New windows of cross-border opportunities for limited liability companies in the EU

  • 2005-06-29
  • Risto Agur
A directive proposal for cross-border transfer of companies' registered offices 's the Transfer Directive 's is expected shortly from the European Commission. The planned Transfer Directive would enable both private and public limited companies to transfer their registered office from the member state where they are registered to another member state (so-called corporate "redomiciliation").

According to the Commission consultation paper, a company transferring its registered office would be registered in the host member state and would acquire a legal identity there, while at the same time being removed from the register in its home member state and giving up its legal identity there. If necessary, companies would have to adapt their structures and assets in order to meet the substantive and formal conditions required for registration in the host member state. However, they would not be obliged to go through liquidation proceedings in their home member state or to create a new company in the host member state.

Despite the fact that this Transfer Directive is currently at the proposal stage only, based on the underlying freedom of establishment principle in the Treaty Establishing the European Community, several rulings of the Court of Justice (Inspire Art, Uberseering, Centros and Segers), as well the Action Plan of the Commission on Modernising Company Law, some company law specialists are of the opinion that at this stage it should, in theory, already be possible to transfer companies' registered offices from one member state to another.

This may be true today, but the European Court of Justice explicitly held in its 1988 Daily Mail judgment that there are problems in transferring the registered office of a company from one member state to another that are not resolved by the rules concerning the right of establishment, and these must be dealt with by future legislation, which has as yet not been adopted. Also, there are still a lot of open questions 's e.g., with respect to the conflict of national laws, protection of the rights of minority shareholders and creditors, employee participation, tax related, etc. 's which at this stage are likely to make transferring the companies' registered offices generally very difficult in practice.

Nevertheless, most recent public consultations have highlighted a pressing need for Community law to clearly regulate corporate redomiciliation. This is why it is likely that the Transfer Directive proposal will surface quite shortly. After adoption, it is only a matter of time when corporate redomiciliation can become a reality and a competitive advantage, one of which entrepreneurs should start preparing for already now.

When contemplating corporate redomiciliation, the Baltics in general, but particularly Estonia, is an attractive option to consider when looking for a business environment within the EU with greater economic potential and more favorable investment regime. The opportunity of corporate redomiciliation to Estonia may be of particular interest to Nordic SMEs and family businesses that can, by shifting their corporate and personal tax residence to Estonia, also reduce corporate and personal income tax.

Alternatively, those small and medium size businesses that already have companies in the Baltics yet are too small to incorporate a European Company (SE), may soon opt to execute a cross-border merger whereby the company surviving the merger (the acquiring or new company) would be located in one of the Baltic states and the acquired companies would cease to exist without liquidation proceedings. The directive on cross-border mergers of companies with share capital is likely to be adopted even sooner than the Transfer Directive.

Based on the above, it is safe to say that there are several new windows of cross-border opportunities for limited liability companies in the EU on the horizon, designed to have a favorable impact on employment and competitiveness by way of allowing companies to relocate to member states with more attractive tax and other regulatory environments, or for other reasons. It is just up to the entrepreneurs to take advantage of these once they become a reality 's hopefully in the very near future.

Risto Agur is an associate

at Sorainen Law Offices in Tallinn