New EU company rules must make it easier for SMEs to operate across borders

Measures to enhance the international competitiveness of European SMEs by reducing costs and streamlining registration and company changes through digitalisation were welcomed by the European Economic and Social Committee (EESC) in a report adopted at its October plenary. New common rules simplifying cross border conversions, mergers and divisions also received a thumbs-up, with European civil society appreciating the Commission's wholistic approach, taking into account the impact of these processes on employees and society as a whole.

The EESC backs the proposals designed to boost the international competitiveness of European SMEs by reducing costs, harmonising and simplifying company and branch registration and the filing od company changes though the use of digital tools. The directive is intended to put EU companies on a par with those of other countries with a strong digital tradition like the US, Canada and Australia.

Nevertheless, digitalisation of company law must not be an end in itself, but serve the interests of businesses, particularly SMEs, which account for 95% of European businesses. To ensure that SMEs can make the most of digitalisation and generate growth and jobs in the EU, it should guarantee:

• legal certainty, mainly ensured by the compulsory involvement of notaries in many member states.
• prevention of abuse
• reliable information, including full standards for beneficial ownership, preventive controls and transparent corporate structures through reliable business registers.

Digital registration is considered very important by businesses – in fact, the most important procedure to be made available online according to a 2016 public consultation. It has been shown to be generally cheaper and quicker in the 17 Member States where it is available. In Ireland, for instance, applications are processed in 5 days as opposed to 10-15 days when made on paper and in person, and cost half as much. Similar differences can be found in Estonia, Finland and the UK.

Safeguards against fraud

The Committee subscribes to the rules preventing businesses from moving their registered offices to letterbox companies shopping for tax advantages. The safeguards against fraud, tax evasion, money laundering or social dumping - mandatory identification control, rules on disqualified directors and the possibility for Member States to require the involvement of a physical person in the process such as a notary or a lawyer - will make such malpractices harder to pursue.

The EESC particularly supports limiting the choice of Member State of registration to the one with which the company has a genuine link.

The prevention of fraud and abuse does not hinder economic activity, says rapporteur Dimitris Dimitriadis, on the contrary, it is a pre-condition for a fair and transparent Single Market in which companies and SMEs have equal opportunities and can compete for customers in a fair and enabling environment. While recognising that a company's freedom to choose where it wants to do business must be guaranteed, the EESC says it would be advisable to include a rule against abuse of this right.

Once only

The Committee also welcomes the once-only principle whereby citizens, institutions, and companies can only be required to provide standard information to authorities and administrations once. Avoiding multiple registration and multiple official publications is a very positive change which is particularly important for SMEs wishing to operate across borders and will alleviate their administrative burden.

A balanced approach

Business conversions, mergers and divisions entail consequences for employees, creditors and shareholders. As regards, employees, the EESC supports the proposal for common rules to provide employees with full information  the obligation to consult them on the implications of cross-border company operations and adaption of the provisions of the EU company mobility package. The EESC is pleased that the rights of workers to pre-existing board level participation must continue to apply, at least at the level laid down by the departure Member State, according to the standard rules provided for in Directive 2001/86/EC.

We have to be quite clear that companies are not formal institutions. There are people behind businesses – not just management, but workers, shareholders, creditors. While company mobility will facilitate employment in the EU as a whole, the detrimental effects of a conversion, division or merger on local and regional labour markets should be taken into account as well, says opinion co-rapporteur Norbert Kluge.

Background

The EESC's report concerns a package of measures on company law put forward by the European Commission on 25 April. The package including harmonised rules which:

• provide for online company registration and establishment of branches in all States, with no need for physical presence except in cases of suspected fraud.
• make it easier for EU companies to convert, merge, or divide across borders within the EU single market.

They are designed to replace a patchwork of incompatible, inconsistent, and missing laws in the Member States.