Committee Reports > List of Committees > Joint > 1989 > Committee on the Secondary Legislation of the European Communities (5th Committee) > Report No. 14 - Council Regulation (EEC) No.213/85 on the European Economic Interest Grouping (EEIG) - Grupail Eorpach um Leas Eacnamatoch (GELE)

Introduction

1.After negotiations which began in 1981 Council Regulation (EEC) No. 213/85 was adopted on 25th July, 1985. This Regulation creates a new form of business organisation to be called in English the European Economic Interest Grouping, the approved initials being EEIG and there are corresponding titles and sets of initials in the other official languages of the Community. In Irish it will be called Grupail Eorpach um Leas Eacnamaioch or GELE and it is by these initials that it will be referred to in this report.

2.The Regulation is to apply in all Member States as from 1st July next. From that date the Regulation, being directly applicable, will have the force of law in all Member States but it does require the enactment of supplementary national legislation by that date.

Consideration by Sub-Committee

3.The Joint Committee has had a detailed examination of the Regulation carried out by a Sub-Committee under the chairmanship of Senator Mary Robinson. It wishes to record its deep appreciation of the painstaking work carried out on its behalf by Senator Robinson and her colleagues.

Acknowledgement

4.Ms. Margaret O’Neill of the Department of Industry and Commerce and Mr. Ray Bowman of the Confederation of Irish Industry attended a meeting of Senator Robinson’s Sub-Committee and their assistance has proved of considerable benefit in the preparation of this report. The Joint Committee thanks them most sincerely for their help.

Objects

5.The GELE will be a new form of business organisation which will facilitate cross-border cooperation between firms and remove the need for accommodating such cooperation to the requirements of national legal systems. Its purpose will be “to facilitate or develop the economic activities of its members and to improve or increase the result of those activities”. It will not have the object of making profits and any profits it does make will be the profits of its members to be apportioned as agreed by them. Such profits are to be taxed only in the hands of the members.

6.The activity of a GELE has to be related to the economic activities of its members and be no more than “ancillary to those activities”. A GELE cannot therefore be used to create a new activity that has no connection with the activities of its members nor may it take over or replace the activities of its members. There are certain specific prohibitions which are intended to confine the GELE to its role of coordinating the activities which its members have in common. It may not exercise a power of supervision or management over nor hold shares in its members. It may hold shares in other undertakings only on behalf of its members and only for the purpose of achieving its objectives. It may not employ more than 500 (a limitation to accommodate Germany) nor be a member of another GELE. It may not be used to circumvent national legislation on the making of loans or the transfer of property by a company to a director.

Membership, Formation and Capacity

7.Members of a GELE must be either (a) a company, a firm within the meaning of Article 58 of the Treaty or other legal body formed in accordance with national law which has its registered office and/or its central administration within the Community or (b) a natural person carrying on any industrial, commercial, craft or agricultural activity or providing professional or other services in the Community. A minimum of two members belonging to different Member States will be required and a Member State where the GELE is registered may restrict the maximum number to twenty and may also restrict participation in a GELE on the grounds of its national interest.

8.A GELE will be formed by (a) the conclusion of a contract between the members and (b) registration at a registry designated by the Member State where it has its official address. On registration a GELE will acquire “the capacity in its own name to have rights and obligations of all kinds, to make contracts or to accomplish other legal acts and to sue and be sued”. The phrase “rights and obligations of all kinds” is apparently intended to comprehend the holding of immovable property. It was not possible because of German and Italian tax laws to give an GELE full legal personality under Community law and so it is left to Member States to determine whether or not GELEs registered at their registries shall have legal personality.

9.The contract between the members will be governed by the law of the Member States where the GELE has its official address. The official address is to be fixed by the contract but must be either where the GELE has its central administration, provided the GELE carries on an activity there, or where one of its members has its central administration or carries on his principal activity as the case may be. The official address may be transferred elsewhere in the Community but where this involves a change in the national law applicable certain formalities are necessary. These are intended to afford protection to third parties affected, in particular, by requiring publication of an intended transfer enabling third parties to take precautionary action but not to oppose the transfer.

Organs

10.A GELE must have at least two organs, namely, (a) the members acting collectively and (b) the manager or managers. The contract may provide for other organs and, if it does, it fixes their powers.

11.The members acting collectively will be the decision-making body. Each member will have one vote but the contract may give more than one to certain members provided that no one member has a majority of the votes. Some decisions must be unanimous, including (a) a transfer of address involving a change in the applicable law, (b) alteration of objects, (c) alteration of allotment of votes, (d) alteration of conditions for taking decisions, (e) extension of duration of GELE, (f) alteration of members’ contributions, (g) alteration of members’ obligations, unless the contract provides otherwise, (h) alteration of contract unless the contract provides otherwise, (i) authorisation of assignment of members’ interests and (j) admission of new members.

12.One or more managers may be appointed, whose powers and conditions of appointment and removal shall be laid down in the contract or, failing that, by the unanimous decision of the members. A Member State at whose registry a GELE is registered may allow a legal person to be manager. A manager, acting on its behalf, will bind the GELE in dealings with third parties even where his acts fall outside the GELE’s objects unless the GELE proves that the third party knew or could not have been unaware of that fact. No limitation of the manager’s powers can be relied upon as against third parties even if published but a contractual provision that a GELE is bound only by two or more managers acting jointly can be relied upon as against third parties if it is published in the prescribed manner.

Financing

13.There is no requirement that an GELE must be set up with capital in the ordinary sense of the term. The contributions of members, whether in cash, in kind or by way of services will be regulated by the contract or unanimous decision of the members but the Regulation provides that where there is an excess of expenditure over income the members shall make up the deficit as provided in the contract or, failing such provision, in equal shares. A GELE may not invite investments from the public.

14.Members of a GELE will have unlimited joint and several liability for its debts and other liabilities of whatever nature and where such arise out of activities during membership the liability will continue for a period of five years after membership has ceased. A creditor may not, however, proceed against a member unless he has first asked the GELE to pay and payment has not been made within an appropriate period.

Winding Up and Insolvency

15.A winding up of a GELE will entail its liquidation which shall be governed by national law. A winding up by the members may be in accordance with the contract or on the accomplishment of its objects or the impossibility of pursuing them further. A GELE can be wound up by the Court for breach of certain provisions of the Regulation or on just and equitable grounds. Insolvency and cessation of payments shall be governed by national law but commencement of proceedings on those grounds against a GELE must not of itself cause commencement of proceedings against its member.

Use of GELEs

16.The range of activity open to GELEs is very wide encompassing all activities within the scope of the EEC Treaty. It is true that an activity of a GELE has to be “ancillary” to the activities of its members but the Joint Committee understands that this requirement is not intended to be construed narrowly in the sense of “accessory”. For example a GELE could be used to tender for a public works contract where the conditions for tender could not be met by the members individually. Other concrete examples of purposes for which a GELE might be used include joint marketing, joint research and development, carriage of goods, joint buying, selling and manufacturing, management of specialist services and representation of members in large scale operations.

17.A GELE may be created in any sector, be it agriculture, trade, industry, crafts or services and is available for firms of whatever size. It would seem that foundations, universities and research institutions may become members as well as persons exercising a liberal profession if the code of ethics of the profession allows it. A GELE may not, of course, practice a profession itself towards third parties but it may be set up to provide services for the members in the exercise of their profession, as for example, consultation on legal or taxation matters.

Implementation

18.The GELE Regulation is, of course, directly applicable in all the Member States but not all of its provisions are self-executing. Some provisions require national legislation and some leave options to Member States. The Joint Committee’s examination of the Regulation suggests that the following either require or leave it open to Member States to adopt national rules:-

19.While Article 40 of the Regulation provides that the profits or losses of a GELE shall be taxable only in the hands of its members it seems to the Joint Committee that Irish legislation may be required to specify what profits of a GELE will be subject to Irish tax and how contributions of an Irish member to a GELE would be treated for tax purposes. It recommends that this aspect be examined by the Revenue Commissioners.

Views of the Joint Committee

20.It has been suggested to the Joint Committee that Irish firms may be reluctant to become members of GELEs when these groupings will not enjoy the benefit of limited liability. Against that disadvantage there should be weighed the advantages which in the Joint Committee’s view a GELE will offer. A GELE provides for the possibility of international co-operation under rules common to all Member States which frees the participants of the constraints of conforming to a national legal system with which they may not be familiar and leaves them with their legal and economic independence. The Joint Committee hopes that Irish firms and particularly small and medium-sized enterprises will carefully consider the potentiality of the GELE as a vehicle for transnational commercial co-operation. For its part the Joint Committee welcomes the adoption of the Regulation and hopes that GELEs will successfully fill the role envisaged for them.

21.The Joint Committee trusts that the necessary legislation will be in place to enable GELEs to be registered in this country as from 1st July, 1989. In this connection it has confirmed that a GELE need not have an Irish member to register here. While the Joint Committee appreciates that the time available is short it is strongly of the opinion that the Irish legislation should be an Act of the Oireachtas rather than a statutory instrument made under the European Communities Act, 1972. Members of the Houses should have the opportunity of debating the implications of introducing a new form of business organisation like the GELE and it is not satisfactory that developments of this kind should be dealt with in a statutory instrument.

22.Finally the Joint Committee recommends that provision be made in the Irish legislation for a GELE to have the full legal personality of a body corporate.

(24 May, 1989).