New EU Directive: Formation of a company in 18 minutes?

Created by Andreas Metzner, LL. M. |

Europe is looking to Estonia: New EU Directive to bring the formation of companies to the digital age

With a new Directive, the EU Commission advances digitalization. This time, the Commission’s focus is on European corporate law and, in particular, the formation of companies within the European single market. The new regulations on a company’s online formation are supposed to significantly reduce the time until the company’s registration in the commercial register. However, the Commission did not dare to apply Estonian standards where it takes only 18 minutes from the formation procedure’s start until the company’s registration. 

On June 20, 2019, the European Parliament and the Council of the European Union enacted Directive (EC) 2019/1151 thereby amending former Directive (EU) 2017/1132. Such new regulation’s core element is the option to incorporate a company through an online procedure without any personal attendance being required. Besides that, the Directive provides for an online registration of branches and an online filing of all required documents and information “throughout the company’s entire life cycle”. Due to the individual national regulations’ complexity, however, the member states can, to some extent, enact deviating and flexible regulations. Therefore, it remains to be seen how the German legislator is going to implement such Directive into national law. The Directive must be implemented by August 1, 2021. 

Online formation within a maximum of 10 working days 
For online registration purposes, every member state is required to provide a corresponding website or registration portal which are available through a central digital access gateway. Furthermore, the respective platforms must provide detailed information on the relevant deeds and information required for registration. This shall enable founders from other European countries to complete their documents without additional consulting. The objective is for an online formation to be completed within ten working days as soon as all required documents have been presented to the responsible authority and all deliverables for the company’s formation (in particular fees) have been provided and the corresponding prove has been filed. 

Generally, the EU Directive intends to allow for an online formation for all corporations. For the individual member states, it provides for one or several legal forms for which the option of an online formation shall be mandatorily established. In Germany, this is the GmbH. Therefore, one can expect for a national regulation to be limited to GmbHs and, apart from that, for the legislator to exercise its right to exclude other types of corporations from the Directive’s scope of application. Furthermore, the online formation option can also be excluded if a contribution in kind must be provided. Here, too, one can expect for the German government to use the exclusion option as contributions in kind require a positive assessment as to their qualification for contribution and their objective recoverability which does not coincide with the ten-day objective stipulated by the Directive. 
In order to facilitate the formation in particular for small and medium-sized enterprises, the member states shall provide, on their registration portals, online formation templates including several predetermined options in accordance with national law. When all requirements have been met and all documents have been filed, registration shall even be completed after no more than five days. 

However, the Directive also states that the new regulation shall not replace existing national business formation requirements to the extent such requirements do not impair an online formation. However, the new regulations must provide for an online notarization as every formation of a GmbH is subject to notarization. In light of the strict German notarization law, it remains to be seen how the legislator is going to technically implement the Directive. 

With regard to the facilitation of a digitalized formation of companies, the European Union’s initiative is quite welcome. However, in particular with regard to the technical processing of electronic means of identification it is questionable if and to what extent the Directives can be implemented before the effective date. North Rhine Westphalia has passed an initiative for a first draft bill on November 13, 2019 (we reported). Therefore, the stage of proceedings can be described as being in the orientation phase. 
Thank you to my co-author Carolina Miedeck for her valuable support. 
 

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