European Economic Interest Grouping (EEIG)
by Rainer Kulms
Regulation 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG Reg) establishes a legal framework for natural persons, companies, firms and other legal bodies, desiring to cooperate effectively across intra-Union borders. Cooperations between undertakings, eg as a joint venture or a consortium, are vested with qualified legal personality and corporate structures which go beyond mere organizations by contract under the law of obligations, a German civil partnership (BGB-Gesellschaft), or an English partnership. The establishment of an EEIG does not amount to a merger. The EEIG does not have a minimum (legal) capital. Its members have unlimited joint and several liability for the grouping’s debts and other liabilities.
The EEIG builds on experiences made under French law with the groupement d’intérêt économique. The groupement d’intérêt économique has been designed to cross the French company law divide between rigid norms on establishing and organizing, on one hand, commercial sociétés and, on the other, the associations without legal personality. The groupement d’intérêt économique is intended to increase its members’ profits. It enjoys legal personality, but it cannot technically accumulate capital which creditors could seize upon. Instead, the members of the groupement assume unlimited joint and several liability (solidary obligations) for its debts and liabilities. The members have far-reaching autonomy to organize the internal affairs of the groupement according to their needs. The groupement is a tax-transparent entity. Only members will pay income tax for the profits accruing from the activities of this entity.
Union law and Member State law implementing Union norms control the formation of an EEIG. The EEIG Reg focuses on ground-rules for the very formation of the grouping, its governance structure, the requirements for a binding statement on its behalf and on members’ liability for the grouping’s debt or other liabilities. Where the EEIG Reg is silent, the internal law of substance of the Member State where the grouping has its official address shall be applicable. Such Member State law rules extend to winding up a grouping, insolvency and cessation of payments, and manager liability. If neither Union law nor Member State legislation imposes mandatory rules, the parties’ stipulations in the contract of formation prevail. For the rest, the economic activities of the grouping and its effects on third parties are subject to general conflict rules under private international law. This includes in particular issues of civil status and legal capacity of both natural and legal persons. In competition law, the effects doctrine has to be observed (see Art 6(2) Rome II (Reg 864/2007)). As a matter of principle, the competition rules (competition law (international); competition rules (applicability)) of the Treaty on the Functioning of the European Union (TFEU) are operative. The German statute implementing the EEIG Reg (EWIV-Ausführungsgesetz of 14 April 1988) regulates registration proceedings, the duties of the managing director, the termination of a manager’s appointment, liquidation and the commencement of insolvency proceedings. To complement the law on EEIGs, the German Ausführungsgesetz, for example, refers to the rules on partnerships (offene Handelsgesellschaften) which are to be applied accordingly. For income tax purposes, German revenue authorities treat income from an EEIG as such to be accruing from a partnership.
b) General formation requirements
An EEIG is intended to serve as a mechanism for coordinating and fostering economic activities of its members. It may not be established with the purpose of making profits for itself. It may, however, hold shares of another undertaking in so far as the accruing dividends will be distributed to the EEIG’s members. Any entrepreneurial activity of an EEIG will be declared illegal as soon as it moves into the management or supervision over its members’ own activities or over the activities of another undertaking. The catalogue of proscribed activities (though not exhaustive under the EEIG Reg) specifically refers to personnel, finance and investment matters. EEIG is only of limited use for conglomerate structures since the Union rules outlaw direct or indirect holdings in a member’s undertaking or share-ownership for the purpose of maximizing EEIG profits (vertical structures). An EEIG may, however, participate in a conglomerate group with a unitary management where no member controls any other member. The grouping may not employ more than 500 persons. Standard partnerships are not subject to the German Codetermination Statute of 1976 (co-determination). The formation of an EEIG does not shield its members from observing Member State rules on good corporate governance in conflict of interest situations. The grouping may not be employed by a member company to make a loan to the director of this company or to any other person connected with him if applicable Member State law restricts or imposes control mechanisms on the making of such loans. The grouping may not at any point be a member of another EEIG.
The EEIG Reg is intended to provide for a supranational corporate instrument preferably accessible to many natural and legal persons. The following entities qualify as potential members of an EEIG: companies or firms within the meaning of Art 54(2) TFEU/48(2) EC or other legal bodies governed by public or private law with their registered or statutory office in the EU. If, under the international corporate law (company law (international)) rules of a Member State, the application of national company law does not rest on the location of the registered or statutory office, the location of the central administration shall be controlling. Natural persons carrying out any industrial, commercial, craft or agricultural activity, members of a liberal profession or any service provider within the Union are entitled to form a grouping. Contrary to the draft statute for a European Private Company (Societas Privata Europaea), the EEIG Reg requires a cross-border element. A grouping must comprise at least two members from different Member States. Undertakings from third countries are barred from joining an EEIG. Nonetheless, third country undertakings may buy an interest in a subsidiary of an EEIG member or form a joint venture with an EEIG. In this context, it should be noted that undertakings from the British Virgin Islands are entitled to invoke the TFEU’s freedom of establishment.
c) The contract of formation
With respect to statutory minimum requirements, the EEIG Reg anticipated a regulatory pattern subsequently adopted by the English law provisions on private limited companies (private limited company (England and Wales)). The regulation introduces a mandatory list of minimum requirements for the contract of formation. At a later stage, the members of the grouping may elect to add supplementary stipulations to the contract of formation or to further specify aspects of the relationship among themselves.
The contract of formation shall include the name of the grouping, its official address and objects for which it is formed and the name, business name, legal form, permanent address or registered office of each member. Unless established for an indefinite period, the duration must be specified. The contract for the formation has to be filed with the competent registry (commercial registry or other). This filing requirement extends to amendments to the contract of formation, changes in the composition of the grouping, the establishment or closure of branch offices, the appointment of a manager or the termination of such appointment, managers’ power of attorney to act solely or jointly on behalf of the grouping, or any decision of members on winding up the grouping.
2. Members’ liability—legal status between members
a) Liabilities for debts and other liabilities of all kinds
With respect to EEIG decision-making processes, members are free to enact partnership- or corporation-like management structures. The organs of the grouping are either the members acting collectively or the manager(s) acting on behalf of the grouping. The EEIG Reg does not apply this distinction to members’ direct liability, which would have introduced US state law concepts for limited liability companies. Whereas direct member liability towards creditors of a manager-managed limited liability company is greatly restricted, the members shall be unlimitedly liable once they manage the company themselves (member-managed companies). The EEIG Reg is based on the concept of unlimited joint and several member liability, even if the governance structure of the grouping has been tailored to corporate needs. This concept is also applicable to the ‘corporate governance’ of groupings where members have opted in favour of a consultative body such as a supervisory board or an advisory council. It should be noted that creditors are precluded from holding a member personally liable until they have first requested the grouping to pay and payment has not been received within an appropriate period. The German Ausführungsgesetz expands the liability regime promulgated by the EEIG Reg: If the managers of the grouping are found to be in breach of their duties, they shall be jointly and severally liable for paying damages.
b) Governance structure of an EEIG
The members of the grouping enjoy substantial discretion to mould governance structures as they see fit. If established as the sole organ of the grouping, the members may unanimously decide on an alteration of the objects at any time. Likewise, the members of a manager-managed grouping may pass a vote on certain aspects of management policy, although direct instructions to the management of the grouping do not create binding effects with respect to third parties. However, the members of a manager-managed grouping may not usurp management functions without altering the contract of formation.
The EEIG Reg does not stipulate an obligation to hold general meetings of members. Therefore, the members of a grouping may hold a virtual general meeting by way of electronic communication. Each member of the grouping shall have at least one vote. The contract of formation may confer more than one vote on certain members (multiple voting rights), provided that no one member holds a majority of votes by this mechanism. Partnership law elements shine through as the EEIG Reg lays down a catalogue of members’ votes which require unanimity. Decisions on the following matters will only take effect after a unanimous vote: alteration of the objects of a grouping or of the number shares allotted to each member, extension of the duration of the grouping and any change as to the amount of members’ contributions to the grouping’s financing. The EEIG provides for default rules on the alteration of the contract of formation on members’ duties other than financial obligations, and on the quorum for votes on issues not affecting a member’s status in a grouping. The management shall consult with members sua sponte or upon a member’s initiative in order to arrange for a vote at a members’ general meeting. Moreover, each member is entitled to obtain information from the grouping’s management relating to the business and to inspect the books and business records.
c) Termination of membership—winding up the grouping
Without prejudice to more liberal stipulations in the contract of formation, a member may always withdraw from the grouping after having obtained the unanimous agreement of the co-members. In addition, any member of the grouping is entitled to withdraw on just and proper grounds (termination for cause). The EEIG Reg allows for a member’s expulsion for reasons listed in the contract of formation if a serious breach of his obligations can be established or if a serious breach (including a serious disruption of the grouping’s operations) is likely to occur. Unless otherwise provided by the contract of formation, such expulsion requires a decision of the court. A member ceases to belong to the grouping if he no longer fulfils the personal qualifications under the formation requirements scheme of the EEIG Reg. If a member becomes deceased, the grouping shall continue to exist for the remaining members unless stipulated to the contrary. The grouping may be wound up by a unanimous decision of the members. Liquidation and its conclusion are governed by the applicable national law. The commencement of insolvency proceedings against a grouping does not automatically trigger the commencement of such proceedings against the grouping’s members.
3. Perspectives for the EEIG
Prior to the Centros line of ECJ cases on the freedom of establishment (Case C-212/97 – Centros  ECR I-1459; Case C-208/00 – Überseering  ECR I-9919; and Case C-167/01 – Inspire Art  ECR I-10159), European company law rules had evolved without any incentive to devise a new meaningful cross-border entity which would be well-recognized by the Member States and have the potential to stretch the radius of entrepreneurial action. The EEIG is a new supranational corporate entity also accessible to small and mid-sized undertakings and the liberal professions. The European Commission has invited consortia to choose an EEIG as an organizational form appropriate for submitting cross-border bids in procurement procedures of Member State entities. Nevertheless, the restrictive rules on formation have come very close to derailing the success of EEIGs. In practice, mainly lawyers and other members of the liberal professions rely on this type of cross-border cooperation. Mid-size and large undertakings frequently shun EEIGs although this supranational entity should be considered as a valid mechanism for joint purchasing and distribution offices, cross-border quality surveillance, research and development ventures, data centres and cooperation between shipping agents in transport and logistics.
The EEIG Reg implements the Single Market Programme of the European Commission (European internal market). However, the ECJ’S rulings on the freedom of establishment have provoked a major shift of scholarly attention. It is true that the European Company (Societas Europaea) and the statute for a European Company remain faithful to the idea of supplying an EU law framework for the governance structure of undertakings. But there is an increasing concern of a potential conflict between EU norms on corporate governance and organization and Member States’ insolvency laws. Thus, Member States may well be faced with the policy decision of moving from an ex ante to an ex post perspective in order to ascertain the scope of management duties. A policy debate will hopefully clarify whether regulatory competition in company law calls for a stimulating or a restrictive intervention or whether legislative action is unwarranted.
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