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17.2.1.  The legal environment of European business

    As central elements to achieving the common market, company law and accounting were among the first areas of legislation that were harmonised at the European level. The objectives pursued by the European Union through its efforts at harmonisation in the area of company law and accounting are: the mobility of firms in order to allow them to benefit from the advantages of a unified market; the equality of the conditions of competition between firms established in different Member States; the promotion of commercial links between the Member States; the stimulation of cooperation between firms across borders and the facilitation of cross-border mergers and acquisitions. Appropriate European measures are needed to provide for legal structures which facilitate cross-border establishment and investment, and to smooth discrepancies between national systems of company law which discourage or penalise these activities.

    By virtue of the freedom of establishment laid down in Chapter 2 of the Treaty on the functioning of the EU, undertakings formed in accordance with the law of one Member State do not encounter administrative problems in establishing themselves in the territory of another Member State [see section 6.5.1]. The same cannot be said of the real economic and legal problems of establishment, which cannot disappear by the sole virtue of the provisions of the Treaty. Indeed, as the common market develops, companies see a constant increase in the transnational dimension of their relations with third parties, be they shareholders, employees, creditors or others. That development multiplies the danger of conflict between the various national measures, which guarantee the rights of those people. It is accordingly understandable that the European Community's first effort of structural policy concerned the coordination of the company law of the Member States by means of based on Article 54.3.g. of the EEC Treaty (Article 50 § 2.g TFEU, ex Article 44.2.g TEC), which provides for coordination of the safeguards which are required by Member States of European  companies for the protection of the interests of members and others. On the basis of this article, a number of directives harmonised several aspects of the company law of the Member States.

    The first Directive lays down a system of disclosure applicable to all companies in order to coordinate safeguards for the protection of the interests of members and others and to facilitate public access to information on companies[Directive 2009/101 codified by Directive 2017/1132]. It obliges Member States to keep a register of companies, which anyone may examine, and to ensure that certain information is published in a national gazette. Also to protect the interests of members and others, the second Directive provides for the harmonisation of the standards and procedures relating to the formation of public limited liability companies and the maintenance and alteration of their capital. An amendment to this Directive aims to ensure that this type of company does not make use of a subsidiary for the acquisition of its own shares [Directive 77/91, recast by Directive 2012/30, codified by Directive 2017/1132]. The third Directive introduces into the legal systems of all member countries the procedure for the merger of public limited liability companies, with the transfer of the assets and liabilities of the acquired company to the acquiring company [Directive 78/855, codified by Directive 2011/35, codified by Directive 2017/1132]. The sixth Directive regulates the hiving-off process, i.e. the division of an existing company into several entities [Directive 82/891, codified by Directive 2017/1132]. The eleventh Directive imposes measures in respect of disclosure in the Member State in which a branch is situated, in order to ensure the protection of persons who through the intermediary of the branch deal with a company who is governed by the law of another Member State [Directive 89/666 codified by Directive 2017/1132]. A new Directive (ex twelfth) deals with single-member private companies and allows, under certain conditions, the limitation of liability of the individual entrepreneur throughout the European Union [Directive 2009/102]. A Directive establishes requirements in relation to the exercise of certain shareholder rights attaching to voting shares in relation to general meetings of companies which have their registered office in a Member State [Directive 2007/36, last amended by Directive 2017/828].

    The fourth and seventh Directives were replaced in 2013 by a single Directive which coordinates the annual financial statements, consolidated financial statements and related reports of certain types of undertakings and groups of undertakings, defined according to their balance sheet total, their net turnover and the average number of employees during the financial year (10 for micro-enterprises, 50 for small enterprises and 250 for medium-sized) [Directive 2013/34, last amended by Directive 2014/95]. The coordination of national provisions concerning the presentation and content of annual financial statements and management reports of certain types of undertakings with limited liability is of special importance for the protection of shareholders, members and third parties. Coordination is necessary in those fields for such types of undertakings because, on the one hand, some undertakings operate in more than one Member State and, on the other hand, such undertakings offer no safeguards to third parties beyond the amounts of their net assets.

    The eighth Directive defines the qualifications of persons responsible for carrying out the statutory audits of accounting documents [Directive 2006/43, last amended by Directive 2014/56]. These individuals must have received high-level theoretical and practical training, have passed an examination of professional competence and have been approved by the relevant authority in the Member State where they are performing their duties.

    It should be noted, however, that accounts prepared in accordance with the accounting Directives and the national laws which implement them do not meet the more demanding standards drawn up by the International Accounting Standards Board (IASB) in collaboration with the International Organisation of Securities Commissions (IOSCO). Therefore, a regulation requires companies, including banks and insurance companies, to draw up their consolidated accounts in accordance with international accounting standards (IAS) from 2005 [Regulation 1606/2002 and Regulation 1126/2008, last amended by Regulation 2016/1703]. By improving the reliability, transparency and comparability of company accounts throughout the European Union, this regulation aims to remove barriers to cross-border trade in transferable securities, reduce the cost of capital for companies and ultimately strengthen their competitiveness.

    Specific Directives, mentioned in the chapter on the common market, deal with the annual accounts and consolidated accounts of banks and insurance undertakings [see sections 6.6.1 and 6.6.2]. A Directive concerning the common taxation system applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States removes the main tax obstacles to cooperation and restructuring of enterprises within the European Union [Directive 2009/133, see section 14.3.1].

    More than 31 years after the Commission proposal for the creation of the European company (a record in European legislation), the Council finally adopted the two legislative instruments necessary for its creation, the regulation on the statute for a European company [Regulation 2157/2001] and a directive supplementing this statute with regard to the involvement of employees [Directive 2001/86]. These legal provisions make it possible for a company to be set up within the territory of the European Union in the form of a public limited-liability company, with the Latin name Societas Europaea (SE). An SE is entered in a register in the Member State where its registered office is situated. Every registered SE is publicised in the Official Journal of the European Union. An SE must take the form of a company with share capital of at least EUR 120 000. The rules relating to employee involvement in the SE seek to ensure that the creation of an SE does not entail the disappearance or reduction of practices of employee involvement existing within the companies participating in the establishment of an SE [see section 13.5.2].

    The Statute for the European company provides enterprises with an optional new instrument, which makes cross-border enterprise management more flexible and less bureaucratic and may help improve the competitiveness of European enterprises. The SE makes it possible to operate Europe-wide while being subject to European legislation directly applicable in all Member States. Several options are available to enterprises from at least two Member States wishing to form an SE: a merger, a holding company, the creation of a subsidiary, or transformation into an SE. The statute allows a public limited-liability company, which has its registered office and head office within the European Union, to transform itself into an SE without going into liquidation. An SE may itself set up one or more subsidiaries in the form of SEs. The registered office of an SE may be transferred to another Member State under certain conditions, but without winding up of the SE or creating a new legal person. Subject to the Regulation on the statute of SEs, an SE should be treated in every Member State as if it were a public limited-liability company formed in accordance with the law of the Member State in which it has its registered office.

    The statute for a European cooperative society (SCE) is modelled on that of the European company, with the changes required by the specific characteristics of cooperative societies [Regulation 1435/2003]. It allows the creation of a new legal entity for the organisation of economic operations in two or more Member States in the form of a cooperative society. It is supplemented by a Directive providing arrangements for the involvement of employees in a SCE [Directive 2003/72].

    The Commission supports the effective promotion and development of cooperatives in the European Union, noting that they are an integral element in achieving the Lisbon strategy objectives [see sections 13.3.2 and 17.1.3] and that they are playing an increasingly important and positive role as vehicles for the implementation of many common objectives in fields such as employment policy, social integration, regional and rural development and agriculture. According to the Commission the statute for a European cooperative society is already an effective instrument for cross-border and pan-European cooperation between cooperatives [COM/2004/18].

    The harmonisation of company law and the creation of European companies facilitate the interpenetration of markets and the concentration of companies at European level. But it is also necessary for European undertakings to be able to cooperate easily amongst themselves, which is by no means straightforward. The various forms provided for by national laws for cooperation between domestic undertakings are not adapted to cooperation at common market level, owing specifically to their attachment to a national legal system, which means that cooperation between undertakings from several countries must be subject to the national law governing one of the participating undertakings. Economic operators, however, do not readily accept attachment to a foreign legal system, both for psychological reasons and owing to ignorance of foreign laws. Such legal barriers to international cooperation are particularly important where the parties involved are SMEs.

    It was therefore necessary to introduce a legal instrument covered by European law, which would make adequate cooperation between undertakings from different Member States possible. This is the purpose of the "European Economic Interest Grouping" (EEIG), an instrument for cooperation on a contractual basis created by a Council Regulation in 1985 [Regulation 2137/85 and EEA Agreement]. The EEIG is not an economic entity separate from and independent of its members, behaving autonomously and trying to make profits for itself. It is a hybrid legal instrument offering the flexibility of a contract and some of the advantages of company status, including notably legal capacity. It serves as an economic staging post for the economic activity of its members. It enables them, by virtue of pooled functions, to develop their own activity and thus increase their own profits. Each member of the Grouping remains entirely autonomous both in economic and legal terms. That is a pre-condition for the existence of the European Economic Interest Grouping and distinguishes it from any other form or stage of merger. The Grouping ensures the equality of its members. None of them could give the others or the Grouping itself binding directives. Lastly, the Grouping may not seek profit for itself, may provide services only to its members and must invoice them at the cost price. These services can consist of marketing, the grouped purchase of raw materials or the representation of its members' interests.

    Natural persons, companies and all other "legal entities" falling under public or private law can form part of an EEIG. Groupings can be created in all sectors of the economy, from agriculture to industry, trade, the craft sector or services. The grouping must incorporate at least two bodies: the board of members and the manager or managers. The board of members is the supreme body. It can take any decision for the purposes of attaining the grouping's objective. The members of the EEIG have considerable liberty to organise its management in line with the needs of the cooperation venture. An EEIG can be constituted without capital; it can even have no assets. Members enjoy a great deal of flexibility regarding how they decide to finance the grouping's activities. An EEIG can, in all the Member States, be a holder of rights and obligations, conclude contracts, be a party to legal proceedings and have its own assets in accordance with the objectives set by its members. Due to its full legal capacity, it is obliged to assume responsibility for its commitments on its own assets. Nevertheless, in the event of default by the grouping, its members are jointly and severally liable with regard to third parties for the debts of the grouping.

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