Recognition of Companies

There are a number of EU company law directives. They have harmonised certain critical areas EU wide. However, for the most part, the existence capacity and corporate functioning of the company is determined in most cases by the law of the member state “of incorporation”.

There are EU laws which require the recognition of companies formed under the law of other EU states. Although those laws will fall away on Brexit common law rules will ensure continued recognition of Irish incorporated companies in the United Kingdom and the United Kingdom incorporated companies in Ireland.

As a basic principle, Ireland and the UK will continue to recognise each other’s companies under most circumstances under common law principles. The general principle is a company validly formed under the law of another jurisdiction is recognised and the law that country determines most issues in relation to its corporate existence, structure capacity and so on.

It may be that some EU states do not recognise UK companies under their domestic legal system when the EU rules requiring recognition no longer apply.

EU Rights for Companies

Companies with sufficient connection to an EU state may enjoy EU protections and rights including many EU treaties and legislative rights. However, there are some sectors where strategic regulation requires that the company be owned or controlled by EU or EEA resident persons.

A company formed in accordance with the law of a member state having its registered office central administration or principal place of business within any of the member states is treated in the same way as an EU national for most purposes. Therefore, it may not be discriminated against based on such location.

The member state prescribes the requirements in relation to incorporation and ongoing corporate compliance. A significant feature is that UK and Ireland recognise companies based on incorporation where certain EU continental jurisdictions require that the company has a real head office or seat in that jurisdiction.

Each member state has the power to define the connecting factors required for a company if it is to be regarded as incorporated or established in the jurisdiction concerned. However, such requirements may breach freedom of establishment if they impede conversion or transfer of the seat of the company to another EEA state if the requirements are unjustifiable.

Therefore, if there is a difference in treatment between domestic and cross-border conversions within the EU state that is unjustifiable it may restrict freedom of establishment and be thereby valid. Absolute bans on cross-border conversions have been invalidated.

Companies may more readily set up a secondary establishment i.e. a branch in another EU state than move their seat there. This does not affect incorporation in the home state so that restrictions will not usually be justified.

In one case, the European Court upheld registration of a company in the UK followed by registration of a secondary establishment in Denmark as valid notwithstanding that it circumvented the requirement to have a minimum capital in Denmark that did not apply in the UK. The motivation for establishing the company and the Danish branch did not matter. The right to establish a company and a secondary branch in another state was underwritten by the right to freedom of establishment.

EU Law Corporates

There are certain types of EU wide corporate entities that can no longer be established with UK participants. They are not commonly found in practice. A European Economic Interest Grouping may be formed by companies, partnerships, traders and other corporates which have been established under the law of a member state and have their registered office in the EU.

It can be also be formed by individuals carrying on industrial commercial craft or agricultural activities or providing professional services in the EU. There must be at least two members from different states. They are formed under a contract of formation which is filed in the companies office in the relevant state. Registration confers the full capacity to act in the European Union. They are sometimes found in the public or semi-public sector such as with educational bodies.

EEIG s registered in the UK would be converted into UK EIGs on 1 January 2021. They may choose to move their seat to another EU state.

The UK indicates that European Companies (SEs and European Economic Interest Groupings, that have not made alternative structures before 2021 will be automatically converted into new UK corporate structures. Such entities may be converted into UK plc where they have been registered for two years and returned accounts for this period. They may also transfer their seat of registration

A European Company a Societas Europaea (SE), is established with at least two companies originating in different EU states with a minimum capital of €120,000. It may be formed by the merger establishment of a European holding company, the establishment of a European subsidiary company or conversion from a public liability company. Generally, the companies must originate in different EU states and must have a subsidiary or branch in another state for at least two years. They may be able to change their seat from the United Kingdom to another state.

A UK Societas Europaea will be converted into a UK Societas on 1 January 2021. No further SEs may be formed after that date. The UK branches of EU SEs must comply with the overseas company regulations from 2021.

EU Insolvency and Mergers Legislation

EU companies will no longer be subject to certain EU wide legislation that facilitates mergers and insolvency.The facilitative measures in the EU Mergers Directive will no longer be available in respect of UK companies. These provisions allow for automatic purchase by operation of law.

There are additional EEA driven requirements in respect of companies listed on certain regulated markets such as stock markets. There will be implications for UK entities listed in the relevant mar

Single-member private limited liability companies

Directive 2009/102/EC — company law on single-member private limited liability companies creates a legal instrument allowing the limitation of liability of the individual entrepreneur within the European Union (EU).

It establishes the rules applicable to single-member private limited companies. It codifies and repeals Twelfth Company Law Directive 89/667/EEC.It has applied since 21 October 2009. Directive 2009/102/EC codifies and replaces Directive 89/667/EEC and its subsequent amendments. The original Directive 89/667/EEC had to become law in the EU countries by 1992.

A company may have a single member by virtue of its being formed, or by virtue of all its shares coming to be held, by a single person (single-member company).

Where a company becomes a single-member company because all its shares have come to be held by a single person, that fact, together with the identity of the single member, must either be entered in a register kept by the company and accessible to the public or be recorded in the file or entered in the central register or the register of companies.

The single member exercises the powers of a general meeting of the company. Decisions taken by the single member and contracts between that person and the company as represented by him or her must be recorded in the minutes or drawn up in writing.

Where an EU country allows single-member companies in the case of public limited companies as well, the rules in this directive apply.
Directive 2013/24/EU adapted the directive, adding Croatia to the list of countries in its Annex I following that country’s accession to EU membership.

DOCUMENT

Directive 2009/102/EC of the European Parliament and of the Council of 16 September 2009 in the area of company law on single-member private limited liability companies (OJ L 258, 1.10.2009, pp. 20-25)

Successive amendments to Directive 2009/102/EC have been incorporated into the original text. This consolidated version is of documentary value only.

Restructuring

Some companies may need to restructure after Brexit. This may involve taking functions out of the UK into Ireland or another EU state or into the UK. In some cases, this may require a new or reorganised legal structure. This may be required by licensing requirements human resource requirements ore tenders.

Changes in corporate arrangements may lead to tax consequences. It may change the effective rate of tax applicable across the group.

Brexit may jeopardise access to group losses for relief from domestic taxation from companies within the group in the United Kingdom as regards EU resident/established group members and vice a versa as regards UK resident/established group members.

Tax systems charge assets on exit from the jurisdiction by way of a deemed realisation of assets. Certain reliefs re available in the context of exercising the right of establishment. These reliefs might no longer be available after Brexit.

Brexit Omnibus Act

In Ireland the so-called Brexit Omnibus Act introduced provisions intended to reinstate reliefs for reorganisations restructuring and merger within groups which include a UK member. Several such reliefs are available in respect of EEA i.e. EU plus EFTA country resident group members. The Brexit Omnibus Act is intended to extend relief to UK resident companies although issues might arise as to the new wording.

The Brexit Omnibus Act has made provision for transfer of losses payment of interest and royalties and dividends between groups with a UK member on the same basis as if it was still an EEA resident member.

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