EU Inc Could Save Start-ups Up to €440 Million; Notaries Expect Declining Revenue
The EU Commission has presented a package of measures to introduce a new, EU-wide uniform corporate legal form, the so-called EU Inc. In short, this is intended to enable startup formations within 48 hours for a maximum of €100, without a bank account or notary — more on that here.
The impact assessment presents a nuanced picture: while companies and investors are set to benefit from significant savings, member states and certain professional groups face noticeable adjustment costs.
Less bureaucracy, lower formation costs
Substantial cost reductions are expected for companies that use the new legal form. Estimates amount to between €328 million and €440 million over a period of ten years, spread across approximately 308,000 EU Inc companies that are anticipated. These savings are based primarily on simplified, fully digital procedures for formation, capital increases, and share transfers.
The savings on investment transactions are particularly relevant. For a growth-stage share transfer worth €500,000, savings of €1,780 to €2,850 are estimated, arising in part from the elimination of in-person formalities and the mandatory involvement of notaries and other intermediaries. For financing rounds, additional savings of around €1,100 per round are expected, as capital increases and share issuances can in future be handled entirely digitally.
Added to this are digital tools for corporate law procedures, including the ability to hold shareholder and board meetings online. For existing companies converting to the new legal form, however, one-off adjustment costs are expected, as internal processes must be switched over to digital procedures.
Costs for member states: IT investments and revenue losses
Implementing the new legal form is not cost-free for member states. In the area of IT infrastructure, one-off costs totalling €2.7 million are expected across all member states to connect national IT systems to the central EU interface for registration. Member states can build on existing technologies for interconnecting national business registers via the BRIS system.
For individual member states where authorities are responsible for preventive control, additional costs of around €50,000 per member state are estimated to connect these authorities to the business registers. In the area of insolvency proceedings, costs for the development and operation of electronic auction platforms are added, estimated at €500,000 to €700,000 for all member states.
In addition, the package provides for a cost cap of €100 for registration, which will lead to revenue losses for business registers and other authorities involved in registration. The Commission assumes that these losses will be at least partially offset by increased economic activity and tax revenues from new companies.
Tax effects: moderate, but not neutral
The tax implications of the package are assessed as limited overall, but are not entirely neutral. A central element is the so-called EU-ESO, a simplified employee share ownership programme based on stock options. This provides for a uniform taxation point that is favourable for employees and avoids dry tax burdens on employee stock options.
For member states where income from employee stock options is currently taxed at an earlier point in time, the harmonisation will create negative liquidity effects. However, the Commission classifies these effects as moderate and temporary in nature, since the taxes will ultimately become due, just at a later point in time. A permanent reduction in tax revenues is not expected.
Impact on notaries: between efficiency gains and revenue losses
The impact on notaries and other intermediaries is twofold. On the one hand, according to the EU Commission, they are set to benefit from a harmonised corporate law framework that creates greater legal certainty, as well as from more efficient and digitalised procedures. On the other hand, noticeable economic losses are to be expected, it is stated.
Specifically affected are notaries in those member states where they have hitherto been involved in registration procedures: the cost cap of €100 for registration will lead to direct revenue losses there. Even more significant is likely to be the elimination of the mandatory involvement of intermediaries in share transfers, which will also lead to revenue losses in the affected member states.
“The removal of the mandatory involvement of intermediaries in share transfers will lead to revenue losses for those intermediaries in member states where intermediaries are involved in share transfers,” the document states.
Added to this are one-off adjustment costs, as the existing workflows and IT systems of intermediaries must be converted to the new, digitalised procedures for EU Inc companies. The overall assessment for the notarial profession is therefore mixed: greater legal certainty on the one hand, structural revenue declines on the other.
