European Union Corporate Law
The Harmonisation of Company Law
European Union corporate law is primarily a project of legislative harmonisation through directives, which must be transposed into the national law of each member state. The legal basis for harmonisation is Article 50(2)(g) of the Treaty on the Functioning of the European Union (TFEU), which authorises the coordination of safeguards required of companies for the protection of members and others. The First Company Law Directive, originally 68/151/EEC and now codified in Directive 2017/1132 of the European Parliament and of the Council, required member states to ensure minimum disclosure of company information, including the filing of constitutional documents, financial statements, and particulars of directors, and established the validity of obligations entered into by company organs and the grounds for nullity of companies. Directive 2017/1132 has been progressively amended and now represents the core codification of EU company law, encompassing provisions on disclosure, capital maintenance, branches, and cross-border conversions, mergers, and divisions.
Capital Maintenance and Formation
The Second Company Law Directive, originally 77/91/EEC, was adopted to protect the interests of shareholders and creditors of public limited liability companies by establishing minimum requirements for the formation of the company and the maintenance of its capital. The directive requires that public companies have a minimum share capital, that shares be paid up at least to a specified minimum, and that distributions to shareholders be made only from distributable profits. The directive restricts the reduction of capital, the acquisition by a company of its own shares, and the provision of financial assistance for the acquisition of shares. The capital maintenance regime has been criticised as excessively rigid, and the European Commission has considered reforms to permit greater flexibility while maintaining creditor protection.
Cross-Border Mobility
The Third Directive, 78/855/EEC on mergers, and the Sixth Directive, 82/891/EEC on divisions, were originally adopted to coordinate national rules on cross-border operations. These were codified in Directive 2017/1132 and supplemented by more targeted instruments. The Cross-Border Merger Directive, 2005/56/EC, facilitated mergers of limited liability companies from different member states by establishing a common procedure. The directive requires a common draft terms of merger, reports by management and independent experts, approval by the general meeting, and a pre-merger certificate issued by the competent authority. The Cross-Border Conversions, Mergers and Divisions Directive, 2019/2121 (amending Directive 2017/1132), introduced harmonised procedures for cross-border conversions and divisions, requiring that member states permit cross-border conversions of companies and establishing employee participation rights, creditor protection, and abuse prevention mechanisms.
The European Company (SE)
The European Company (Societas Europaea, SE), established by Council Regulation 2157/2001 and supplemented by the SE Employee Involvement Directive 2001/86, is a supranational corporate form governed directly by EU law. The SE permits companies incorporated in more than one member state to merge, form a holding company, or create a joint subsidiary as a single legal entity subject to a uniform legal framework supplemented by the national law of the member state in which it has its registered office. The SE may adopt either a one-tier board system (administrative organ) or a two-tier board system (management organ and supervisory organ). The registered office must be located in the same member state as the head office. A defining feature of the SE is the requirement to negotiate employee participation arrangements through a special negotiating body, ensuring that employee information, consultation, and participation rights are preserved in the cross-border operation. The SE has been adopted by a number of prominent European corporations but has not achieved the widespread use originally anticipated, owing in part to the complexity of the employee involvement negotiations and the continuing importance of national tax law.
The European Economic Interest Grouping (EEIG)
The European Economic Interest Grouping, established by Council Regulation 2137/85, was the first supranational business form under EU law. The EEIG is designed to facilitate cross-border cooperation between undertakings by enabling them to pool resources while retaining their independent legal identity. The EEIG is not a profit-making entity in its own right but serves to coordinate the activities of its members. It is governed by the regulation and, in matters not covered by the regulation, by the national law of the member state where its official address is located. Members have unlimited joint and several liability for the debts of the EEIG.
The Societas Unius Personae (SUP) and Other Proposals
Directive 2019/2121 on digitalisation and cross-border operations also addressed single-member companies. The proposed Societas Unius Personae (SUP) Directive, which would have created a harmonised European private company with a single shareholder, was withdrawn by the European Commission after failing to secure agreement in the Council, principally owing to disagreements over employee participation and the location of the registered office. The proposal for a Societas Privata Europaea (SPE), a European private company intended to provide a harmonised legal framework for small and medium enterprises operating across borders, similarly failed to achieve consensus. These legislative difficulties illustrate the tension between the goal of harmonisation and the diversity of national corporate law traditions, particularly with respect to employee participation and creditor protection.
The Right of Establishment and the Real Seat Theory
The Court of Justice of the European Union has played a significant role in shaping EU company law through its jurisprudence on the right of establishment. In Centros Ltd v Erhvervs- og Selskabsstyrelsen (Case C-212/97, 1999), the Court held that a member state could not refuse to register a branch of a company validly incorporated in another member state on the ground that the company did not conduct any business in its state of incorporation. In Überseering BV v Nordic Construction Company Baumanagement GmbH (Case C-208/00, 2002), the Court held that the right of establishment requires member states to recognise the legal capacity of companies validly incorporated in another member state. In Cartesio Oktató és Szolgáltató bt (Case C-210/06, 2008), the Court confirmed that a member state may impose restrictions on the outbound transfer of a company’s registered office, including requiring the company to wind up and reincorporate. In VALE Építési kft (Case C-378/10, 2012), the Court held that a member state must permit a company incorporated under its law to convert into a company governed by the law of another member state, subject to compliance with the requirements of the host state.
Digitalisation and Business Registers
The Business Registers Interconnection System (BRIS) was established to enable the electronic interconnection of business registers across member states, providing a central platform for access to company information. Directive 2019/2121 introduced further digitalisation measures, including the possibility of electronic registration for cross-border operations and the interconnection of company registers. The European Commission continues to pursue the digitalisation of company law, including proposals for a digital single market in company law that would further reduce administrative burdens and facilitate cross-border business activities through fully online registration and reporting procedures.