Category Archives: Company Law

Companies are key operators in the internal market. Company law aims to improve their operating efficiency via a simplified legal environment with minimum red tape. European legislation in this field relates in particular to national and international mergers and divisions of companies, the rights of shareholders of listed companies and the tax arrangements for parent companies and subsidiaries of different Member States. The possibility to engage in activities in a Member State other than that of the registered office and the introduction of effective cross-border cooperation seem to be key developments. In the context of completing the internal market, the concept was devised of the “European company”, which is better suited to the dimensions of enterprises established in several Member States, since it is governed by European law and no longer subject to different legislative systems simultaneously. The statute for the “European cooperative company” also allows cooperatives to develop their business on a European scale. European enterprises not wishing to merge or set up subsidiaries also have a transnational cooperation instrument at their disposal, known as the European Economic Interest Grouping (EEIG).

Internal Market

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Internal Market

Internal Market Contents

  • Internal market: general framework
  • Living and working in the internal market: Free movement of people, asylum and immigration, free movement of workers
  • Single Market for Goods: Free movement of goods, technical harmonisation, product labelling and packaging, consumer safety, pharmaceutical and cosmetic products, chemical products, motor vehicles, construction, external dimension
  • Single market for services: Free movement of services, professional occupations, services of general interest, transport, Information Society, postal services, financial services, banks, insurance, securities markets
  • Single market for capital: Free movement of capital, economic and monetary union, economic and private stakeholders, fiscal aspects, combating fraud, external relations
  • Businesses in the internal market: Company law, public procurement, intellectual property

See also

Living and working in the internal market.
Overviews of European Union: Internal market.
Further information: the Internal Market and Services Directorate-General of the European Commission.

Takeover bids

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Takeover bids

Outline of the Community (European Union) legislation about Takeover bids

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Businesses in the internal market > Company law

Takeover bids

Document or Iniciative

European Parliament and Council Directive 2004/25/EC of 21 April 2004 on takeover bids.

Summary

The Directive sets out to establish minimum guidelines for the conduct of takeover bids involving the securities * of companies governed by the laws of Member States, where all or some of those securities are admitted to trading on a regulated market. It also seeks to provide an adequate level of protection for holders of securities throughout the Community, by establishing a framework of common principles and general requirements which Member States are to implement through more detailed rules in accordance with their national systems and their cultural contexts. Member States are required to transpose the Directive no later than two years after its entry into force.

Scope

The Directive lays down measures coordinating the laws, regulations, administrative provisions, codes of practice and other arrangements of the Member States, including arrangements established by organisations officially authorised to regulate the markets relating to takeover bids for the securities of companies governed by the laws of Member States (hereinafter referred to as “rules”), where all or some of those securities are admitted to trading on a regulated market within the meaning of Directive 93/22/EEC in one or more Member States (hereinafter referred to as a “regulated market”).

The Directive does not apply to takeover bids for securities issued by companies whose object is the collective investment of capital provided by the public, which operate on the principle of risk spreading and the units of which are, at the holder’s request, repurchased or redeemed, directly or indirectly, out of the assets of those companies. Action taken by such companies to ensure that the stock exchange value of their units does not vary significantly from their net asset value are regarded as equivalent to such repurchase or redemption.

The Directive does not apply to takeover bids for securities issued by the Member States’ central banks.

General principles

The Member States must ensure that the following principles are complied with:

  • all holders of securities of the offeree company * must be given equal treatment; if a person acquires control of a company, the other holders of securities must be protected;
  • the addressees of the bid must have sufficient time and information to be able to reach a properly informed decision on the bid; where it advises the holders of securities, the board of the offeree company must give its views on the effects of implementation of the bid on employment, the conditions of employment and the locations of the company’s places of business;
  • the board of the offeree company must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the bid;
  • false markets must not be created in the securities of the offeree company, of the offeror company * or of any other company concerned by the bid in such a way that the rise or fall in the prices of the securities becomes artificial and the normal functioning of the market is distorted;
  • an offeror must announce a bid only after ensuring that he can fulfil in full any cash consideration, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration;
  • an offeree company must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities.

For the regulation of bids, Member States may lay down additional conditions and provisions more stringent than those of the Directive.

Supervisory authority and applicable law

Member States are to designate the authority or authorities competent to supervise bids. The authorities thus designated must be either public authorities, associations or private bodies recognised by national law or by public authorities expressly empowered for that purpose by national law. Member States must inform the Commission of those designations. They must ensure that those authorities exercise their functions impartially and independently of all parties to a bid.

The authority competent to supervise a bid is that of the Member State in which the offeree company has its registered office if that company’s securities are admitted to trading on a regulated market in that Member State. In all other cases (e.g. where securities are not admitted or are admitted to trading on more than one regulated market), the Directive lays down rules for deciding the competent supervisory authority.

Member States must ensure that all persons employed or formerly employed by their supervisory authorities are bound by professional secrecy.

The supervisory authorities and the authorities responsible for supervising capital markets must cooperate and supply each other with information. Information thus exchanged will be covered by the rules of professional secrecy.

Protection of minority shareholders, mandatory bid and equitable price *

Where a natural or legal person, as a result of his own acquisition or the acquisition by persons acting in concert with him *, holds securities of a company which give him a specified percentage of voting rights in that company, giving him control of that company, Member States must ensure that such a person is required to make a bid as a means of protecting the minority shareholders of that company. Such a bid must be addressed at the earliest opportunity to all the holders of those securities for all their holdings at the equitable price.

Where control has been acquired following a voluntary bid to all the holders of securities for all their holdings, the obligation to launch a bid no longer applies.

The percentage of voting rights which confers control and the method of its calculation must be determined by the rules of the Member State in which the company has its registered office.

The supervisory authorities may be authorised by Member States to adjust the equitable price, in circumstances and in accordance with criteria that are clearly determined. Any such decision must be substantiated and made public.

By way of consideration the offeror may offer securities, cash or a combination of both. Where the consideration does not consist of liquid securities admitted to trading on a regulated market, it must include a cash alternative.

Member States may provide that a cash consideration must be offered, at least as an alternative, in all cases.

Information concerning bids

Member States must ensure that a decision to make a bid is made public without delay and that the supervisory authority is informed of the bid. They must also ensure that an offeror is required to draw up and make public in good time an offer document containing the information necessary to enable the holders of the offeree company’s securities to reach a properly informed decision on the bid.

The Directive lays down the minimum information that the offer document must contain. It must, for example, state the terms of the bid, the identity of the offeror, the consideration offered and the maximum and minimum percentages or quantities of securities which the offeror undertakes to acquire; it must also state the conditions to which the bid is subject, the offeror’s intentions with regard to the future business of the offeree company, the time allowed for acceptance of the bid and the national law which will govern the contract.

Employees’ rights

The Directive requires that employees or representatives of the offeree company must be informed in detail in the event of a takeover bid. It even extends the obligation to inform or consult staff to the employees of the offeror company. It also expressly stipulates that information for and consultation of employees must be in line with the relevant national provisions and with the various Community provisions adopted in this field, such as Directive 94/45/EC on European Works Councils, Directive 98/59/EC on collective redundancies and Directive 2002/14/EC on informing and consulting employees.

Time allowed for acceptance

Member States must provide that the time allowed for the acceptance of a bid may not be less than two weeks or more than ten weeks from the date of publication of the offer document. In certain circumstances, they may provide that the period of ten weeks may be extended.

Obligations of the board of the offeree company

Although the Directive does provide for arrangements in this area, it leaves it up to Member States whether or not to apply them. The requirement that the board of the offeree company must obtain the prior authorisation of its shareholders before taking any defensive action is thus optional. Member States leave it up to the companies themselves to decide whether or not to apply this rule.

Breakthrough

The requirement to freeze members’ extraordinary rights (such as multiple voting rights, appointment rights and restrictions on the transfer of securities) during the bid is also optional. Member States leave it up to the companies themselves to decide whether or not to apply this rule.

Other rules applicable to the conduct of bids

Member States must lay down rules governing the conduct of bids, at least as regards the following:

  • the lapsing of bids;
  • the revision of bids;
  • competing bids;
  • the disclosure of the results of bids;
  • the irrevocability of bids and the conditions permitted.

Right of squeeze-out

The Directive provides for a “squeeze-out right” enabling a majority shareholder to require the remaining minority shareholders to sell him their securities. Member States must ensure that an offeror is able to require all the holders of the remaining securities to sell him those securities at a fair price.

Member States must introduce the squeeze-out right in one of the following situations:

  • where the offeror holds securities representing not less than 90 % of the capital carrying voting rights in the offeree company. Member States may set a higher threshold that may not, however, be higher than 95 % of the capital carrying voting rights and 95 % of the voting rights;

or

  • where, following acceptance of the bid, he has acquired or firmly contracted to acquire securities representing not less than 90 % of the capital carrying voting rights and 90 % of the voting rights comprised in the bid.

If the offeror wishes to exercise the right of squeeze-out, he must do so within three months of the end of the time allowed for acceptance of the bid. Member States must ensure that a fair price is guaranteed.

Right of sell-out

The right of squeeze-out is combined with a “sell-out right” enabling minority shareholders to require the majority shareholder to buy their securities following a takeover bid. Member States must ensure that a holder of remaining securities is able to require the offeror to buy his securities from him at a fair price.

Transposition and revision clause

Member States have two years to transpose the Directive (by 20 May 2006 at the latest). A revision clause stipulates that the Commission may propose a revision of the text five years after the deadline for transposing the Directive, in the light of experience acquired in applying it.

To that end, Member States will provide the Commission annually with information on the takeover bids launched against companies having securities admitted to trading on their regulated markets.

Background

The Directive is a key component of the Financial Services Action Plan. The Lisbon European Council (March 2000) placed it among the main priorities as regards the integration of EU financial markets by 2005.

The previous proposal for a directive on takeover bids was rejected by Parliament in July 2001, after twelve years of negotiation: a conciliation procedure between Parliament and the Council had produced a compromise text but, when this was put to a plenary sitting of Parliament, an equal number voted for and against, and the compromise text was therefore rejected. This vote was motivated mainly by:

  • concerns over the obligation on the board of the offeree company to obtain the approval of shareholders before taking any defensive action against the bid;
  • misunderstanding that this obligation on the board to remain impartial meant that the offeree company was unable to defend itself and, consequently, fear that European companies would be left vulnerable to being taken over by US companies in particular or, quite simply, by firms in other Member States;
  • regret that the protection which the Directive would afford employees of companies involved in a takeover bid was insufficient.

Following the rejection of the proposal, the Commission set up a Group of High-Level Company Law Experts under the chairmanship of Professor Jaap Winter with the task of presenting suggestions for resolving the issues raised by Parliament. The present Directive takes broad account of the recommendations made by the Group in its report on issues related to takeover bids (pdf ), published in January 2002.

Key terms used in the act
Takeover bid: a public offer (other than by the offeree company itself) made to the holders of the securities of a company to acquire all or some of those securities, whether mandatory or voluntary, which follows or has as its objective the acquisition of control of the offeree company in accordance with national law.
Securities: transferable securities carrying voting rights in a company.
Offeree company: a company whose securities are the subject of a bid.
Offeror: any natural or legal person governed by public or private law making a bid.
Equitable price: the highest price paid for the same securities by the offeror, or by persons acting in concert with him, over a period, to be determined by the Member States, of not less than six months and not more than twelve before the bid. If, after the bid has been made public and before the offer closes for acceptance, the offeror or any person acting in concert with him purchases securities at a price higher than the offer price, the offeror must increase his offer so that it is not less than the highest price paid for the securities so acquired.
Persons acting in concert: natural or legal persons who cooperate with the offeror or the offeree company on the basis of an agreement, either express or tacit, either oral or written, aimed either at acquiring control of the offeree company or at frustrating the successful outcome of a bid.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Directive 2004/25/EC [adoption: codecision COD/2002/0240] 20.05.2004 20.05.2006 OJ L 142 of 30.04.2004

 

Single-member private limited liability companies

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Single-member private limited liability companies

Outline of the Community (European Union) legislation about Single-member private limited liability companies

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Businesses in the internal market > Company law

Single-member private limited liability companies

Document or Iniciative

Directive 2009/102/EC of the European Parliament and of the Council of 16 September 2009 in the area of company law on single-member private limited liability companies (Text with EEA relevance).

Summary

This Directive establishes the legal framework applicable to private limited companies.

A company may have a single member by virtue of its being formed, or by virtue of all its shares coming to be held, by a single person (single-member company).

Where a company becomes a single-member company because all its shares have come to be held by a single person, that fact, together with the identity of the single member, must either be entered in a register kept by the company and accessible to the public or be recorded in the file or entered in the central register or the register of companies.

The single member exercises the powers of a general meeting of the company. Decisions taken by the single member and contracts between him and his company as represented by him must be recorded in minutes or drawn up in writing.

Where a Member State allows single-member companies in the case of public limited companies as well, the provisions of this Directive shall apply.

This Directive repeals Directive 89/667/EEC.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2009/102/EC

21.10.2009

–

OJ L 258, 1.10.2009

European Economic Interest Grouping

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European Economic Interest Grouping

Outline of the Community (European Union) legislation about European Economic Interest Grouping

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Businesses in the internal market > Company law

European Economic Interest Grouping (EEIG)

Document or Iniciative

Council Regulation (EEC) No 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG).

Summary

A European Economic Interest Grouping must be formed in accordance with the rules described below.

The purpose of the grouping is to facilitate or develop the economic activities of its members by a pooling of resources, activities or skills. This will produce better results than the members acting alone. It is not intended that the grouping should make profits for itself. If it does make any profits, they will be apportioned among the members and taxed accordingly. Its activities must be related to the economic activities of its members, but cannot replace them. An EEIG cannot employ more than 500 persons.

An EEIG can be formed by companies, firms and other legal entities governed by public or private law which have been formed in accordance with the law of a Member State and which have their registered office in the European Union (EU). It can also be formed by individuals carrying on an industrial, commercial, craft or agricultural activity or providing professional or other services in the EU.

An EEIG must have at least two members from different Member States.

The contract for the formation of an EEIG must include its name, its official address and objects, the name, registration number and place of registration, if any, of each member of the grouping and the duration of the grouping, except where this is indefinite. The contract must be filed at the registry designated by each Member State. Registration in this manner confers full legal capacity on the EEIG throughout the EU.

When a grouping is formed or dissolved, a notice must be published in the Official Journal of the EU (C and S series).

A grouping’s official address must be within the EU. It may be transferred from one Member State to another subject to certain conditions.

Each member of an EEIG has one vote, although the contract for its formation may give certain members more than one vote provided that no one member holds a majority of the votes. The Regulation lists those decisions for which unanimity is required.

The EEIG must have at least two organs: the members acting collectively and the manager or managers. The managers represent and bind the EEIG in its dealings with third parties even where their acts do not fall within the objects of the grouping.

An EEIG may not invite investment by the public.

An EEIG does not necessarily have to be formed with capital. Members are free to use alternative means of financing.

The profits of an EEIG will be deemed to be the profits of its members and will be apportioned either according to the relevant clause in the contract or, failing such a clause, in equal shares. The profits or losses of an EEIG will be taxable only in the hands of its members. As a counterweight to the contractual freedom which is at the basis of the EEIG and the fact that members are not required to provide a minimum amount of capital, each member of the EEIG has unlimited joint and several liability for its debts.

Background

This Regulation meets the need for the harmonious development of economic activity throughout the EU and the establishment of a common market offering conditions analogous to those of a national market. To achieve this, and alleviate the legal, fiscal and psychological difficulties encountered by natural persons, companies, firms and other bodies in cooperating across borders, the EU decided to create a suitable legal instrument at Community level in the form of a European Economic Interest Grouping.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Regulation (EEC) No 2137/1985

3.8.1985

–

OJ L 199, 31.7.1985

Green Paper on the statutory auditor

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Green Paper on the statutory auditor

Outline of the Community (European Union) legislation about Green Paper on the statutory auditor

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Businesses in the internal market > Company law

Green Paper on the statutory auditor

Document or Iniciative

Commission Green Paper of 24 July 1996: “The role, the position and the liability of the statutory auditor within the European Union” [COM(96) 338 – Official Journal C 321 of 28.10.1996].

Summary

The requirement to have a statutory audit carried out on accounts was laid down at Community level by the Fourth and Seventh Directives.

These issues are important in so far as they affect the smooth operation of the single market:

  • the audited financial statements of a company established in one Member State are used by third parties in other Member States;
  • significant differences in national legislation prevent the establishment of a genuine European market in auditing services.

The audit report is the medium through which the statutory auditor communicates with shareholders, creditors, employees and the public at large. Since the content of the audit report is not prescribed under the Accounting Directives, Member States have specified in their company law which items must be covered. Although there is a spontaneous trend in the EU towards aligning the form of audit reports on international standards, differences still exist between Member States. These differences have an impact on the single market in that they reduce the utility of the reports issued in other Member States.

The absence of common professional standards makes it impossible to guarantee that the quality-control systems in the Member States are equivalent, or even adequate. It is necessary to determine to what extent the professional standards developed by the International Federation of Accountants could provide a basis for defining common standards at EU level.

Since there is no common definition of the independence of persons responsible for the statutory audit of accounts, Member States have dealt with this question in very different ways.

The financial reporting exercise is carried out by the board of directors, the supervisory board, the general meeting of shareholders and the statutory auditor, although their respective roles are not clearly defined. To improve the system of checks and balances within the company, more attention should be paid to issues such as the creation of an audit committee and the establishment of an efficient internal-control system.

Rules on the liability of the statutory auditor differ substantially from one Member State to another. In view of Member States’ different legal traditions in the area of civil liability, and the resulting difficulty in tackling this question at Community level, it is necessary to establish whether the negative effects of the differences in the rules on the civil liability of the statutory auditor are significant enough to justify Community action.

The absence of specific rules on the statutory auditing of group accounts gives rise to problems. It is sometimes difficult for the group auditor to obtain information from the management and auditors of the group companies which he does not audit. The procedures involved in the statutory audit of consolidated financial statements should be examined more thoroughly in order to determine whether the problems could be solved without legislative action.

It should be possible to progress towards the creation of a single market in auditing services provided that the quality of auditing can be guaranteed to be equivalent in all Member States and adequate means can be found to ensure that the audit carried out in a particular Member State by a foreign individual or firm is accompanied by guarantees which are at least equivalent to those accompanying an audit by an auditor from that Member State.
There is no convincing reason why the Treaty provisions on freedom of establishment and freedom to provide services should not fully apply to the trade in audit services.

The freedom of individual statutory auditors to become established and provide services is already enshrined in the Directive relating to the mutual recognition of vocational qualifications, although some problems remain.

For firms wishing to set up a subsidiary, freedom of establishment still gives rise to problems because many Member States have adopted laws and regulations which are stricter than the Eighth Directive. Member States should be requested to abolish such national requirements and, where they discriminate on grounds of nationality, action should be taken to ensure compliance with the Treaty.

Related Acts

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 L 157 of 9.6.2006].
The Directive aims to increase the credibility of financial reporting and to enhance the EU’s protection against financial scandals. It contains, among other things, provisions on public supervision, the requirement for external quality assurance, the duties of statutory auditors, the application of international standards and the principles of independence applicable to statutory auditors.

Commission Recommendation 2005/162/EC of 15 February 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board [Official Journal L 52 of 25.2.2005].

Commission Communication to the Council and the European Parliament, of 21 May 2003 “Reinforcing the statutory audit in the EU” [COM(2003) 286 final – Not published in the Official Journal].

Communication of 21 May 2003 from the Commission to the Council and the European Parliament “Modernising Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward” [COM(2003) 284 – Not published in the Official Journal].

Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards [Official Journal L 243 of 11.9.2002].
The EU harmonises the financial reporting of listed companies to ensure the protection of investors. By applying the international accounting rules, it strives to preserve confidence in financial markets while facilitating cross-border and international trade in securities.

Commission Recommendation 2002/590/EC of 16 May 2002 “Statutory Auditors’ Independence in the EU: A Set of Fundamental Principles” [Official Journal L 191 of 19.7.2002].

Commission Recommendation 2001/256/EC of 15 November 2000 on quality assurance for the statutory audit in the European Union: Minimum requirements [Official Journal L 91 of 31.3.2001].
The recommendation assumes that quality control is recent in the EU and that national systems differ. It applies to all those professionally concerned with the statutory auditing of accounts. Its purpose is, firstly, to create a common reference by establishing certain minimum requirements. Secondly, the subject, selection, scope and frequency of the control are determined. The subject for a quality review is the statutory auditor, which may be an audit firm or an individual auditor; the selection should be made on a consistent basis so as to ensure coverage of all statutory auditors.

Communication of 13 June 2000 from the Commission to the Council and the European Parliament “EU Financial Reporting Strategy: the way forward” [COM(2000) 359 final – Not published in the Official Journal].
In this communication, the Commission sets out its future approach to financial reporting in Europe. The strategy, which is a key element in the creation of an integrated financial services market, should help remove the remaining obstacles to cross-border trading in securities. This will make it easier to compare companies’ results, raise capital, and reinforce investor protection.

Communication from the Commission on the statutory audit in the European Union: the way forward [Official Journal C 143 of 8.5.1998].
To give an institutional and Community dimension to the discussions on the statutory audit, the Commission intends to set up a committee with special responsibility for auditing matters that will consist of government experts nominated by the Member States. The committee’s main task will be to review international standards in order to determine whether their application meets EU requirements.

Common system of taxation: mergers, divisions, transfers of assets, exchanges of shares and transfer of the registered office of an SE or SCE

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Common system of taxation: mergers, divisions, transfers of assets, exchanges of shares and transfer of the registered office of an SE or SCE

Outline of the Community (European Union) legislation about Common system of taxation: mergers, divisions, transfers of assets, exchanges of shares and transfer of the registered office of an SE or SCE

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Businesses in the internal market > Company law

Common system of taxation: mergers, divisions, transfers of assets, exchanges of shares and transfer of the registered office of an SE or SCE

Document or Iniciative

Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States.

Summary

This Directive applies to:

  • mergers, divisions, transfers of assets and exchanges of shares in which companies from two or more Member States are involved;
  • the transfer of the registered office between Member States of a Societas Europaea (European Company) (SE) or a European Cooperative Society (SCE).

Rules applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares

A merger, division or partial division does not give rise to any taxation of capital gains -calculated by reference to the difference between the real values of the assets and liabilities transferred and their values for tax purposes – at the time of the operation in question but only when such gains are actually realized.

Member States are required to take the necessary measures to ensure that provisions or reserves partly or wholly exempt from tax may be carried over by the permanent establishments of the receiving company which are situated in the Member State of the transferring company.

The allotment of securities representing the capital of the receiving or acquiring company to a shareholder of the transferring or acquired company must not give rise to any taxation of the income, profits or capital gains of that shareholder.

Special case of the transfer of a stable establishment

Where the assets transferred in a merger, a division or a transfer of assets include a permanent establishment of the transferring company which is situated in a Member State other than that of the transferring company, the Member State of the transferring company must renounce any right to tax that permanent establishment.

Special case of transparent entities

Where a Member State considers a non-resident transferring or acquired company to be fiscally transparent, it is not required to apply the provisions of this Directive when taxing a direct or indirect shareholder of that company in respect of the income, profits or capital gains of that company.

Rules applicable to the transfer of the registered office of an SE or SCE

Where an SE or an SCE transfers its registered office from one Member State to another or becomes resident in another Member State, that transfer shall not give rise to any taxation of the income, profits or capital gains of the shareholders. However, Member States may tax the gain arising out of the subsequent transfer of the securities representing the capital of the SE or of the SCE that transfers its registered office.

In the same case, Member States shall take the necessary measures to ensure that, where provisions or reserves properly constituted by the SE or the SCE before the transfer of the registered office are partly or wholly exempt from tax and are not derived from permanent establishments abroad, such provisions or reserves may be carried over, with the same tax exemption, by a permanent establishment of the SE or the SCE which is situated within the territory of the Member State from which the registered office was transferred.

This Directive repeals Directive 90/434/EC.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2009/133/EC

15.12.2099

–

OJ L 310, 25.11.2009

Cross-border mergers of limited liability companies

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Cross-border mergers of limited liability companies

Outline of the Community (European Union) legislation about Cross-border mergers of limited liability companies

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Businesses in the internal market > Company law

Cross-border mergers of limited liability companies

Document or Iniciative

Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies [Official Journal L 310 of 25.11.2005, p. 1] [See amending act(s)].

Summary

This Directive sets out to facilitate cross-border mergers of limited liability companies *.

This Directive aims to identify the legislation applicable in the event of a merger to each of the merging companies. Once the new entity emanating from the merger has been set up, a single body of national legislation applies: that of the Member State in which the entity has established its registered office.

Entities concerned

The Directive applies to mergers of limited liability companies:

  • formed in accordance with the law of a Member State;
  • with their registered office, central administration or principal place of business within the Community;
  • if at least two of them are governed by the law of different Member States.

Member States may decide not to apply the Directive to cross-border mergers involving a cooperative society even in the cases where the latter would fall within the definition of “limited liability company”. Lastly, companies the object of which is the collective investment of capital provided by the public (UCITS) are excluded from the scope of the Directive.

Procedures governing cross-border mergers

The management or administrative organ of each of the merging companies is required to draw up the common draft terms of cross-border merger. The Directive contains a list of the twelve compulsory particulars that constitute the minimum content of the common draft terms, which must be published in the manner prescribed by the law of each Member State in accordance with the Directive on disclosure by limited liability companies at least one month before the date of the general meeting which is to decide on them. However, the company is not obliged to publish the particulars if they are made available to the public on the company’s website, or on a website designated by the Member State concerned, one month before the date of the General Assembly.

The management or administrative organ of the merging companies must prepare a report on the proposed cross-border merger for the members and employees that explains the legal and economic aspects of the cross-border merger and its implications.

An independent expert report on the merger must be drawn up. It will not be required if all the members of each of the companies involved in the merger have so agreed. The expert report and the proposed cross-border merger report must be made available at least one month before the date of the general meeting.

On the basis of the documents referred to above, the general meeting of each of the merging companies must decide on the approval of the common draft terms of cross-border merger.

Scrutiny of legality

Each Member State must designate the authority competent for scrutinising the legality of the cross-border merger as regards that part of the procedure that concerns each merging company subject to its national law. That authority must issue a pre-merger certificate attesting to the proper completion of the pre-merger acts and formalities.

Each Member State must designate the authority competent for scrutinising the legality of the cross-border merger as regards that part of the procedure that concerns the completion of the cross-border merger and, where appropriate, the formation of a new company resulting from the cross-border merger where the company created by the cross-border merger is subject to its national law. That authority must ensure that the merging companies have approved the common draft terms of cross-border merger in the same terms.

Legal effects

Following scrutiny of legality, the law of the Member State to whose jurisdiction the company resulting from the cross-border merger is subject must determine the date on which the cross-border merger takes effect and the arrangements for publicising completion of the merger in the public register. The registry for the registration of the company resulting from the cross-border merger shall notify the registry in which each of the companies was required to file documents that the cross-border merger has taken effect. The exchange of information shall be made using the system of interconnection of central, commercial and companies (available from 2014), established by the Directive on the protection of the interests of members and third parties Deletion of the old registration cannot be effected before that notification has been received.

Cross-border mergers have the following effects:

  • the companies being acquired or the merging companies cease to exist;
  • all the assets and liabilities of the companies concerned by the merger are transferred to the new entity (either the acquiring company or the new company);
  • the members of the companies being acquired become members of the new entity.

Where the laws of the Member States require the completion of special formalities before the transfer of certain assets, rights and obligations by the merging companies becomes effective against third parties, the company resulting from the cross-border merger is responsible for carrying out those formalities.

Worker participation

The general principle as regards the employees’ rights of participation is that national laws governing the company resulting from the cross-border merger apply.

By way of exception, the principles and arrangements relating to worker participation laid down by the relevant regulation and the Directive on the European Company (SE) apply as follows:

  • where at least one of the merging companies has, in the six months before publication of the draft terms of the cross-border merger, an average number of employees that exceeds 500 and is operating under an employment participation system;
  • where the national legislation applicable to the company resulting from the cross-border merger does not provide for at least the same level of employee participation as operated in the relevant merging companies, measured by reference to the proportion of employee representatives amongst the members of the administrative or supervisory organ which covers the profit units of the company, subject to employee representation;
  • where the national legislation applicable to the company resulting from the cross-border merger does not provide for employees of establishments of that company that are situated in other Member States, the same entitlement to exercise participation rights as is enjoyed by those employees employed in the Member State where the company resulting from the cross-border merger has its registered office.

Under the Directive supplementing the Statute for a European Company with regard to the involvement of employees, the threshold for applying the benchmark provisions laid down for the European Company is increased to 33 1/3 % of the total number of workers in the merging companies that have had to operate under any form of worker participation system.

The provisions on worker participation apply to any domestic merger subsequent to a cross-border merger for a period of three years after the cross-border merger has taken effect.

The processing of personal data is subject to the provisions of the Directive on the protection of personal data.

Key terms used in the act

By “cross-border merger of limited liability companies”, the Directive means the operation whereby:

  • a company transfers all of its assets to another existing company, the acquiring company, in exchange for the issue to its members of securities or shares representing the capital of that other company and, if applicable, a cash payment not exceeding 10 % of the nominal value or, in the absence of a nominal value, of the accounting par value of those securities or shares;
  • two or more companies transfer all their assets and liabilities to a company that they form, in exchange for the issue to their members of securities or shares representing the capital of that new company and, if applicable, a cash payment not exceeding 10 % of the nominal value or, in the absence of a nominal value, of the accounting par value of those securities or shares;
  • a company transfers all of its assets and liabilities to the company holding all the securities or shares representing its capital.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2005/56/EC

15.12.2005

15.12.2007

OJ L 310/1 of 25.11.2005
Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 2009/109/EC

2.10.2009

30.6.2011

OJ L 259 of 2.10.2009

Directive 2012/17/EU

6.7.2012

7.7.2014

OJ L 156 of 16.6.2012

Successive amendments and corrections to Directive 2005/56/EC have been incorporated into the basic text. This consolidated version is for reference only.

Companies: protecting the interests of members and third parties

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Companies: protecting the interests of members and third parties

Outline of the Community (European Union) legislation about Companies: protecting the interests of members and third parties

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Businesses in the internal market > Company law

Companies: protecting the interests of members and third parties

Document or Iniciative

Directive 2009/101/EC of the European Parliament and of the Council of 16 September 2009 on coordination of safeguards which, for the protection of the interests of members and third parties, are required by Member States of companies within the meaning of the second paragraph of Article 48 of the Treaty, with a view to making such safeguards equivalent (Text with EEA relevance) [See amending act(s)].

Summary

This Directive aims to frame the guarantees required of companies in order to protect the interests of members and third parties.

Types of companies concerned

This Directive applies to:

  • companies incorporated with limited liability.

Disclosure as regards companies

Companies must disclose certain documents and information relating in particular to:

  • the instrument of constitution and the statutes, and their amendments;
  • the appointment, termination of office and particulars of the persons who have the power to represent the company in legal proceedings and who take part in the administration, supervision or control of the company;
  • the amount of the capital subscribed;
  • any change of the registered office;
  • the winding-up of the company;
  • the liquidation of the company.

All of these disclosed items shall be recorded in a file opened in a central register, commercial register or companies register. The file may be available in electronic format or on paper.

Any change must be recorded in the central register and made public within 21 days after the complete transmission of information.

Companies must have a unique identifier for communication between registers. This unique identifier includes the elements which shall enable the following to be identified:

  • the Member State of the register;
  • the domestic register of origin;
  • the company number in that register.

Member States shall be responsible for the publication of the above information in the national gazette or other means. They shall take the necessary measures to avoid any discrepancy between the pieces of information provided and shall ensure that this information is kept up-to-date. This information must also be made available on the European e-Justice portal in all the official languages of the EU, and also in electronic format using the system of interconnection of central registers (available from 2014).

The system of interconnection of registers shall provide access free-of-charge to the following information:

  • the name and legal form of the company;
  • the registered office of the company and the Member State where it is registered;
  • the registration number of the company.

The Commission shall provide a search service on companies registered in the Member States. In addition it shall introduce a central European portal which aims to ensure the inter-operability of the registers.

The processing of personal data is subject to the provisions of the Directive on the protection of personal data.

Validity of obligations entered into by the company

If action has been carried out on behalf of a company being formed before it has acquired legal personality, the persons who acted shall be liable therefor and not the company itself.

Once a company has acquired legal personality, acts performed by the organs of the company shall be binding upon it in respect of third parties, including such acts that go beyond the limitations of the objects of the company, except where these acts exceed the powers conferred upon those organs.

Even if the formalities of disclosure concerning the persons who are authorised to represent the company have been completed, any irregularity in their appointment shall not be relied upon against third parties. The company may only rely on such disclosure if it provides proof that the third parties had knowledge of the irregularities.

Nullity of the company

The Member States shall provide for the nullity of companies by decision of a court of law. The nullity of a company may only be ordered in the following cases:

  • no instrument of constitution has been executed;
  • the objects of the company are of an unlawful nature or contrary to public policy;
  • there is no statement of the name of the company, subscriptions, the total amount of capital subscribed or the objects of the company;
  • failure to comply with the provisions of national law concerning the minimum amount of capital to be paid up;
  • the incapacity of all the founder members;
  • the number of founder members is less than two.

Once nullity has been official recognised, the company is liquidated. However, shareholders must pay up the capital agreed to be subscribed by them but which has not been paid up with respect to creditors.

This Directive repeals Directive 68/151/EC.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2009/101/EC

21.10.2009

–

OJ L 258, 1.10.2009
Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal

Directive 2012/17/EU

6.7.2012

7.7.2014

OJ L 156, 16.6.2012

Successive amendments and corrections to Directive 89/666/EC have been incorporated in the basic text. This consolidated version is for reference purpose only.

Mergers of public limited liability companies

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Mergers of public limited liability companies

Outline of the Community (European Union) legislation about Mergers of public limited liability companies

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Businesses in the internal market > Company law

Mergers of public limited liability companies

Document or Iniciative

Directive 2011/35/EU of the European Parliament and of the Council of 5 April 2011 concerning mergers of public limited liability companies (Text with EEA relevance).

Summary

This Directive aims at coordinating the legislation of Member States on mergers of public limited liability companies to protect the interests of members and third parties.

Member States need not apply this Directive:

  • to cooperatives;
  • to companies which are being acquired or will cease to exist and are the subject of bankruptcy proceedings, proceedings relating to the winding-up of insolvent companies, judicial arrangements, compositions and analogous proceedings.

Mergers by acquisition and merger by the formation of a new company

Mergers by acquisition * or mergers by the formation of a new company *may be effected where one or more of the companies which are ceasing to exist is in liquidation, provided that the companies have not yet begun to distribute their assets to their shareholders.

Where the administrative or management bodies of companies decide to carry out a merger, they must draw up draft terms of merger in writing which include, in particular:

  • the type, name and registered office of the companies;
  • the share exchange ratio;
  • terms relating to the allotment of shares;
  • the rights conferred by the acquiring company.

The administrative or management bodies of the companies must make the draft terms of merger public at least one month before the date fixed for the general meeting, pursuant to the conditions laid down in the Directive on protecting the interests of members and third parties. They shall be exempt from this requirement if the draft terms are made available on the company website for that period. In order to be valid, the merger must be approved by the general meeting of each of the merging companies.

All mergers require the approval of the general meeting of each of the merging companies. However, Member States need not make the merger subject to approval by the general meeting if:

  • publication of the merger takes place at least one month before the date fixed for the general meeting;
  • all shareholders of the acquiring company are entitled to inspect certain documents (draft terms of merger, annual accounts, for example) at least one month before the date fixed for the general meeting;
  • one or more shareholders of the acquiring company holding a minimum percentage of the subscribed capital (no more than 5 %) is/are entitled to require that a general meeting be called to decide whether to approve the merger.

One month before the date fixed for the general meeting, shareholders may inspect documents (unless they have already been published on the website) such as:

  • the draft terms of merger;
  • the annual accounts;
  • the reports of the administrative bodies.

The merging companies shall protect employees’ rights pursuant to the provisions of the Directive on safeguarding employees’ rights in the event of transfers of undertakings. They must also provide creditors with safeguards as regards their financial situation.

After a merger, the following situations may occur:

  • all assets and liabilities have been transferred;
  • the shareholders of the company being acquired become shareholders of the acquiring company;
  • the company being acquired ceases to exist.

The laws of the Member States may lay down nullity rules for mergers, in particular if:

  • nullity is to be ordered in a court judgment;
  • a defect liable to render a merger void can be remedied;
  • the judgment declaring a merger void does not affect the validity of obligations.

Acquisition of one company by another which holds 90 % or more of its shares

One or more companies may be wound up without going into liquidation and transfer all of their assets and liabilities to another company which is the holder of all their shares, in accordance with the provisions described earlier. Nevertheless, Member States may choose not to impose certain requirements.

This Directive repeals Directive 78/855/EEC.

Key terms of the Act
  • Merger by acquisition: the operation whereby one or more companies are wound up without going into liquidation and transfer to another all their assets and liabilities in exchange for the issue to the shareholders of the company or companies being acquired of shares in the acquiring company and a cash payment, if any, not exceeding 10 % of the nominal value of the shares so issued or, where they have no nominal value, of their accounting par value.
  • Merger by formation of a new company: the operation whereby several companies are wound up without going into liquidation and transfer all their assets and liabilities to a company that they form, in exchange for the issue to their shareholders of shares in the new company and a cash payment, if any, not exceeding 10 % of the nominal value of the shares so issued or, where they have no nominal value, of their accounting par value.

Reference

Act Entry into force Deadline for transposition in the Member States Official Journal

Directive 2011/35/EU

1.7.2011

–

OJ L 110, 29.4.2011

Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States

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Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States

Outline of the Community (European Union) legislation about Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Internal market > Businesses in the internal market > Company law

Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States