The EU Cross-border Company Mobility Package, also know as the Company Law Package (CLP), proposed by the European Commission in April 2018, was the most significant EU company law initiative since the 2003 Action Plan. It was adopted in 2019 and consists of two Directives:
This section contains three parts:
- a description of the Company Law Package
- GoodCorp research relevant to the transposition process
- materials written by GoodCorp members in 2018 relevant to the CLP legislative process
Description of the Company Law Package
The CLP consists of two Directives, both designed to promote company mobility and the 'freedom of establishment' in the EU:
1) the Digital Tools and Processes Directive (Directive (EU) 2019/1151) requires EU Member States to do the following:
- enable persons from anywhere in the EU to establish certain types of companies online without having to appear in person at a registration authority in that Member State
- enable companies to complete their financial and company law reporting requirements fully online and register branches in "one stop"
- enable registries holding company information to make all information available digitally
A key implication of this Directive is that it will become much easier to establish 'letterbox companies' in any Member State. To try to reduce the potential for corporate abuse, a number of anti-abuse safeguards are included in the Directive. However, the effectiveness of these safeguards will depend on how this Directive is transposed in each Member State.
2) the Cross-border Conversions, Mergers and Conversions Directive (Directive (EU) 2019/2121) does the following:
- creates a framework for companies to 'convert' to a company form from another Member State's company law system
- modifies the existing framework for companies from two or more Member States to merge
- creates a framework for companies to divide up into smaller companies in two or more Member States
This Directive also increases the potential for corporate abuse through the strategic use of cross-border reorganization to avoid worker participation, labor standards, taxation, etc. It also contains anti-abuse safeguards which might however be implemented in different ways in different Member States.
Anti-abuse provisions in the Company Law Package
The Digital Tools and Processes Directive contains a number of provisions which in theory should help reduce the potential for corporate abuse:
- electronic identification (eID) of firm founders - since founders will not be required to appear in person before a registration authority, it is important that Member States require their identification through systems registered with the EU (eIDAS) with the 'highest' level of assurance
- disqualified directors - as persons who have been disqualified to become company directors (due e.g. to criminal activity) may try to found a company in another Member State, it is important to have clear criteria for disqualification, an up-to-date list of disqualified directors, and a rapid and effective means for a registration authority to check disqualification lists in other Member States
- beneficial owners - as corporate abuse often involves hiding the identity of true ultimate owners, it is important to have an effective and transparent registry for ultimate beneficial owners (UBO) which does not simply rely on management affidavit as to the identity of these persons; furthermore the UBO registry should be checked when founding a firm
- real checks rather than 'checking the list' - in general, the registration authority should go beyond a 'checklist' approach which simply verifies if the necessary documents are provided, to a real check for (potential) corporate abuse. This may involve an upgrade in the personnel capacity of registration authorities
- communication between national authorities - the development of a capacity for rapid communication and response to queries is crucial, as cross-border corporate abuse is easier if national authorities do not effectively communicate with each other. This is even more important given that registration authorities must approve company foundations within either 5 or 10 days (depending on type of foundation)
The Cross-border Conversions, Mergers and Divisions Directive also contains anti-abuse provisions:
- national authorities are required to check that a number of requirements are fulfilled before giving preliminary approval to the cross-border reorganization (issuance of pre-conversion/pre-merger/pre-divison certificates). They may utilize 'independent experts' to check if the reorganization is being used for corporate abuse
- national authorities are also required to check if a further set of requirements have been fulfilled (e.g. negotiations over worker information, consultation and participation) before approving the reorganisation
GoodCorp research relevant to the transposition process
In order to inform the transposition process, the ETUI's GoodCorp network started a project entitled 'National-Level Corporate Anti-Abuse Measures Relevant to the EU Company Law Package.' The goals of this project were to:
- identify the current state of anti-abuse measures at the national level
- identify 'good practices' that appear to be particularly effective and could inform transposition in other Member States
- assess the overall potential for achieving the anti-abuse goals in the CLP
For the project, a series of national experts were commissioned to complete questionnaires describing practices in their country regarding:
- Disqualified Directors - codified grounds for disqualification, existence of current list, and transparency of this list (if it exists)
- Electronic Identification (eID) - existence of an eID system registered with the European Commission and its level of assurance
- Ultimate Beneficial Owner registry - existence, system for verifying identity, transparency
- Notary - role in registration process (if any)
- Company Registry - procedures for registration, transparency
- Cross-border Mergers - procedure and anti-abuse checks
- Expert analysis by country.