18 May, 2012

Lobby4: How the Commission gets Employment and Company Law upside down.

Trillions of euros have been lost to the European economy because companies are badly structured. They take their constitution from ideas current decades if not centuries ago. They are encumbered with antiquated tax structures, which develop like some mutating monster by adding more and more complex annexes and qualifications to an already complex Tax Code. They are unfit for a Single Market of 500 million consumers

No wonder Europe is in a Employment crisis. Young highly educated people are waiting to find jobs. But employers are saying No Thanks -- not with today's complex and disadvantageous environment!

Why should young people wait?

Where are the young people in Europe who will create IN EUROPE tomorrow's Intel (Noyce and Moore), Google (Page and Brin), Microsoft (Allen and Gates), Apple (Jobs, Wozniak and Wayne) and Facebook (Zuckerberg and college roommates)? Why aren't European youngsters saying: "Forget my last years in university! I want to build my own firm'?

Many Europeans think they need a doctorate before they can start work! RUBBISH! Many of the world's greatest entrepreneurs never finished their first degree because they had a hot idea and wanted to create a company.

Is it because Europeans lack garages where a lot of multi-billion American firms like Microsoft saw the first light of day?

At the root of many of Europe's economic woes is the COMPANY STRUCTURE. What young 19-year old would want to start a company today? It's a nightmare to avoid at all cost! It is a jungle of local, national law and European Regulations, tying any foolhardly inventor or entrepreneur in masses of red tape, legal obligations and potential debt.

In Europe the complex system has become the greatest DISINCENTIVE to economic success!

Who should decide on the structure of companies? How should commercial companies be set up to take advantage of the European Single Market and globalization? How can they do it legally and SIMPLY?
What's more pertinent,
  • who should be deciding how companies are structured?
  • how they run their affairs?
  • under what conditions should they move their operations from one Member State to Member State?
What about public companies or utilities? Should they be allowed to compete with commercial companies? Don't they have an unfair advantage?

Who decides? Should such issues be decided by bureaucrats? Is it really the business of officials who may have had no experience in running a company? Should they be decided by politicians? They may be considered to be representatives of the people but don't they have their own interests? Members of the European Parliament admit that corruption is widespread and hardly controllable. Isn't it a danger that they will shift the balance into their favour and make sure they have extra influence if not contributions for their depleted party funds?

Wouldn't it be better to collect all the experience of young entrepreneurs and ask them how they would wish to have their first company?

Surely three most obvious deciding groups have nothing to do with politicians or bureaucrats. They are:
  • the entrepreneurs who have to pay and invest then employ people
  • the consumers who buy goods and services and may have recommendations and complaints about what they are served
  • the workers for the companies who may find themselves pressed between capitalists who want to cut their wages and consumers who also want the cheapest goods possible.
So how is the European Union dealing with the problem? The answer is BADLY. The Founding Fathers created a body to deal with the issue of companies, but the politicians and the bureaucrats have consistently over the last decades refused to allow the European bodies to develop democratically as they should.

So what do we get? The Commission does not refer to the Consultative Committee -- the parliament for industry and social issues -- but asks creates a questionnaire for all and sundry. This has no real legal standing. Even if the majority of people who had the time to reply came up with good ideas, there would be no guarantee that the Commission or the Council would make it their choice for a Regulation. They will decide what is to their advantage. Is that a hard cynical comment? Unfortunately it is based on fact because the first proposals for a European Company were made in 1949 in the Council of Europe and the governments have consistently refused to implement any thing that does not conform to the creaking tax-system that few citizens understand.

This week the European Commission closed what it calls a consultation on the Future of European Company Law (below). Notice how the questions force people to concur with what is a failed politiburo system. The very formulation of the questions show that the Commission is not thinking in terms of European democracy -- supranational institutions -- but in reinforcing the Politburo thinking of deals between Commission and Council with a fig-leaf of consultation from the 'public' -- whoever they are.

The following are my replies in bold to their questions.
I Identity Questions 1 to 4.

II. Objectives of European company law

Question 5. What should be the objective(s) of EU company law ?* (compulsory)
Improve the environment in which European companies operate, and their mobility in the EU.
Facilitate the creation of companies in Europe.
Setting the right framework for regulatory competition allowing for a high level of flexibility and choice.
Better protect employees.
Better protect creditors, shareholders and members.
No opinion.
Please specify

Since the 1950s European political leaders have failed to create a truly European company with simplified tax structures that might be headquartered in any Member State and receive favourable conditions for a fair and useful contribution to the European and world economy. There is also a notable failure to elect Consultative Committees (such as the Economic and Social Committee) based on the registration of all European professional associations. DEMOCRATIC ELECTION should prioritize EU action.

III. Scope of European company law
The Treaty on the Functioning of the European Union provides the legal basis to adopt Directives harmonising EU company law (Article 50). That legal basis has been used for the adoption of Directives related to the disclosure of companies and their branches as well as the validity of their obligations and their nullity; the maintenance and alteration of the capital of public limited-liability companies; the merger and divisions of public limited-liability companies; and the single-member private limited-liability companies. It has also been used to adopt Directives concerning take-over bids, cross-border merger of companies and certain rights of shareholders of listed companies.

6. Would you support that the EU's priority should be to improve the existing harmonised legal framework or, rather, to explore new areas for harmonisation? * (compulsory)
Yes, the following pieces of existing legislation harmonising company law could be modernised further.
Yes, new areas could be explored for further harmonisation, such as...
Yes, both approaches could be combined and further work could target.
No, further harmonisation is not needed, the approach should rather be based on:
No opinion.

Please specify* (compulsory)
Soft-law instruments, like Recommendations.
Increased administrative co-operation and exchange of good practices.
Please specify
The Consultative Committees are required (1) to register all entrepreneur associations, all workers' associations and all consumer associations (Not done in 60 years) (2) Eliminate any lobby associations and establish professional criteria (3) Arrange elections to the seats in the CC such as the EESC and CoR. The Council refused to support this. It chose to select its own candidates (as it had for the EP). Schuman and Reuter (who wrote much of treaties) condemned this manipulation as 'ILLEGAL'


EU company law has been built on the basis of the distinction between public and private limited-liability companies. While some EU Directives apply to all company law forms, others focus on one type of company or the other. However, the reality has changed in the last years in particular to confer appropriate protection to public shareholders. A trend in some Member States is that public limited-liability companies are often used as legal form for listed companies while other large and medium-sized companies are private limited-liability companies. New hybrid company law forms have been designed in some Member States to grant further flexibility. Furthermore, the public-private distinction does not exist in all Member States.

7. Should the focus of EU company law move away from the distinction between public/private towards listed/unlisted in order to ensure adequate protection to shareholders? * (compulsory)
Yes, for all the legal instruments harmonising EU company law.
Yes, but only for legal instruments related to
No opinion.

Please specify* (compulsory)
Disclosure of companies and their branches as well as the validity of their obligations and their nullity.
Maintenance and alteration of the capital.
Mergers and divisions.
Single-member ownership.
Take-over bids.
Cross-border mergers.
Certain rights of shareholders of listed companies.
Please specify
Company definitions, because they affect all Europeans, should not be defined exclusively by one State but should be subject to an agreement (Opinion) made at the European level by fully elected Consultative Committees such as the EESC and CoR as sketched out under answer to Question 6.

IV. User-friendly regulatory framework for European company law
Because of the large number of Directives dealing with it, European company law is sometimes regarded as not particularly ‘user friendly’. It is also exposed to the risk of inconsistencies, gaps or overlaps. In order to address this risk, the existing Directives could be amended and codified either to create a single instrument on Company Law or to only have a very limited number of Directives regrouping related areas.

8. Do you think that codifying existing EU company law Directives, thus reducing potential inconsistencies, overlaps or gaps, is an idea worth pursuing? * (compulsory)
Yes, a single EU company law instrument should replace all existing Directives.
Yes, EU company law Directives with a similar scope should be merged.
No, this is not an idea worth pursuing.
No opinion.
Please specify
Politicians have created a regulatory jungle and this cannot be cleared overnight. The approach of the Founding Fathers -- still to be applied -- is best. They proposed that a European Company statute should be created as simple as possible with simple tax rates and encouragement for expansion. This could be set up in any State and the success of its simplifying procedures would encourage the mass of existing Regulations to be eliminated over the course of time. Google eurdemocracy and Lobby2

V. EU company legal forms
Apart from harmonisation, EU company law has also focussed on the definition of specific EU company law forms, such as the Statute for a European Company (SE), the Statute for the European Cooperative Society (SCE), the European Economic Interest Grouping (EEIG) and more recently, the proposed Private Company Statute (SPE). Those instruments are often referred to as being a "28th regime" to the extent that they introduce new legal forms that do not harmonise, modify or substitute the existing national legal forms, but provide an additional alternative legal form.

9. What, if any, is the added value that EU company legal forms bring for European business? * (compulsory)
The European image of those company law forms.
Their European label ("SE", "SCE").
Their full legal personality.
Savings in costs of cross-border transactions.
Ad hoc solution to cross-border related issues.
Workable alternatives to existing national company law forms.
The possibility not to be subject to compulsory national requirements (for example, the SE allow public limited-liability companies to choose between one-tier and two-tier management structure).
The possibility to carry out operations, like cross-border transfer of seat.
Tax reasons.
Labour law reasons.
No added value.
No opinion.
Please specify
The EU should stop DIY or bricolage solutions and use the Consultative Committee duly elected democratically to sound out the real impact of such schemes. This would provide real data as the CC system provides for in-depth studies not reactions of companies and groups who have time and inclination to reply to such questionnaires as this.

10. What, if any, are the main shortcomings of EU legislation introducing EU company legal forms? * (compulsory)
The complexity linked to frequent cross-references to relevant national legislation.
The uncertainty linked to the application of different national legislations that are applied simultaneously.
The differences in the way EU company law forms are understood and used at national level.
The different degree of attractiveness across Member States.
The limitations that derive from unanimity decision-making.
No main shortcomings.
No opinion.
Please specify
Lack of democratic legitimacy and trust. This can only be recovered by having democratically elected Consultative Committees such as the Economic and Social Committee and the Committee of Regions plus the scientific and technical bodies of Euratom.

11. Should existing EU company legal forms be reviewed* (compulsory)
Yes, in particular concerning...
No opinion.

Please specify* (compulsory)
Simplification and rationalisation of existing procedures.
Increased uniformity through reduction of cross-references to national legislation.
Reduction of minimum capital required.
Deletion of cross-border element requirement.
Possibility to have the registered office and the headquarters in two Member States.
Explicit solution to the issue of shelf companies.
Please specify
Full and democratic examination can only be done via a fully functioning 5-institution Community system. The EU is falling into greater crises because of the lack of legitimacy of Council actions. Political, social and democratic legitimacy is outlined in answer to Q6.

The European Model Company Act (EMCA)* on which academics are currently working aims at providing a modern and flexible Model Act, taking account of the latest developments in Member States. The initiative does not strive to harmonise national company law, but rather to facilitate understanding of the specific features in various national systems and to serve as a flexible and optional model.
* For further information please see: http://law.au.dk/forskning/forskningscentre/europeanmodelcompanyactemca/overview-over-the-emca-project/

12. Could optional models such as the EMCA –or similar projects- be a suitable alternative to traditional harmonisation? * (compulsory)
No opinion.

Please explain
The only useful opinion would be that of democratically elected Consultative Committees that have full powers, equivalent to the European Parliament and the Council in such matters according to the treaties and the Founding Fathers.

VI. The particular case of the societas privata europaea (SPE) statute
The proposal on the SPE Statute has been discussed for more than three years without any final outcome. After lengthy negotiations, Member States could not agree in particular on the possibility to separate their registered office and the headquarters and the regime for employee participation. However, the Commission still believes that European small and medium size businesses need support at EU level, particularly in the current economic context.

13. Should the Commission explore alternative means to support European SMEs engaged in cross-border activities?* (compulsory)
No, further efforts should be made to get an agreement on the current SPE statute proposal.
Other possibilities to explore?
No opinion.

for example:* (compulsory)
The Commission could prepare a new legislative proposal aimed at promoting EU SMEs through the European labelling of existing national company law instruments that meet a number of pre-defined harmonised requirements.
The 12th Company Law Directive could be reviewed in order to introduce a simplified company charter to facilitate the organisation of groups (i.e. single member private limited-liability companies would be exempted from certain harmonised rules, not indispensable for a single member company).
The scope of application of the SE Statute could be modified to allow smaller EU companies to benefit from it on the basis of more flexible requirements.
Please specify
The Commission should assume its responsibility to encourage proper elections to the Consultative Committees as is clear from the treaties and the Founding Fathers.

VII. Cross-border transfer of a company's registered office
Apart from the rules contained in the Statutes for the European Company (SE) and for the European Cooperative Society (SCE), the current EU rules do not provide for a general right to the cross-border transfer of a company's registered office, which would preserve the company's legal personality. Currently, only few Member States allow for a seat transfer without winding up and subsequent re-incorporation. In most Member states, companies must therefore establish a new legal entity in the Member State of destination, merge the companies in question and register the company formed by merger in that Member State

14. Should the EU act to facilitate the cross-border transfer of a company's registered office?* (compulsory)
Yes, through a harmonizing Directive.
Yes, through some other measure.
No, as the existing EU framework (European Company Statute, cross-border mergers Directive) provides for sufficient tools for a cross-border transfer of registered office.
No opinion.

Please give further reasons for your opinion

This is again a measure that is within the legitimate right of the Consultative Committee involved to decide and give an Opinion by a vote of the three sections: enterprises, consumers, and workers.

Other questions: No opinion.

(Questions need to be settled in an institutional body after a full discussion of properly constituted professional associations with proper means of analysis and communication.)

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