Cross-Border Transfer of the Company Seat — Gowper

How to deal successfully with heterogeneous international transfer procedures

What is a cross-border transfer or relocation of a company’s seat?

When we talk about cross-border transfer of a company’s seat, we mean a change in the registered office location, going from the original incorporation seat to a place located outside the national or state borders. As this is an international or out-of-state relocation, then there are far more consequences and requirements for the company seeking it.

An international transfer of the registered office is, in fact, a change of nationality. Also, such transfer or relocation can coincide with a change of the legal form of the company.

In the U.S. legal terminology, it is defined as Entity Relocation or Entity Conversion.

In any case, cross-border seat transfer implies that while location of the registered office or even its legal form changes, the legal personality of the entity remains the same.

How is it regulated?

There is not a specific EU regulation or international regulation about it. The only supranational regulation we can find is the Council Regulation (EC) Nº 2157/2001 on the Statue for a European company (SE), which is only applicable to the SE specific type of companies.

Most if not all of the EU Member States have their own national laws and regulations on this matter. Some examples are:

• Spain: regulates it in the Law 3/2009 about companies’ structural modifications (LME)..
• Germany: regulates it in its Transformation Act Umwandlungsgesetz (UmwG).
• Belgium: used to regulate it in its Code of Private International Law, but on 28 February 2019, the Belgian Parliament enacted a new Belgian Companies Code where companies relocations or conversions are regulated.
• Italy: regulates it in its Civil Code and the Consolidated Law on Finance.

While some other EU Member States like The Netherlands regulates domestic transfers of the registered office, they do not have on the contrary regulations about cross-borders conversions.

In any case, the national regulations of the Member States are, as a general rule, scarce and in no case do they regulate the procedure to be followed when a change in the corporate form is necessary.

In the U.S. every State must regulate their entities’ conversion or relocation. Most of them regulates the seat transfer in a similar way, just with different requirements, and we can also find regulated procedures about a cross-border seat transfer. Some examples are:

• Michigan Limited Liability Company Act.
• Florida Revised Limited Liability Company Act.
• The title 25 of the Revised Code of Washington..
• New York Limited Liability Company Law.
• The Texas Business Organization Code.

What is the procedure?

It depends on which country your company is incorporated and where do you want to transfer your company seat. Without any specific applicable EU or international regulations, the company seeking to transfer its seat shall be obliged to comply with both countries -of origin and destination-’s national laws and regulations on the matter.

In the U.S. for a conversion the entity needs to draft a Plan of Conversion detailing the process of conversion of the U.S. incorporated company into a foreign company. This Plan of Conversion must be approved by the members and filed in the respective State’s agency. Usually the State’s agency will deliver a Certificate of Change ending the existence of the Company in the State.

An important detail to consider is that in the U.S. a company can be incorporated in a tax-favorable State while its main activity is developed in another State. This option becomes a good alternative to domestics’ relocations but implies specific -additional- costs.

In the EU, in the first place, most of the EU Member States have no specific laws in place about this procedure, and definitively none of them have regulations on the procedure for a cross-border seat transfer with change of legal form.

Fortunately, in the case C-106/16, the European Court of Justice (ECJ) on 25 October 2017, issued a judgement according to which the admissibility of relocation in the EU is no longer a problem, establishing that a cross-border seat transfer is protected by the general principle of freedom of establishment under Articles 49 and 54 of the Treaty on the Functioning of the European Union (TEUF). But how to execute the transfer remains still unresolved.

Most of EU Member States tends to apply their own national laws to mergers and transformations by analogy; Spain is one of the few where cross-border seat transfer is specifically regulated. As a consequence, we have a set of non-uniform proceedings for cross-border seat transfer at the EU level, but that in practice are quite similar between each Member State. We can summarize them as follows:

1. The Plan of Conversion: the Board of Directors of the transferring company must organize an extraordinary general meeting to inform about the transfer project, and a transfer agreement must be approved before a notary public in the country of departure.
2. Transfer agreement minimum requirements:
3. Information about the host country and confirmation of the existence of a transfer process, in order to ensure continuity of legal personality
4. Information on the address, name and corporate form to be adopted in the country of destination
5. Specific details of the operation
6. New articles of association & bylaws, which shall be in accordance with the regulations of the country of destination
7. A condition precedent consisting in double recording of the cancellation of the transferring company’s registration in the country of departure and the registration in the host country. This is usually done by appointing a person in charge
8. Incorporation in the host country in accordance with the domestic law.
9. Cancellation of the company registration in the country of origin, subject to prior submission of the notarial transfer and registration documents to the country destination for which the local law of the host country must be complied with.

Is really necessary an EU regulation?

Of course. The previous general procedure is just that, a very general procedure. Since there is no explicit legal framework governing a cross-border seat transfer, the procedural steps and detailed requirements depend on the individual case and on the view of the involved company registries.

Cross-border relocations entail a significant degree of uncertainty regarding its legal requirements, procedure and timeline. Due to this, they can be potentially time-consuming or difficult to plan accurately. Also, more countries legislations need thoughtful consideration, instead of only one.

Under a common EU regulation, the economic costs could experiment a drastic reduction because companies seeking a seat transfer would only need to apply a single law and follow a uniform procedure.

On 2 February 2012 the European Parliament issued some Recommendations to the Commission on a 14th Company Law Directive. These recommendations were specifically intended to clarify and homogenize the cross-border transfer procedure and effects. A few years later, on 4 May 2017, organized a Committee on Legal Affairsin order to repeat the calls on the Commission to propose specific legislation on the cross-border transfer of EU companies’ seat. However, we are still without a draft of the 14th Company Law Directive.

How can Gowper help?

We are international law firm specialized in assisting companies seeking to a cross-border transfer of their seat. Is a relevant part of our work to assist, guide, and help our clients to expand their business and grow internationally, which usually implies to evaluate the most suitable location for a company seat to relocate to.

Our help consists, among other things, in:

• Study and guidance on the procedures and legal requirements for a cross-border or international seat transfer, or any relocation or conversion, for both the departure country and the destination country.
• Drafting of the Conversion Plan and of the Transfer Agreement, including articles of association & bylaws.
• Monitoring on all legal steps of the cross-border operation, including notarized paperwork and effectively coordinating cross-functional and multi-jurisdictional legal teams.

Finally, we have developed a specific solution that fit perfectly to a cross-border relocation or conversion, our Red ISP. You can learn more about our complete set of Individualized Solutions Plans (ISPs).

You can also acquaint yourself about our broad range of Services & Industries.

Originally published at https://gowper.com