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Company Law

Analysis - guidance - compliance

27 JUL 2015

Single member companies - a new corporate vehicle takes shape

Single member companies - a new corporate vehicle takes shape
Nigel Banerjee

 The European Commission has long wanted to make it easier for smaller companies to operate across national borders within the EU. Its ambitious plan to facilitate cross-border activity by such companies by introducing an entirely new corporate entity - the European Private Company - met with various obstacles, and was eventually abandoned in October 2013. By that stage, however, it had already consulted on the possibility of harmonising Member States' domestic rules on single member companies, and in April 2014 it published a proposal for a directive which would require Member States to make available a form of single member company to be known as a 'Societas Unius Personae' (SUP).

 In late May 2015, the Council reached agreement on a revised version of the draft directive. It is still too early to say whether the directive will actually materialise and, if it does, precisely what form it will take. However, now that we are getting a clearer idea of its possible features, companies which already operate across the EU's borders or are contemplating an expansion within the EU should start to take an interest in this initiative.

 The original proposal

The aim of the initiative is to reduce the costs involved in setting up a company in another jurisdiction by requiring every Member State to make available a single member company which is subject to certain harmonised rules concerning its formation and operation.

 In its original form, as published by the Commission in April 2014, the draft directive provided, amongst other things, that:

  • only specified information could be required in connection with the formation of an SUP (article 13);
  • an SUP could be registered electronically (ie without the need for the shareholder to travel to the country in question) (article 14);
  • the process of registering an SUP should take no more than 3 working days (article 14);
  • an SUP would not be permitted to issue more than one share (article 15);
  • the minimum share capital for an SUP would be €1 (or, in the case of a UK company, £1), and Member States could not require the company to build up reserves (article 16);
  • the Commission would produce a set of model articles of association which an SUP would have to adopt in the first instance if it opted for electronic registration (articles 11 and 14), but which it could subsequently amend (article 12);
  • an SUP could pay a dividend only if it satisfied a balance sheet test and if its directors had made a solvency statement confirming that it would be able to pay its debts over the course of the following year (article 18);
  • specified types of decision - for example, an amendment to the articles of association, the approval of the accounts and the appointment and removal of directors - would be the province of the shareholder, although the directive appeared to allow national regimes to permit all such decisions, save the approval of the accounts, to be delegated to the board (article 21).
The substantive provisions of the draft directive ran to just a dozen pages. Although they were to be supplemented by the model articles, which would cover a wide range of areas, including 'organisation, accounts and the dissolution of an SUP' (article 11), the Commission was clearly trying to adopt a relatively light touch in terms of the extent of the harmonisation which it was seeking to achieve. A set of 'frequently asked questions' which accompanied the publication of the directive noted, for example, that the question of employee involvement in the SUP would be a matter for national law, and so, too, presumably, would matters such as the scope of the directors' duties.
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The latest draft of the directive

At the end of May 2015, the Council announced that it had agreed a revised text of the directive. The revised draft differs from the April 2014 draft in a number of ways. Overall, and perhaps not surprisingly, the effect of the Council's amendments is to reduce the extent to which the directive would harmonise the law across the EU.

On the one hand, the Council's draft preserves a core feature of the original draft, namely the provision that it should be possible to form an SUP electronically, thus ensuring that a prospective shareholder would not need to travel to the country in question. (It does, however, extend the deadline for the completion of the registration process to five working days.)

On the other hand, whilst the revised draft also preserves the provision that the SUP's minimum capital would be €1 (or, in the case of a UK company, £1), it expressly allows Member States to require the company to build up reserves. Its approach to dividends is also less prescriptive; instead of requiring the company to satisfy a balance sheet test and its directors to make a solvency statement, it gives Member States a degree of discretion as to how best to protect creditors. A third important departure from the April 2014 draft is the removal of the provision stipulating that the Commission would produce model articles; it would, instead, be for individual Member States to devise their own form of model constitutional documents.

An ancillary, but nonetheless noteworthy, difference is that whereas the April 2014 draft provided for the SUP to be introduced two years after the directive was adopted, the revised draft provides for it to be introduced within three years of the entry into force of the directive.


The European Parliament is scheduled to consider the proposed directive in January 2016, and it remains to be seen whether it is duly adopted, and, if it is, what form it takes. Assuming, however, that the final text approximates to that of the Council's revised draft, is the SUP likely to be a success?

From the Commission's perspective, the introduction of the directive will in itself represent an achievement. Whilst it is probably fair to argue that the European Company (SE) has been a failure simply on the basis that so few SEs have been formed, the difference between the SUP and the SE is that the former has a harmonising function: whether or not the SUP proves to be a popular vehicle, the directive will have succeeded in bringing Member States' company law regimes a little closer together. The new directive builds upon the Twelfth Company Law Directive, which required Member States to permit private companies to have only one shareholder, and it is quite probably that it, in turn, will be built upon in the coming years or decades. No doubt the Commission would prefer to move more quickly towards the harmonisation of national regimes, but it may well be content to take a long view of the process. From its perspective, even a small step towards full harmonisation might well be regarded as a success.

Others, however, will judge the success of the directive by reference to the take-up rate for the new vehicle, and here, too, the Commission may have reason to feel cautiously optimistic. Businesses will no doubt welcome the introduction of the option to incorporate a single member company anywhere in the EU by electronic means. Small businesses, in particular, will also welcome the fact that the SUP's shareholder will not have to put more than €1 into the company at the outset, even if some Member States choose to require it to build up reserves thereafter. Certainly, it is conceivable that a small, one-man business operating in one Member State may find these incentives sufficient to encourage him to use the SUP when he decides to expand his business into a neighbouring country. Similarly, a larger company - whether based in the EU or not - which is seeking to establish a presence across a number of EU states may find the SUP an attractive alternative to the diverse domestic corporate forms with which it would otherwise have to work. Given that many of its features will not, in fact, be harmonised, the new vehicle might not reduce substantially the administrative costs of the exercise, but even relatively small savings are welcome in the present climate.

Of course, there will be those who will wonder whether the directive was worth the time and resources devoted to it, regardless of the take-up rate for the SUP. Most, though, will agree that this relatively modest initiative has at least been a more worthwhile exercise than the failed attempt to produce the European Private Company or even the project which eventually led to the European Company.