German Federal Council sets the brake on the European Private Company
By: Carsten Lexa, LL.M.
The German Federal Council (Deutscher Bundesrat) does not like the European Private Company (EPC). With resolution of Oktober 10, 2008 the Federal Council criticises the conditions for the EPC, set out in the proposal for a “Regulation regarding the European Private Company Statute” by the European Commission of June 2008.
The Federal Council has two main issues with the proposal: First, the EPC lacks cross-border circumstances. The EPC can be incorporated in any member state of the European Union without an underlying cross-border connection. For example, it is not necessary that (1) the shareholders must be members of different member states or (2) the EPC must be offering services or goods in more than one member state. Second, the EPC does not require a certain amount of share capital.
The opinion of the Federal Council is well founded. However, the reasons are partially not comprehensible. Let´s glance at the three main arguments.
First, the Federal Council has the opinion that the EPC is generally not necessary. Instead, it refers entrepreneurs to the possibilities of establishing branch offices in foreign countries or establishing a German Limited Liability Company (GmbH) with registered office in the foreign country. However, several important trade associations have offered the opinion during the years of discussion before the appearance of the European Commission proposal that a branch office is not a suitable solution for a company that is interested in Europe-wide business. And foreign types of company very often appear strange and therefore limit business activities.
Second, the Federal Council criticises the missing minimum capital. This criticism is inexplicable. Germany itself has – since November 2008 – a variation of the GmbH that requires basically one Euro as minimum share capital (indeed, the GmbH itself requires 25.000,00 Euro as minimum share capital). Therefore, it is not clear why the EPC should require a certain minimum capital (however, Germany always had and still has problems with companies without a certain minimum capital – arguments are often creditor protection and “minimum capital as barrier of seriousness”).
Third, the Federal Council criticises the missing cross-border connection. This is indeed an interesting argument. On the European level, the main reason for European legislation and institutions was a cross-border link (see for example the requirements for the incorporation of a European Company, SE). By omitting the requirement of a cross-border connection the EPC could be used locally or regionally and therefore competes against national types of company, although the European Union is not entitled to “create” types of companies that can be used purely locally and therefore as a European type of company that acts only locally. If a company wants to do business only in one member state, it should utilize the national types of companies that already exist. Regarding this argument, based on legal policy considerations, one has to agree with the Federal Council. But one should not forget that entrepreneurs often are not interested in legal policies, but in practical solutions. And according to the trade unions, the lack of cross-border connections does not really bother entrepreneurs.
The discussion regarding the European Private Company is on. We will see more opinions in the future and one should not expect the EPC as a European type of company to appear soon. However, the EPC seems to be very interesting fpr entrepreneurs who are interested in Europe-wide business. Hopefully, the EPC in the end will be a suitable alternative for business owner in Europe.
For inquiries please contact the author: kontakt@kanzlei-lexa.de
Saying thanks will not just be enough, for the wonderful clarity in your writing. I will immediately grab your rss feed to stay abreast of any updates.
Thanks a lot for your response. I will post an update on the situation in Germany in a few days.