Upgrades on EU company law with an emphasis on digitalisation expected
On 29 March 2023, the European Commissioner for Justice Didier Reynders presented a proposal for a Directive aimed at upgrading digital company law in the EU. The proposal’s main goals include improving transparency, fostering trust, and reducing the administrative burden for companies, particularly SMEs, engaged in cross-border activities within the EU.
Key points of the proposal include:
1. Boosting transparency by making essential company information publicly available through the Business Registers Interconnection System (BRIS) and connecting it with other registers such as beneficial ownership and insolvency registers.
2. Enhancing trust by improving the reliability of company information in business registers, ensuring administrative or judicial control, and establishing clear rules for maintaining up-to-date registers.
3. Reducing administrative burden on companies through various measures like multilingual EU Company Certificates and digital EU powers of attorney, eliminating the need for apostilles on certified documents, and applying the “once-only principle” for setting up subsidiaries or branches in other member states.
The proposed measures are expected to apply to around 16 million limited liability companies and 2 million partnerships across the EU and will generate annual savings of around €437 million for businesses that are involved in cross-border activities. Reynders emphasized the importance of these measures for SMEs, which represent a significant portion of limited liability companies in the EU and frequently engage in cross-border activities. The Commissioner expressed hope that the European Parliament and Council will quickly negotiate the proposal for the benefit of businesses and other stakeholders.
The regime would update Directive (EU) 2017/1132, also known as the Company Law Directive. The Directive aimed to address certain aspects of company law, harmonize national laws, and facilitate cross-border operations of EU companies. Some of the key provisions that Directive (EU) 2017/1132 covers include:
1. Formation and maintenance of capital: The Directive establishes rules for the formation of public limited liability companies, including minimum capital requirements and the protection of shareholders’ and creditors’ interests. It also covers the rules for capital maintenance and alteration, distributions, and acquisitions of a company’s own shares.
2. Cross-border mergers: The Directive sets out a framework for cross-border mergers of limited liability companies within the EU. It defines the necessary procedures and legal requirements for such mergers, ensuring that the interests of shareholders, employees, and creditors are protected during the process.
3. Branch disclosure: Directive (EU) 2017/1132 requires companies from other EU Member States to disclose specific information when setting up branches in another Member State. This includes registration details, legal form, name and address of the company, and other essential information.
4. Business Registers Interconnection System (BRIS): The Directive established BRIS, an interconnected system of national business registers that allows for the exchange of information between Member States.
5. Single-member companies: The Directive also covers rules for single-member private limited liability companies, addressing their formation, management, and disclosure requirements.
While Directive (EU) 2017/1132 helped harmonise company law across the EU, the recent proposal that Commissioner Didier Reynders discussed aims to build upon this foundation by further enhancing digital company law.
The European Commission has placed a strong emphasis on digitalisation, recognising it as a key driver for economic growth, innovation, and competitiveness in the European Union. The Commission’s focus on digitalisation is part of its broader strategy to create a Digital Single Market (DSM), which aims to remove barriers and enable individuals and businesses to fully benefit from the opportunities offered by digital technologies. This strategy encompasses various policy areas, such as e-commerce, digital infrastructure, cybersecurity, data protection, and the regulation of emerging technologies like artificial intelligence.
The proposed Directive builds on existing digital initiatives in the EU, such as the Business Registers Interconnection System (BRIS), and introduces new measures like multilingual EU Company Certificates, digital EU powers of attorney, and the “once-only principle” for setting up subsidiaries or branches in other Member States. By streamlining these processes and facilitating the exchange of information, the proposal aims to create a more efficient and cohesive digital landscape for companies operating in the EU.
The proposed Directive on upgrading digital company law in the EU is an important part of the European Commission’s broader digitalisation strategy. By addressing the unique challenges and opportunities presented by digital technologies, the proposal contributes to the Commission’s overall vision of a more competitive, innovative, and integrated Digital Single Market.
Similar discussions and developments have been taking place in other jurisdictions as well. In the UK, the Companies House, the official registrar of companies, has already implemented several digital services, such as electronic filing and online access to company information. The UK has also introduced a beneficial ownership register, known as the People with Significant Control (PSC) register, which is publicly accessible. The UK government is working on further reforms to enhance corporate transparency and improve the quality of data on the Companies Register. Furthermore, the UK Jurisdiction Taskforce (UKJT) has recently published a legal statement on the feasibility of UK companies issuing ‘digital securities’.
In the US, company law and registration are governed at the state level, resulting in a more fragmented landscape compared to the EU’s harmonized approach. However, many US states have embraced digitalisation in company law, offering online registration, filing, and access to company information. The US also maintains a beneficial ownership register, which is not publicly accessible. Furthermore, countries like Singapore and Australia have also adopted digital tools in company law, with Singapore’s Accounting and Corporate Regulatory Authority (ACRA) offering online services for company registration, filing, and access to company information, while Australia’s Australian Securities and Investments Commission (ASIC) provides similar digital services through its online portal. These countries also emphasise the importance of transparency and efficiency in their company law frameworks, reflecting some of the key objectives of the EU’s proposed Directive.