A study commissioned by the Ministry of Justice and the Government Office and carried out by NOVE Law Office in cooperation with Estonian Center for Applied Research CENTAR revealed that in order to better protect the interests of creditors and shareholders, cross-border mobility of companies should be easier and more expressly regulated.
“Easier cross-border movement of companies contributes to better business environment. Although there is no EU-level legislation on the cross-border transfer of registered office and the cross-border division of companies, such operations are partly possible in several of the EU countries including Finland, Denmark, Portugal, Italy and Germany whereas for instance Estonia and many other countries lack possibilities for the cross-border mobility of companies,” said Külliki Feldman, advisor at the Private Law Department of the Ministry of Justice. As noted in 2016 by the European Commission in the framework of the European Semester, the fact that Estonia and several other countries lack rules governing the transfer of company seat weakens the business environment in these countries.
The aim of the study was to identify reasons why entrepreneurs wish to transfer the registered office, as well as any legal problems arising from poor regulation of company movement across borders.
The research identified eight cases where companies either had wished to move their registered office to or from Estonia or considered doing so in the near future. In these identified cases, legal side roads were commonly taken such as cross-border merger in order to start business activity abroad or to move it into Estonia. This, however, could involve extra costs or procedures, which lead some of the companies to abandon the idea of starting business in another member state.
“That would not be required if cross-border transfer of the registered seat was possible. In some cases, this would allow to initiate economic activity or continue it in another member state more easily and quickly than possible at the moment,” Külliki Feldman explained.
To find out potential cases, the research team contacted business associations, embassies, chambers of commerce and industry, and major law offices dealing with mergers and acquisitions in Estonia as well as eight other EU Member States.
“The task of preparing the study was quite a complicated one as the research phenomenon – cross-border movement of companies – is not too widespread at the moment due to lacking regulation. Additionally, businesses are used to planning their activities in the framework of existing rules. The study owes much of its success to the rarely constructive and close cooperation with the Ministry of Justice as the contracting authority,” said Urmas Volens who managed the study in NOVE.
The study report was drawn up by Epp Kallaste and Janno Järve from CENTAR and Urmas Volens and Arsi Pavelts from NOVE law office. The study was funded by the European Social Fund.
The study is presented on the website of the Ministry of Justice (in Estonian).