European Union's proposal for a directive on single-member private LLCS and share capital: one obstacle down or creditor fraud waiting to happen?
| Autor | Francisco J. Cardona Reyes |
| Cargo | J.D., 2017, University of Puerto Rico School of Law; Rev. Jur. UPR 2016-2017, Associate Director |
| Páginas | 145-161 |
EUROPEAN UNION’S PROPOSAL FOR A DIRECTIVE ON SINGLE-MEMBER
PRIVATE LLCS AND SHARE CAPITAL: ONE OBSTACLE DOWN OR CREDITOR
FRAUD WAITING TO HAPPEN?
FRANCISCO J. CARDONA REYES*
I. Introduction ................................................................................................................................................. 145
II. Context And Background ......................................................................................................................... 146
A. Freedom Of Establishment ............................................................................................................. 147
B. The
2014 Directive
: A Fresh Start ................................................................................................... 148
C. Sme, Economic Development, And The Sup ............................................................................... 149
III. Capital Requirements, Creditors, And The 2014 Directive ............................................................ 150
A. Preliminary Comments ...................................................................................................................... 151
B. Share Capital Requirements As A Means For Creditor Protection ...................................... 152
C. Recent Comments On Share Capital: An Outdated Concept? .............................................. 153
D. Alternative Safeguards For Creditors ........................................................................................... 155
IV. Share Capital Requirements: A Comparative Analysis .................................................................. 157
A. United States Of America ................................................................................................................ 157
B. Japan ...................................................................................................................................................... 158
C. The People’s Republic Of China .................................................................................................... 159
D. European Union ................................................................................................................................. 159
E. Comparative Analysis: Findings ..................................................................................................... 160
V. Conclusion .................................................................................................................................................... 160
I. INTRODUCTION
On September 4, 2014, the European Commission proposed the
Directive of the European
Parliament and of the Council on single-member private limited liability companies
(hereinafter,
the “2014 Directive”).1 The purpose of the 2014 Directive is to facilitate investments across
Member States. To achieve this purpose, Member States shall adopt a uniform legal entity known
as,
Societas Unius Personae
(hereinafter, “SUP”), which is basically a single-member liability
company (hereinafter, “single-member LLC”). However, the nature and extent of regulations in
the European Union regarding single-member LLCs have caused controversy among Member
States. Consequently, scholars, interest groups, and professionals have seriously criticized and
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* J.D., 2017, University of Puerto Rico School of Law ; Rev. Jur. UPR 2016-2017, Associate Director. This article is the
product of a seminar on International Law taught by Professor Luis A. Avilés Pagán.
1
See Commission Proposal for a Directive of the European Parliament and of the Council on Single-Member Private
Limited Liability Companies
, COM (2014) 212 final (Apr. 9, 2014),
available at
http://eur-
lex.europa.eu/resource.html?uri=cellar:100dbdec-c08b-11e3-86f9-01aa75ed71a1.0002.01/DOC_1&format=PDF.
University of Puerto Rico Business Law Journal Vol. 8
146
analyzed the 2014 Directive. Although many agree with numerous parts of the 2014 Directive,
others have expressed grave concerns. Accordingly, this article, examines certain thoroughly
studied issues of the 2014 Directive. Specifically, we will focus on the minimum share capital
requirements provided by the 2014 Directive. Therefore, we will review the comments made
regarding this requirement and discussing the positive and negative aspects discussed by a diverse
array of professionals. In addition, we will examine the minimum capital requirements in other
jurisdictions such as the United States, China, and Japan to establish how minimal capital
requirements pose negligible risks to creditors. Finally, we will demonstrate how the purpose of
minimum capital requirements is outdated.
II. CONTEXT AND BACKGROUND
Single-member limited liability companies (hereinafter, “single-member LLCs”) are not
new to the European Union. In fact, single-member LLCs have been subject to intense debate for
over twenty years. Since 1989, the European Union has had a directive (hereinafter, the “1989
Directive”) regarding single-member LLCs that provided for limited regulation.3 In this sense, the
1989 Directive only aimed at harmonizing national law, by requiring Member States to allow
limited liability companies to have a sole member.4 The 1989 Directive did not regulate technical
or controversial issues regarding single-member LLCs. As a result, there was diverse regulations
regarding single-member LLCs throughout the European Union.
Regulation of single-member LLCs was still a topic of deep interest for the European
Union, and further regulation of these entities was not out of their scope. Consequently, in 2008
the European Commission proposed a regulation regarding the establishment of a statute for a
European private company, or as the proposal called it,
Societas Privata Europaea
(hereinafter,
“SPE”).5 ”). The SPE proposal was designed to help small and medium-sized enterprises
(hereinafter, “SMEs”) establish throughout the European Union.6 Nonetheless, the SPE proposal
failed at being adopted.7 According to Pierre-Henri Conac, a Professor of Commercial and
Corporate Law at the University of Luxembourg, this proposal failed due to opposition of many
important Member States, such as the United Kingdom.8 In short, the author suggests that the
failure of the SPE was mainly caused as a result of the rejection by Member States of a corporate
entity form created by the European Corporate Act.9 It is to say, a corporate form at a European
Union level. However, this intent of establishing a corporate regulation or directive at a European
Union level responds to the doctrine of
freedom of establishment
. !
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3 Twelfth Council Company Law Directive of 21 December 1989 on single-member private limited-liability
companies 89/667/EEC, 1989 O.J. (L 395) 40.
4
Proposal for a Directive on Single-Member Private Limited Liability Companies
, PRICEWATERHOUSECOOPERS
LEGAL (June 2014), A Legal Update from PwC’s Legal Services,
available at
https://www.pwclegal.co.uk/pdf/directive-on-single-member-plc.pdf.
5
See Commission Proposal for a Council Regulation on the Statute for a European private company,
COM (2008)
396 final (Jun. 25, 2008),
available at
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52008PC039
6&qid=1491328105299&from=EN (last visited Apr. 4, 2017).
6
Id.
7
See
Proposal for a Directive on Single-member Private Limited Liability Companies
, PRICEWATERHOUSECOOPERS
LEGAL (June 2014), A Legal Update from PwC’s Legal Services,
available at
http://www.pwclegal.co.uk/pdf/directive-on-single-member-plc.pdf.
8 Pierre-Henri Conac,
The Societas Unius Personae (SUP): A “Passport” for Job Creation and Growth
, 12 EUR.
COMPANY & FIN L. REV. 139, 141 (2015).
9
Id.
at 141–42.
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