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Recent European legislation makes it easier and cheaper to set up a company as well as registering branches or filing documents, especially in cross border operations.

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Directive 2018/0113 seeks to amend Directive 2017/1132 regarding the use of online tools and processes in company law. It will enter into force on the twentieth day following that of its publication in the Official Journal of the EU, and it will apply two years from the date of its entry into force. A number of its provisions will not be applicable for another 4 years from the date of its entry into force.

What is the aim of the Directive?

As part of the Single Market Gateway strategy, the Directive facilitates and promotes the use of online tools in the contacts between companies and public authorities. The directive seeks to improve online procedures, creating a modern and safe way for businesses to set up companies, register their branches or file any documents to the public authorities.

Such procedures already exist in most Member States, but they are not always easily accessible and are often complicated and costly. This lack of cohesion between Member States is particularly troublesome for entities involved in cross border operations, as these differences may act as barriers to the free movement of capital and establishment.

Recent studies have shown that around 98-99% of limited liability companies in Europe are small and medium-sized enterprises. These companies play a crucial role in promoting economic growth within the European Union, although they do not always possess the same resources that international companies have. This means that they cannot always navigate through complex, expensive procedures in the same way that major corporations can. It is no surprise that the EU has attempted to tackle this issue by amending the procedures that affect them during their entire lifecycle.

What are the key features of the Directive?

  • companies are able to register limited liability companies, set up new branches and file documents online;
  • the 'once-only' principle applies, meaning that a company will only need to submit the same information to public authorities once;
  • documents submitted by companies are stored and exchanged by national registers in machine-readable and searchable formats;
  • more information about companies is made available to all interested parties free of charge in the business registers.
  • national model templates and information on national requirements are made available online, in a language broadly understood by most EU residents;
  • rules on fees for online formalities are transparent and applied in a non-discriminatory manner;
  • fees charged for the online registration of companies do not exceed the overall costs incurred by the member state concerned;

 

Safeguards against abuse of the system:

Know-Your-Client (KYC) procedures have steadily become a pillar for legitimacy and transparency in the corporate sector, particularly after the Panama Papers scandal. Online procedures, if not carried out properly and securely, could allow users to avoid properly identifying themselves and any persons who control the relevant legal entities, thereby assisting in money-laundering and terrorist-financing.

The Directive places safeguards against fraud and abuse in online procedures in the following ways:

  • requesting the identity and legal capacity of persons setting up the company.
  • requiring physical presence before a competent authority
  • maintaining the involvement of notaries or lawyers in certain company law procedures as long as these procedures can be completed fully online.
  • foresees exchange of information between member states on disqualified directors in order to prevent fraudulent behaviour.

 

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