EU Digital Company Law: Online Founding of Companies within 5 days

By Tom Braegelmann

(German Version)

The European Commission has proposed a new directive for digital tools and processes in company law (amendment of Directive (EU) 2017/1132).

This should soon make it possible to establish limited liability companies within 5 days and to handle all other corporate law bureaucracy online.

Watch out, notaries and LegalTech entrepreneurs!

Notaries and LegalTech entrepreneurs should pay attention and see what this means if the German and other European legislators implement this directive into national law, if it is adopted. You might want to think about the following:

  • Are notaries structurally still necessary for the establishment of limited liability companies and submissions to the commercial register if the articles of association, based on online templates, are submitted and signed digitally and the company capital is paid in electronically? What additional protective protective purpose would notaries still be able to fulfill in such a scenario?
    • The EU-Kommission states the following on this in the respective Q&A:It is up to Member States to define the role of notaries. Member States may provide for a role from them in procedures related to online registration and filing, as long as company founders or representatives can complete the procedure fully online except for the cases of genuine suspicion of fraud.
  • Once the infrastructure for online company start-ups is in place, LegalTech entrepreneurs could offer products that:
    • fully automate the founding process, provided that the founders prove their existence with digitally verified IDs, e.g. using the online ID card function of modern ID cards with an ID card app or something similar;
    • have the investigation and analysis (due diligence, preparation of organization charts, organigrams, etc.) of companies and corporations – especially for M&A transactions but also for financings – carried out by algorithms and artificial intelligence, if the corresponding company documents are available digitally and structured in the governmental databases;
    • in addition to the corporate documents held by the state online register, store other corporate agreements in a structured, digital and online form (shareholder agreements, corporate agreements, pledges of company shares including realization), which can also be read out and evaluated in a structured manner so that due diligences can also be carried out more quickly and better in this respect.
  • The German and other legislators could consider introducing an online register of shareholder lists and company shares, along the lines of the standards of land registers, in which company share pledges could also be registered – perhaps even with public trust  – but that would remain to be seen.
  • It is also important that these online registers contain simple and publicly accessible interfaces so that other platforms and programs can be easily connected to them.

Good reasons for setting up companies online

The EU-Commission’s reasons for allowing online company start-ups are, according to the proposal, inter alia:

  • In order to assist businesses, in particular, start-ups, in setting up their business, it should be possible to register a private limited liability company with the use of templates which are model instruments of a constitution which should be available online.
  • As a first step in a company’s lifecycle, it should be possible to establish and register companies fully online
  • Enabling the fully online registration of companies and branches and the fully online filing of documents and information would allow companies to use digital tools in their contacts with competent authorities of Member States.
  • Similarly with regard to the online registration of companies, in order to reduce the costs and burdens on companies, it should also be possible throughout the companies’ lifecycle to submit documents and information fully online to national registers
  • In order to cut costs and reduce the administrative burden for companies, Member States should apply the ‘once-only’ principle in the area of company law. Applying the once-only principle entails that companies are not asked to submit the same information to public authorities more than once.

The proposals in detail

In particular, the detailed proposal (here the full text – so far only in English) provides for the following provisions:

  • Member States shall ensure that the registration of companies may be carried out fully online without the necessity for the applicants, or their representatives, to appear in person before any competent authority or before any other person or body dealing with the application for registration
  • Member States shall ensure that companies are able to file online the documents and information. Member States shall ensure that such filing may be completed online in its entirety without the necessity for the applicant, or his representative to appear in person before any competent authority or before any other person or body dealing with the online filing. Member States shall ensure that the origin and integrity of the documents filed online may be verified electronically.
  • This will apply in particular to the new Annex IIA to the directive, which is also proposed:
    • Germany: GmbH
    • Austria: GmbH
    • Ireland: private company limited by shares
    • Luxembourg: société à responsabilité limitée
    • The Netherlands: besloten vennootschap
    • France: société à responsabilité limitée
    • UK: Private Limited by shares or guarantee
      …and many more…
  • Objective limitation:
    • Member States may take measures which could require a physical presence for the purposes of verifying the identity of persons before any authority competent to deal with online registration or online filing, in cases of genuine suspicion of fraud based on reasonable grounds

      All shall be done electronically!

  • Member States shall ensure that the online registration may be carried out by submitting information or documents in the electronic form, including electronic copies of the documents and information
  • Member States shall ensure that the online registration is completed within a period of five working days from the later of the following:
    • the receipt of all required documents and information by a competent authority or, where applicable, by a person or a body mandated under national law to submit the application for the registration of a company;
    • the payment of a registration fee, the payment in cash for share capital or, where a payment for the share capital is to be provided by way of a contribution in kind, as provided for under national law