5.3. Basic legal options available for a new business
If you would like to know more about European forms such as:
Sole proprietorship
Partnerships and Companies
Civil Partnership
General Partnership
Partnership
Limited partnership
Partnership limited by shares
Limited Liability Company
Joint – stock Company
please check you our e-book: “How to set up business in Europe”.
6.The EU business law essentials
It is important to note at the very beginning of your experience with setting your business in the EU that there will be several legal sources that must be taken into account. Namely: European Union law, international regulations as well as national legal provisions of each of the EU’s Member State.
More details on business law requirements in particular European States you can find in our e-book: “How to set up business in Europe”. It will help to apply the exact set of legal rules to a foreign investor. When you understand all the pieces of the puzzle, it will be much easier to choose the Member State of the planned investment.
7.The requirements for setting up a business in Europe
The EU Member States have the competence to posses their own national company law, which, however, must comply with company law directives and regulations of the European Union. This means that if you plan any investment in the EU, you can assume that the basic aspects of companies’ business activities will be rather similar in each country. Furthermore, this will be strengthened by the application of fundamental freedoms including the free movement of companies and partnerships within the EU. However, as far as detailed and more concrete issues are concerned, you need to search for them in the specific national legislation and possibly rely on an opinion or advice of an attorney and an accounting office.
Apart from the aforementioned, each European Member State has its own unique, national rules concerning foreigners from outside the EU who want to set up a business in that particular State. Although the European Union has a joint immigration policy (the Schengen Agreement), there are still different laws relating to working and setting up a business as a foreigner. Some European States make it fairly simple to obtain a residency permit and set up a business, while others make it virtually impossible for non-Europeans to establish residency and incorporate a business.
Despite the different rules regarding business permits for foreigners, there is one principle that most European States share: foreigners intending to open a business do not need a work permit or any other type of visa. The only requirement is to obtain a residency permit in the State where the intended business will be incorporated and conducted. Initially, the residency permit will be temporary, but after few years, depending on the success of the business, one might apply for a long-term residency permit. In principle, there are several types of businesses that can be set up to qualify for a residency permit. You can set up your business as a sole proprietorship, a partnership, a branch or office of a foreign company, or a private company limited by shares.
In order the business proposal will be approved and a residency permit will be granted to start a business in the EU as a foreigner, it should be proved that the self-employment or business activity is likely to make a significant contribution to the economy, culture or sciences of the chosen State of destination. With this respect, some States require a business plan examined by labor and immigration authorities to determine if it suits the economic needs of that State and sufficient investments as well as services (for which there is a need in that State) will be provided.
One of additional requirements to start the business is to prove that the business owner has a sufficient amount of money available to fund the start-up. In the UK for instance, at least 200,000 £ is required as well as additional funds to support the business owner and his/her family until your business is profitable. Apart from that, most European States also require full-time involvement in the business and declaration that public assistance or even employment will not be seek while operating the business. Furthermore, the UK requires that two new full-time jobs for UK residents be created by the business. This requirement could be found in other States but not everywhere.
In addition to aforementioned legal requirements to establish a business as a foreigner from outside the European Union, there are other regulations regarding business permits, registrations, etc. To incorporate a business, it should be registered with the local authorities (including social security) and tax identification number should be received.
In order to help the reader and possible future investors in the EU market to find out most relevant national company law regulations and solutions, certain legal aspects of particular and most convenient business locations will be presented below.
More details on business law requirements in particular European States you can find in our e-book: “How to set up business in Europe”.
8.Summary
Today's business world offers to its worldwide participants, territorially almost unlimited possibilities of action. Thanks to new technologies and increased mobility, economic activity across borders of the States or the supranational organizations should not come as a surprise. This applies to both large corporations as well as small entrepreneurs, including start-ups.
Based on the aforementioned, one could fairly say that an international aspect of doing business beyond national frontiers, that reaches out to customers from various countries around the globe is already evident. This can be experienced through extremely easy access to internet, but also as a result of the legal changes in regulations between countries and between international organizations, for example: CETA agreement (Comprehensive Economic and Trade Agreement between the EU and Canada) or still negotiated TTIP (Transatlantic Trade and Investment Agreement between the UE and the US). While corporations commonly operate on a global scale, as far as the European Union is concerned, the laws governing their internal affairs remain either European or national.
This contribution intends to guide and advise you exactly where to locate your business, based on the investor chosen priorities. For some it will be time necessary for establishing a business vehicle, for others more pertinent could be the costs and accounting issues in the initial stages of incorporation or flexibility and efficiency of the judiciary. Furthermore, some other issues may appear similarly significant such as the availability of highly qualified employees, the average salary/costs of employment in the region, the risk of corruption or the availability and accessibility of public authorities for national and foreign entrepreneurs.
All the aforementioned factors are, in our opinion, much more important for a successful start-up of business activities than detailed knowledge of legal or tax and accounting regulations, which still may significantly differ from country to country around the world, but which can be simply accessible as a result of professional advice or assistance. From this point of view, we believe that the comparison made in the contribution at hand concerning the best, fastest, cheapest, easiest, etc. location to run a business, could facilitate the decision to launch the adventure and the competition for customers especially in the European Union.
In recent years there have been significant changes with respect to the companies’ mergers, other reorganizations and moves, as the European legislation and the ECJ’s decisions have opened the possibility that these actions can be implemented across borders The European Company Statute, the Cross-border Merger Directive or the prospective European Private Company Statute prove the high demand for corporate mobility.
The global economy has indeed impacted the way that business is done. One of the consequences is the increasing awareness of cultural differences influencing the style of management of a particular business, its key priorities and business relations with partners as well as among employees themselves. Therefore, the key managers in any organization
should already be prepared to properly cooperate both with American, Canadian and European business partners.
The key management should understand that business culture has a significant impact on the relations with their business partners, the methods of negotiation, the manner of standard procedures, the way of cooperation with employees, the working hours, work-life balance (or not) and so on. For instance, the biggest difference in doing business between the US and Europe is the variety of languages that have to be dealt with. Additionally, in Europe companies choose a traditional business structure. In contrast, the US businesses tend more towards a flatter management structure with a few levels between senior management and the employees. Furthermore, in most European States, there exists substantial care of work – life balance that provides for much more days off (including fully paid sick leaves or maternity/paternity leaves) than in the US as well as less working hours.
Understanding and mutual respect for any differences in running a business is absolutely vital to operate on a wider global scale. We hope that this contribution helps assess and choose the most suitable place to do business in Europe and will successfully contribute to the expansion overseas with benefit for all of the parties involved.
Good luck!
9.Bibliography
Literature:
I. Erel, R. Liao, M. Weibach World Markets for Mergers and Acquisitions, Fisher College of Business – Ohio State University Working Paper 2009;
D.S. Hamilton and J.P. Quinlan The transatlantic economy 2016, Annual survey of jobs, trade and investment between the United States and Europe;
H. Hansmann, R. Kraakman The essential Role of Organisational Law Yale L.J. 110, 2000.
J. Harrop Free trade, the customs union and internal market in “Political economy of integration in the European Union” E.E.Elgar 2000;
M. Lutter Legal Capital in Europe, European Company and Financial Law Review, 2006, Special Volume 1.
J. Meeusen, M. Myszke-Nowakowska International company law in the European internal market: three decades of judicial activity, XI Brazilian Yearbook of International Law (Anuário brasileiro de direito internacional) 17th edition, October 2016;
M. Myszke – Nowakowska The role of the choice of law rules for the freedom of establishment, Intersentia: Cambridge, Antwerp, March 2014
J. Pelkmans Market Integration in the European Community, Martinus Nijhoff Publishers, The Hague, Boston, Lancaster, 1984;
A.-L. Sibony, A. Defossez Liberté d’établissement et libre prestation de service RTD eur. 45 (3), 2009 ;
E. Wymeersch Das Bezugsrecht der alten Aktionäre in der Europäischen Gemeinschaft, eine rechtsvergleichende Untersuchung, Die Aktiengesellschaft, 1998;
Case law of the Court of Justice of the European Union
ECJ, 27 September 1988, Case 81/87, The Queen/H. M. Treasury and Commissioners of Inland Revenue, ex parte Daily Mail and General Trust plc;
ECJ, 9 March 1999, Case C-212/97, Centros Ltd/Erhvervs- og Selskabsstyrelsen;
ECJ, 5 November 2002, Case C-208/00, Überseering BV/Nordic Construction Company Baumanagement GmbH (NCC);
ECJ, 30 September 2003, Case C-167/01, Kamer van Koophandel en Fabrieken voor Amsterdam/Inspire Art Ltd.
ECJ, 13 December 2005, Case C-411/03, SEVIC Systems AG.
ECJ, 16 December 2008, Case C-210/06, Cartesio Oktató és Szolgáltatóbt.
ECJ, 29 November 2011, Case C-371/10, National Grid Indus BV/Inspecteur van de Belastingdienst Rijnmond/kantoor Rotterdam.
ECJ, 12 July 2012, VALE Építésikft, Case C-378/10.
European legislation:
First Council Directive 68/151/EEC of 9 March 1968 on co-ordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, with a view to making such safeguards equivalent throughout the Community OJ L 65, 14/03/1968 amended by Directive 2003/58/EC of 15.7.2003 as regards disclosure requirements in respect of certain types of companies.
Convention on the mutual recognition of companies and bodies corporate BULL. SUPPL. NO 2-1969 P. 7-14.
Council Directive (77/91/EEC) of 13December 1976 on Co-ordination of safeguards which for the protection of the interest of Members and others, are required by Member States of companies within the meaning of the second paragraph of article 58, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view of making such safeguards equivalent [1977] OJ L26/1.
Second Council Directive 77/91/EEC of 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent OJ L 26, 31/01/1977, amended by Directive 2006/68/EC of the European Parliament and of the Council of 6 September 2006 as regards the formation of public limited liability companies and the maintenance and alteration of their capital
Third Council Directive 78/855/EEC of 9 October 1978 based on Article 54(3)(g) of the Treaty concerning mergers of public limited liability companies, OJ L 295 of 20.10.1978.
Eleventh Council Directive 89/666/EEC of 21 December 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State OJ L 395, 30/12/1989 p.36.
Twelfth Council Company Law Directive 89/667/EEC of 21 December 1989 on single-member private limited-liability companies OJ L 395, 30/12/1989 p.36.
European Commission “Proposal for a Fourteenth European Parliament and Council Directive on the Transfer of the Registered Office of a Company from one Member State to another with a Change of Applicable Law” (1997), doc no XV/D2/6002/97-EN REV 2.
Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings.
Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. OJ L 012 , 16 January 2001.
Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) – OJ L 294.
Directive 2003/58/EC of the European Parliament and of the Council of 15 July 2003 amending Council Directive 68/151/EEC, as regards disclosure requirements in respect of certain types of companies.
Communication from the Commission to the Council and the European Parliament, Modernizing Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward, COM(2003) 284 final, 21.5.2003.https://www.eu.int/comm/internal_market/company/seat-transfer/2004-consult_en.html
Council Directive 2005/19/EC of 17 February 2005 amending Directive 90/434/EEC 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States.
Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies, O.J. 2005 L 310/1.
Proposal for a Council regulation of 27 June 2008 on the Statute for a European private company COM (2008) 396/3.
Revised Presidency compromise proposal for a Council Regulation for a European Private Company, Annex to Addendum 1 16115/09 Brussels 27 November 2009;
Treaty on the Functioning of the European Union [former EC Treaty]. The consolidated version of this Treaty together with the Treaty on European Union is reproduced in O.J. 2010, C 83.
European Commission proposal for a Council Directive ona Common Consolidated Corporate Tax Base (CCCTB) COM 2011 121/4).
European Parliament resolution of 6 April 2011 on a Single Market for Enterprises and Growth (2010/2277(INI)); P7_TA-PROV(2011)0146.
European Parliament resolution of 14 June 2012 on t
he future of European company law (2012/2669(RSP))
Rankings:
The Global Competitiveness Index (The World Economic Forum);
The Index of Economic Freedom (the Heritage Foundation);
Doing Business Index (The World Bank);
Cushman & Wakefield Index;
Forbes Leading European Cities Ranking;
10.Useful Links
The European Union
https://europa.eu/
The European Union – “Your Europe”
https://europa.eu/youreurope/business/start-grow/start-ups/index_en.htm
The European Union – European Commission – Trade Policy with the United States of America
https://ec.europa.eu/trade/policy/countries-and-regions/countries/united-states/
The European Union – European Commission – Trade Policy with Canada
https://ec.europa.eu/trade/policy/in-focus/ceta/index_en.htm
The European Union – EurLex
https://eur-lex.europa.eu/homepage.html?locale=en
The Global Competitiveness Index 2016 – 2017 (The World Economic Forum)
https://www.weforum.org/reports/the-global-competitiveness-report-2016-2017-1/
The Index of Economic Freedom (the Heritage Foundation)
https://www.heritage.org/index/
Doing Business Index (The World Bank)
https://www.doingbusiness.org/rankings
Start your business in Europe: Introduction Page 8