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EU Company Law in the Digital Era

The European Commission has published a proposal complementing and amending the European Union Company Law Directive 2017/1132 which focuses on the use of digital tools and processes in company law. The Directive focuses on certain elements of digitisation, including the Member States’ obligation to ensure that information about limited liability companies registered in central, commercial and companies’ registers is made available online. However, due to the limitations imposed as a result of the Directive, it is difficult to ensure that a uniform implementation takes place at a national level. As an example, due to the fact that online company registration, filing and publication is not provided for in EU Law, numerous Member States opt to legislate their own laws regulating the matter, resulting in a diverse implementation across the board. This is regarded as an unnecessary hindrance to entrepreneurs who wish to expand or set up a new business by registering branches or subsidiaries online.

The proposed amendments greatly reflect the ever-growing progression of the digital sector. The objective is to ensure that a wide range of digital solutions are presented to companies acting within the Single Market. This would enable companies to register, and file everything online, rather than being required to appear in person before a competent authority.

For instance, the proposal provides a legal framework for Member States to request information from other Member States concerning disqualified directors. Member States may refuse the appointment of any individual as a director of a company or branch who is currently under a disqualification order imposed in another Member State. Moreover, the European Commission’s proposal introduces online registration for companies, releasing the applicant from having to apply in person. Member States are given the option of doing away with this provision in the case of public limited liability companies, due to the complexity of their registration process.

Furthermore, it ‘ensures the mandatory recognition of e-IDAS compliant electronic identification means of Union citizens in another Member State and allows at the same time Member States to recognize other identification means. As a safeguard to avoid fraud, the provision allows a Member State to require the physical presence of relevant persons before a competent authority but only in case of genuine suspicion based on reasonable grounds’.

Moreover, Member States are being proposed to ensure that the rules regulating fees for the registration and filing of documents are transparent and applied without discrimination; fees charged should never exceed the administrative costs incurred during the provision of the service, and payments for online procedures must be made via a payment-service commonly available to the public. The proposal ensures that any individuals who wish to set-up companies or branch cross-border should have all the relevant information easily accessible.

Lastly, the proposed changes require Member States to keep each other informed via the system of interconnection of business registers, about branch closures registered in a Member State other than the one where the company is registered.

It is interesting to note that when referring to the registration procedures of companies, one should interpret the matter as referring also to procedures followed when verifying the legality of the object of the company, the legality of the name of the company, the legality of the instruments of constitutions and use of templates, the appointment of directors, and the circumstances in which online registration maybe excluded.

Based on figures which were provided by the Commission, there are approximately about twenty-four million companies registered in the European Union, 80% of which are limited liability companies. Almost all of these are small or medium-sized, which means that the aforementioned proposals, if accepted and implemented shall greatly impact most companies in the EU. This is seen as a considerable step forward in the right direction, in support of European Company Law embracing the realities of the new digital era.

Article by Dr Cherise Abela Grech

For more information on corporate law matters and corporate services, please contact Dr Ian Gauci on igauci@gtgadvocates.com or Dr Cherise Abela Grech on cabelagrech@gtgadvocates.com.

This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.