Cause and Effect in European Politics and Law

Sweden and Germany are blocking the creation of a European private company

Adelina Marini, June 3, 2011

Sweden and Germany are the countries that have again postponed the adoption of a regulation for the creation of a European private company with limited liability. This happened during the latest Competitiveness Council in Brussels this week, during which the latest Presidency compromise proposal has been rejected. In order to be enacted, the draft regulation had to be approved by all member states. The representatives of Sweden and Germany, however, objected to two of the most disputed so far elements of the proposed compromise.

What is the European private company?

The idea for the creation of a European limited company has been launched by the European Commission in 2008 as part of EU executive's efforts to include the small and medium-sized enterprises (SME) into the Union's internal market. As Internal Market Commissioner Michel Barnier explained "for too long now the internal market has not been built for SMEs, in fact it is working against them. We wanted to reconcile European SMEs with the single market". The small and medium enterprises in the European Union are actually the backbone of European economy.

According to official data, SMEs create two of every three jobs in the private sector and contribute with 58% (14 trillion euros turn-over) to the common added value, created by business in the EU. Moreover, SMEs represent 95% of the nearly 23 million European companies. The idea for the creation of a European private company is directed entirely to the SMEs, as the big companies do not have problems working in several countries. The statute, known as Société privée européenne (SPE), gives the possibility for work under equal principles in all EU member states.

This means that SMEs will not have to establish subsidiary companies in various forms in every member state if they have trans-border activities. It also means that they will be able to establish a company in one and the same form no matter whether they work in their home country or in another member state. The purpose is to save money and time, which are currently being spent for legal and administrative services.

Where is the problem?

But why for more than 3 years now a compromise cannot be achieved on the matter, that would lead to a further integration of EU single market? Three are the points on which there are disagreements. The first is the seat of a European SPE. The proposal of the Commission allows for SPEs to have a registered office and a central administration in different member states. It is precisely this point that Germany objected. Berlin's fear is that if the seat and the central administration are in different places, this would lead to a successful evasion of taxes.

In its compromise, rejected again, Hungary proposes the seat and the central administration of an SPE to be in the European Union, but according to the national legislation of the host country. Besides, a formulation is proposed, ensuring that the SPE will not be used to avoid their obligations in the country where they are established.

The second disputed element is the capital needed to establish a company. The proposal of the Commission is for a share capital of 1 euro, supported by most of the delegations, but there are again objections by Germany. In order abuses to be avoided Germany insists on higher requirements for the minimum capital. The compromise stipulates again a minimum requirement of 1 euro, while at the same time a ceiling of a maximum 8,000 euro is also foreseen.

The third disputed point, which was objected by Sweden, is related to employees participation. The Presidency proposes the introduction of a single threshold of at least 500 employees, who habitually work in a member state providing higher level of rights for employees participation than the member state where the company is registered. Sweden's objection is based on the fear that the regulation of the part of employee participation should not surround national regulation.

The right of employee participation is directly related to the decision making process of company's management. In 2009 the European Parliament endorsed a resolution, calling on the Commission to start consultations with the social partners precisely in the context of the creation of a European private company. Employees participation is a highly sensitive issue because in some countries participation in the company board has long traditions while in others it has never existed. This is the main reason why the creation of the statute Société Еuropéenne (SE) is being protracted for more than 30 years.

Responding to the Parliament's resolution, the Commission points out that the proposal for the creation of a European private company is based on Article 308 of the Treaty for the EU and from that point of view it is not an initiative related to social policy. Nonetheless, the trade unions were consulted. The Commission's proposal from 2008 takes into account the differences of national traditions in terms of employee participation, the Commission points out.

The German representative expressed his country's willingness and its wish a compromise to be reached, and Commissioner Barnier said that everything possible would be done in order work towards achieving a compromise to be completed by the next Competitiveness Council on June 27. In the beginning of the public debate, Hungary's State Minister for Strategic Affairs Zoltan Csefalvay, who presides the Competitiveness Council, called on his colleagues to support the compromise proposal.

"We are convinced that a new European legal form has a strong potential to enhance the European competitiveness, especially in terms of SMEs. This form could increase significantly the mobility of SME's and reducing significantly the burden for SMEs. Our economy needs SMEs. In light of all the above I would like to ask you to serious consider your positions". Alas, this did not happen again.