A European Private Company:  A report published this week asks is Europe’s single legal form for SMEs close to approval?

Deutsche Bank Research says small and medium-sized enterprises (SMEs) in Europe have long called for a matching legal form valid across the EU (similar to that of the European company (SE) for large firms). The main benefits would be the availability of uniform Europe-wide company structures, significant cost reductions for businesses and further integration of the internal market.

Andreas Bernecker, author of the report, says that the European Commission put forward a proposal in 2008 in the framework of the  -- Small Business Act (SBA) for Europe providing for a Regulation for a Statute for a European Private Company (Societas Privata Europaea or SPE). The proposal was passed by the European Parliament in March 2009 with some amendments. The German government also cited the introduction of the SPE as an objective in its coalition agreement of October 26, 2009 (page 109). However, the Council Regulation proposed at the EU level in December 2009 did not achieve the unanimity required for it to be adopted - - partly due to the position of the German government. Since then there has been no more progress, as confirmed by administrators at the European Commission. This means that the statute was not able to come into force as originally intended on July 1, 2010. the economist says hopes are, however, being placed in the Belgian EU presidency in H2 2010.

The economist says some 98% of all German exporting businesses are small and medium-sized enterprises. Their main trading partners are located in the other member states of the European Union. This means that more than 60% of German exports go to the EU-27, some 10% to other European countries and 30% are sent outside Europe. This underlines the significance of the single European market - - especially for small and medium-sized enterprises. However, German SMEs generate only around 20% of all German export sales and only 5% of European SMEs have subsidiaries in other EU states.

Bernecker says the costs incurred in establishing and maintaining a subsidiary in another EU state can  --  on account of the difference in legal forms  --  can be prohibitively high and under certain circumstances prevent a German SME from doing business at all in a different EU state. For example, any business wishing to set up a subsidiary with just two employees in Belgium or Italy has to expect to cough up €2,000 or €3,000 respectively simply to cover notary costs. Of those SMEs that constantly pursue business activities in other EU countries, over 30% regularly seek legal advice when they encounter difficulties concerning legal form according to a German survey. The annual costs thus incurred are high, and for far over half of the companies surveyed the figure was more than €5,000. For these reasons, a single EU-wide legal form would appear to be a suitable means of achieving uniform company structures across Europe, significantly reducing transaction costs and further boosting the integration of the single European market. Since SMEs account for 70% of private-sector jobs in the EU, they certainly also possess significant potential to create jobs. A swift introduction of the SPE would in any case be welcome from an economic point of view, the economist says.

Bernecker says plans of the European Commission provide for the SPE to be a joint-stock company with limited liability (Article 1) like the German GmbH, i.e. the shareholders are liable up to the amount of the capital for which they have subscribed (Article 3). The company can be founded ex nihilo, by transformation, merger or division (Article 5), and registration of the SPE is only subject to a legality check of the documents at one level, either by an administrative or judicial body or via certification by a notary (Article 10). The minimum share capital of the SPE has the symbolic value of €1 (Article 19). An SPE may have its principal place of business and its registered office in two different member states (Article 7). The shares are not to be publicly traded (Article 3) and the exact conditions for a transfer of shares are to be set out in the SPE’s articles of association (Article 16, Annex I).

The economist says it was because of a very similar debate on employee participation rights that it took roughly 30 years to prepare and adopt legislation to launch the European company (SE - - the big company model). "It is to be hoped that the SPE will not meet a similar fate. After all, the depicted gains that may be achieved via early implementation of the SPE are simultaneously the losses to be suffered if its implementation is delayed," he added.