Range of Legal Considerations, UK and EU
11 Aug, 2009 by James L. Clark in Articles & Papers, Law, Strategy
AN ASSESSMENT OF THE RANGE OF LEGAL CONSIDERATIONS WHICH UK ENTREPRENEURS MUST CONSIDER IN RELATION TO THE EU
BY JAMES L. CLARK, SNR., ESQ.
INTRODUCTION
An entrepreneur with a UK based businesses operating within the EU must consider a plethora of legal areas; commercial, tort, employment, competition, contract, and intellectual property law are but a few areas that one must be concerned with. As such, it is neither possible nor desirable to deal in detail with all of the legal considerations one might encounter conducting business. Therefore, it is my intention to narrowly focus this essay on the relationship between UK national and Community law with regard to the topical area presented by the tutor for assessment.
COMMUNITY LAW AND THE UK
Community Law is a system of law created by treaty (Collins, 1990). It is composed of rights, duties, powers and remedies created by and under the treaties setting up the three communities, The European Coal and Steel Community, Euratom, and the European Economic Community.
This independent system derives its effectiveness and authority because it was created and adopted by member states with regard to their own domestic national legal systems. This of course is supported by decisions prorogated by the European Court as illustrated in Van Gend en Loos v Netherlandse Administatie der Belastingen.
Further, in Minister for Economic Affairs v SA Fromagerie Franco-Suisse Le Ski [1972] CMLR 330 at 373 it was asserted that, ‘…the treaties which have crated Community law have instituted a new legal system in whose favour the member states have restricted the exercise of their sovereign powers in the areas determined by those treaties’. Businesses are one such area impacted.
Since Community law has its own institutions including rule-making bodies, an executive, and court, it is important for an entrepreneur within the UK to pay close attention to what is going on in the Community regardless of whether or not s/he wishes to operate on the continent itself; One should remember that any business operating in the UK is already operating under the authority of the Community.
EUROPEAN ECONOMIC COMMUNITY
One of the primary objectives of the European Economic Community is the creation of fully integrated European Single Market. The Treaty of Rome sets out the means by which this Single Market is to be created through the elimination of borders and the abolition of restrictions that inhibit free trade between member states.
These restrictions on trade are prohibited under the Treaty through provisions dealing with the free movement of goods, services and capital, free competition and the free movement of persons whether wage-earners or self employed. Any National legislation contrary to this is likely to be contrary to Community law and applying the doctrine of supremacy of Community law, the National law may be found to be illegal.
These fundamental freedoms apply to legal as well as natural persons. Article 58 of the Treaty extends them to all companies formed in accordance with the law of a Member State.
One drawback or obstacle to integration among Member States is the fact that each nation has its own laws regarding this. In Article 54(3) The Treaty acknowledges this and confers on the Council of Ministers and the European Commission the responsibility of, ‘… coordinating to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms within the meaning of the second paragraph of Article 58 with a view to making such safeguards equivalent throughout the Community’.
TYPES OF BUSINESSES IN THE UK
Business structures in the UK (focusing on English law) are composed of five main types of entities:
Sole trader
Partnership
Incorporated company
Branch of foreign incorporated company
European Economic Interest Grouping
Herein, we will briefly look at the first three.
Sole Trader
The sole trader is an individual carrying out business, trade, or profession on his own account. There are no registration formalities, per se, but the entrepreneur is required to keep accurate accounts. These accounts do not need to be independently audited or publicly disclosed. Sole traders are full responsible for all aspects of the business.
Partnerships
There are two types of partnerships, a general partnership and a limited partnership, both are governed by statute. Partnerships are limited to 20 partners, but under some circumstances, such in professions like lawyers and accountants, there may be an exception.
General partnerships come into existence without the need for formalities. If two or more people or businesses come together and carry on business in common with a view to making a profit, then a ‘partnership’ has been reached. Whereas, limited partnerships are formed under and must be registered under the Limited Partnership Act 1907.
Public & Private Limited Companies
Public and private companies limited by shares are regulated primarily by the Companies Act 1985. It should also be noted that in addition to this, limited companies are also governed by the Insolvency Act 1986 and others such as the Financial Services Act 1986, depending upon the business activities undertaken by the firm.
From an operational or functional standpoint, entrepreneurs must be mindful of the types of business entities available and must strongly consider which structure would best suit their needs.
DIRECTIVES & THE PRINCIPLE OF DIRECT EFFECT
In the UK, the principle of the direct effect of directives has been substantially accepted by the courts. In terms of business operations, one consideration is the treatment of employees. In Marshall v Southampton and South West Hampshire Area Heath Authority [1986] QB 401 at 422 a 62 year old woman was forced into retirement for no other reason other than the fact that she was over aged 60. Interestingly enough, men were not required to retire until aged 65.
In the UK the Sex Discrimination Act 1975 excluded issues related to death or retirement, so she was not protected under UK statues. Miss Marshall argued that this was a violation of the Equal Treatment Directive. An Industrial Tribunal held that her dismissal did indeed violate the directive and it was held under article 189 of the EEC Treaty that the directive was binding. As such, Miss Marshall succeeded in her case.
DIRECTIVES WORTH CONSIDERING
The first Directive (Directive 68/151)
Adopted in 1968, this Directive applies to all types of companies both private and public. The Directive establishes a system of public disclosure.
Member states are required to maintain an official public register of companies in addition ensuring the publication of certain company information in an official record such as a register which must be accessible by the public. It must contain:
- The statutes/memorandum and articles of association of the company;
- Particulars of those empowered to represent the company;
- Procedures for winding up the company, etc.
Subsequent Directives have extended the application of this disclosure system to other categories of documentation.
Article 7 of this Directive establishes a uniform approach for the treatment of incorporation contracts by providing that, ‘… before a company being formed has acquired legal personality, action has been carried out in its name and the company does not assume the obligations arising from such action, the persons who acted shall without limit, be jointly and severally liable therefore, unless otherwise agreed’. The provision was enacted in English law under Section 36C of the Companies Act 1985 but has been given a narrow interpretation.
In Cotronic (UK) Ltd v. Dezonie (1991) B.C.C. 200 for example, the defendant had unknowingly made a contract with a company which had been struck off the register. A new company had been set up with the same name to carry on the business of the old one. Despite this, the court held that the defendant was not personally liable on the basis that he had made the contract for the old company rather than the new one.
The second Directive (Directive 77/91)
This Directive was adopted in 1976 and covers the raising maintenance and iteration of the capital of plcs.
Member States have been required to adopt a minimum subscribed capital of a plc whether in the form of cash or in kind. Profits available for distribution are specifically defined so as to prevent the erosion of capital through distribution.
The Directive lays down certain rules requiring non-discrimination as between shareholders and also requires that any new issues of shares must first be offered to the existing shareholders.
The European Court of justice has held that Articles 25 and 29 of the second Directive which relate to increases of capital have direct effect in the laws of Member States and governments are not permitted to direct an increase in share capital without the consent of existing shareholders.
The third Directive (Directive 78/885)
This Directive was adopted in 1978 and lays down common rules for company mergers taking place within a single Member State and involving the acquisition of one company by another. The Directive provides for creditor protection, valuation, and other areas of concern.
The fourth Directive (Directive 78/660)
This Directive was adopted in 1978 and provides for the introduction of a standard format for the balance sheet and profit and loss account and the minimum information to be published in a company’s annual report.
The Directive requires that the balance sheet must give a true picture of the company’s financial position.
The sixth Directive (Directive 82/891)
This Directive was adopted in 1982 and concerns the division or ‘scission’ of a public limited company into several undertakings. Member States are not required to adopt legislation governing such restructuring arrangements.
The Directive is particularly concerned to ensure that the rights of creditors of one undertaking are not prejudice by the transfer of assets into another corporate entity.
The seventh Directive (Directive 83/349)
This Directive was adopted in 1983 and lays down the circumstances under which a group of companies may prepare consolidated accounts and the basis upon which such accounts are to be prepared. The directive also covers the rules for auditing such accounts and publication requirements.
The eighth Directive (Directive 84/253)
This Directive was adopted in 1984 and sets out common professional standards for statutory auditors to companies and requires a full audit to be carried out in respect of a company’s accounts annually.
The eleventh Directive (Directive 89/666)
This Directive was adopted in 1989 and is designed to harmonize the rules governing the establishment of a branch throughout the Community. The Commission has been concerned that different disclosure requirements from branches throughout the Community was an obstacle to establishment. Under the Directive, branches of companies established in other Member States will not have to publish annual accounts of their own activities provided that they submit a consolidated and properly audited report for their parent company.
The twelfth Directive (Directive 89/667)
This Directive was adopted in 1990 and requires Member States to permit the establishment of single-member private limited companies in order that individual business operations are able to take advantage of limited liability. Interestingly enough, in the UK, three people are required to register a limited company – namely two directors and a secretary.
CONCLUSIONS
In conclusion, entrepreneurs who own and operate businesses, regardless of the industry or organizational structure adopted, are subject to a plethora of national laws in their own country (in this case the UK) and that produced by the Community.
Aside from considering National laws when conducting business, such as regulations and legislation that impacts such areas as VAT, Community law must also be strongly considered as it supercedes national law.
Additionally, Directives have direct effect in national law as held in cases heard in the UK and in the Community, so entrepreneurs must comply with any Directives now in force or which may come in force in the future.
The forgoing areas of laws and the cases demonstrated are few. All areas relative to conducting business must be of critical concern to an entrepreneur and the must be related to the organization’s strategic development process.
Since there are so many areas to deal with, it is important for owners to become familiar with the areas that they are affected by, as well as to invest or retain knowledgeable counsel to assure that business decisions made and actions taken comply with National and Community law.
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WEBSITES ACCESSED
http://www.companieshouse.com
Companies House
http://www.cordis.lu
CORDIS Community Research and Development Information Service
http://cwis.kub.nl/~dbi
EU Legislation
http://www.esc.eu.int/index1152.htm
European Economic and Social Committee
http://europa.eu.int/
European Union
http://europe.eu.int/celex [Login and Password withheld]
EU Legislation
http://europa.eu.int/eur-lex
EU Legislation
http://europa.eu.int/eur-lex/en/
Latest inserts of laws in effect are given here
http://eur-op.eu.int/general/en/index.htm
European Union
http://europa.eu.int/comm/dgs/
http://europa.eu.int/comm/dgs/health_consumer/index_en.htm
Website of the EU Commission’s Directorate-General Public Health and Consumer Protection
http://europa.eu.int/comm/
http://exp.hispeed.com/index.html
© Copyright 2001, 2009 by James L. Clark, Snr., Esq. All rights reserved. Duplication prohibited by domestic and international laws. This document is not for open publication and may not be released to third parties. The rights of the author have been asserted.
Notice: This article is for educational and informational purposes only; it is not intended to render legal advice. If you require legal assistance, seek the advice of a licensed attorney or barrister in your area.
Website: http://www.jameslclark.com
