EU Directive 2019/1151 - Formation of Companies and registration of Branches to be completed fully online

The European Parliament and the Council of the European Union on 20 June 2019 decided to amend the existing Directive in regards to the rules and procedures on the formation of companies, registration of branches, and filing of documents and information by companies and branches (“Online Procedures”) by issuing the Directive 2019/1151 (the “Directive”).

The Directive imposes the obligation on Member States to set out procedures permitting the formation of companies, registration of branches, and filing of documents and information, to be done fully online.

Member States should, however, be able to decide to make some or all Online Procedures mandatory.

The physical presence to notaries or other similar officials will no longer be necessary and thus, company formation, branches registration, and filing of documents and information will be achieved online.

In this respect, the Directive prohibits Member States from imposing a requirement to obtain prior authorization or license for Online Procedures unless this is required for the company’s special activities by national law.

Nevertheless, notaries or lawyers may be used in the online process only in order to control the identity and legal capacity of persons seeking to form a company or register a branch or to file documents or information, to avoid fraud or company hijacking and to provide safeguards for the reliability and trustworthiness of documents and information contained within national registers. However, such involvement should not prevent the completion of the procedure in its entirety online.

In the case of Cyprus, lawyers and the Court Registrar are involved in the process of formation of companies. Currently, an affidavit must be signed by a lawyer in the presence of the Court Registrar and submitted along with the company documents to the Registrar of Companies to achieve company registration. It remains to be seen how the Directive will affect this process currently followed in Cyprus.

Although lawyers may still have a role to play as per the Directive, checking the legality of the process, the Court Registrar seems to become redundant.

In regards to the time frames set out by the Directive the following apply:

i. transposition of the provisions of the Directive to national law shall be completed by 1st of August 2021 with the possibility of one-year extension;

ii. the process of online registration shall be completed within ten (10) days from the date of payment of the registration fee or from the date of complying with online registration formalities.

Generally, the Directive purports to streamline the company law so as to achieve efficiency, cost and time transparency in an era where technology is constantly developing and digital world is rapidly evolving.