegated legislation following the adoption of the proposed Directive. The template articles will be compulsory for on-line formations, but variations will be permitted for paper formations. Once incorporated, the articles will be able to be changed subject to certain limitations

  •   share capital

an SUP will only be able to issue one share (which cannot be split). The minimum capital requirement will be €1 (or at least one unit of the relevant national currency).Therefore, if an SUP wants to increase its number of shareholders, it would have to convert into another national company law form.

What’s next?

The proposal will be submitted to the Council and the European Parliament for their consideration and final adoption. Once adopted, the new Directive will have to be implemented into the laws of all EU member states (this is likely to be within two years of adoption).

Comment

Though aimed at SMEs and entrepreneurs, the SUP should be a useful tool for larger companies or groups which want to form single member subsidiaries in EU member states. Although intended to simplify processes and reduce costs, because SUPs will, largely, be governed by national laws, it is not clear at this stage just how much the harmonised elements of their incorporation and constitution will, as intended, reduce the need for local law advice and/or translation services.