Directives and Regulations of EU Affecting the UK Company Incorporation

18 Oct

For the company formation of United Kingdom or any EU member state company, the EU laws play an influential role in devising the laws of companies. A treaty named as Treaty of Rome was signed under EU laws. As a consequence of which directives were introduced. Another way of implementing EU law is via regulations. This Article discusses the case studies of Directives, depicting the important qualities of directives. And later the annulled directives and regulations have been discussed.


The membership of EU affects the laws of companies in UK. EU introduced Treaty of Rome, as a result of which, the directives were authorised. A directive has to be followed by a particular member state only by imposing it via legislation of that company. Therefore, a directive does not have any direct impact on companies as a source of law.

Case studies on Directives

As mentioned above, a directive may not be termed as direct or immediate source of law. However, any law to be implemented by a State holding the membership must be made as close to the directive in meaning as possible. The case of Marleasing SA may give a clearer understanding about it.

Marleasing SA

Many companies were sued. One of them was La Comercial.  The basis for La Comercial getting sued was that the objectives it had for its formation were unlawful. The company intended to swindle one of its creditors. And there was a lack of cause in the objectives of the company. According to Spanish Civil Code’s subsection 1261 and 1275, the contracts that had no solid cause would be considered void. However, La Comercial defended itself by stating that the First EU Company Law Directive’s Article 11 provided for the solid reasons of cancellation of any company’s registration. And the reasons did not include “lack of cause”.

The Court Held:

  • Article 395 of an act that was relevant to the terms of Portuguese Republic and Spain’s access to the European Communities, stated that it was obligatory for Spain to enforce the directive from the date of accession. However, the directive still had to be implemented in Spain.
  • Hence the question that was raised in the Court was that whether the 11th Article of the directive could be implemented directly to turn away the request for annulment of a company on a basis that was not mentioned in the article.
  • As stated in the case of Von Colson it is to be observed under the article 5 EEC, all the required measures should be taken by the member states to bring in to effect a directive. For the application of national law, the law should be brought in to conformity with the rulings provided by the directive. This could be done by interpreting the law as much as possible according to the wordings and purpose of the directive. It did not matter whether the rulings of the directive were adopted prior or after the directive.
  • Hence in the light of above stated facts, the action taken against La Comercial for cancelling its registration on grounds that are not within the grounds outlined by Article 11 of the first directive of EU law company must be nullified.

Any individual is given the allowance to beget a directive against any state holding membership or any agency of government. The case of Karella is presented below to illustrate this fact.


The case was taken to the Court of Justice, of the European Union. The Parliament of Greece enforced a law that entitled an authority to the government. It was named as Business reconstruction organization (OAE). Through this authority, any company’s control could be taken over and an increment in the capital could be made. A company’s control was taken over by OAE and an increment in the capital from Dr 220 million to Dr 400 million was planned. However, two shareholders presented their argument that article 25(1) of the 2nd EU company law directive was in contradiction to the action being taken by the OAE. According to this article, it is mandatory to take into effect a resolution of the shareholders to bring any increment in the capital, with an exception of some situations.

The Court presented the following verdict:

  • As a matter of fact, the court has been mentioning many a times that where ever it is needed, an individual can invoke directives against any state that holds membership of EU. Provided that the subject matter of the directive is precise and having no conditions.
  • Article 25(1) of second derivative states that any increment in the amount of capital can be made via general meetings.
  • It must be checked whether this article satisfies the conditions that are required.
  • It may be noticed that the subject matter of Article 25(1) is clear, precise in its wordings and provides an unconditional rule of arranging general meetings for the decision of increasing capital of the company.
  • Article 25(2) of the same directive states that the general meeting is allowed to ratify an increment in the capital to a certain limit that has to be decided by the law. This article’s derogation does not influence Article 25(1), hence, depicting the unconditional nature of the latter article.
  • The legislature of community presented solid and concise derogations, hence assuring that the principle given by Article 25(1) has an unconditional nature.
  • Hence, it may be fair to say that the individuals are allowed to rely upon Article 25 of the second derivative to take an action contradictory to the public authorities.

Expanse of the Second Directive’s Article 25(1)

  • The scope of the article should be observed. It should be checked that does the rule fit for the application of directive, it may be that the law is implementable in exceptional situations and does not outline the fundamental rulings on increment of capital. However, if the law fits to be used as a directive, it should be checked that if it is suitable for the derogation’s benefit as mentioned in Article 41(1) of that directive.
  • The second directive is found applicable wherever the protection of state and member becomes necessary. It sets a minimum limit of security for the shareholders in all the states that own membership of EU.
  • It would be a frustration for the object of second directive, if an allowance for the derogation from directive’s rules via maintenance of force rules is given to the states with membership. Hence, making it possible that any increment is made in capital and the shareholders are forced to increase their contribution in the capital without taking their consent in the matter.
  • However, it should not be believed that the community law does not provide for the derogation from these directives under any situation for the member states. As a matter of fact, Community Law provides for the security of member states under exceptional circumstances. It sets out certain provisions for derogations and for methods resulting in these derogations.

Influence of European Directives on Company Law

For a company that may have companies registration office UK, the laws related to trade and business and affecting other countries, may prove equally effective. Because the European Union decides for these laws. European Parliament has enforced many directives. All of them cover a major part of regulations regarding companies and their legal matters. Although they include only those matters where the states with memberships have found a benefit for themselves in harmonisation. The directives regarding the following matters are included in it:

  • Forming private limited liability companies with single membership
  • Forming public companies with limited liabilities
  • Maintaining and changing the capital
  • Requirements of accounts that are annual or consolidated
  • Need of prospectus
  • Mergers of companies with limited liabilities between different countries
  • Clarity and exposure of Directives
  • The directives for takeovers and market abuse

The rest of the directives are those that were only proposed and nothing happened for them after their proposal.

Fifth Directive 

The fifth directive is such an example. The UK greatly contradicted this directive. Hence, it could not be adopted. If it would have been adopted, it would have introduced a system of employees indulging in the decisions of management and forced the companies to adopt this system with a workforce of a prescribed size. The fifth directive would also have introduced a rule for administering the responsibilities of directors. Moreover, the auditors’ duties would also have been covered by this directive.

Ninth Directive

Just like the fifth directive, the ninth directive is not in practice currently. The rulings provided by ninth directive were related to the administration of corporate groups. These groups included intra group liabilities at the time of insolvency. This directive’s model had its basis on a German model. However, the model did not operate efficiently in Germany as well. So as a consequence, the ninth directive is formally no more in practice.

European Regulations regarding the Company Law

There are some European regulations found effective on the laws of companies. Of them one is the regulation (EC) 2137/85. According to this regulation, the formation of European Economic Interest Groupings (EEIGs) is allowed. The EEIGs may be formed with the aim such as collective research and development, and utilised for un-lucrative ventures across the borders.

Another regulation known as Regulation (EC) 2001/2157 states that the supranational companies can be formed under the governance of EU instead of domestic law. This regulation was not adopted for 30 years because it faced the same kind of opposition as was faced by the directives discussed in the previous text. However, a political settlement was achieved over an amended statement of the regulation. This regulation provides an ease for offshore company formation UK. Now, a company that has branches in different countries can be registered as a European Company or ‘Societas Europaea’. Hence, there is no requirement for a company to form subsidiaries that are liable to different laws, varying from state to state. The process of registration and insolvency regulations are governed by the laws of that state with membership where the company has its main office. And these matters cannot be governed via EU laws. So if any company has companies registration office UK, it will have to abide the laws of the United Kingdom. Hence, regulations do not remain as ambitious as they were intended to be. However, the offshore company formation UK becomes an easier task. The company can spread its business offshore and incorporate as single company under the title of Societas Europaea.

For the rulings of Insolvency, another regular, termed as Regulation (EC) 1346/2000 sets out rulings for the insolvency cases that may take place across the borders.

Suggestions for Directives

Various suggestions have been given. It was suggested that the first and second directives should be simplified. This suggestion was presented by the Company Law Slim Working Group. Moreover, it has also been suggested that the annual accounts and reports’ environmental problems must be recognized and measured.

Being a part of the European Union, the laws of companies of all the member states are influenced by any change of law made by EU. Hence, a company formation of United Kingdom may get subjected to certain EU laws. The Directives may have an indirect effect but the regulations affect directly the domestic law of every state owning EU membership.

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