Labor Unions

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German labor unions  worry that the single-member company format could aid money laundering.
  • Why it matters

    Why it matters

    The E.U. Commission argues that its plan to make it easier for small companies to set up foreign subsidiaries will boost growth. Germany says it will hurt worker rights.

  • Facts

    Facts

    • The commission wants to introduce a new standard legal format for companies to reduce administrative and legal hurdles for small businesses wishing to set up shop in other E.U. member states.
    • Under the format, known as Societas Unius Personae, or SUP, it will be possible to set up such a firm online with capital of just €1.
    • German trade unions have voiced strong reservations, saying SUPs will aid money laundering and enable even large companies to erode rules on worker co-determination.
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    Audio

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Trade unions and politicians in Germany are bitterly opposed to plans by the European Union Commission to introduce a new form of single-member company that can be set up online with capital of just €1, or $1.10.

Elzbieta Bienkowska, the European commissioner for the single market, wants to make it easier for start-ups and small and medium-sized businesses to set up companies within the economic bloc.

But critics including the German Confederation of Trade Unions, DGB, said the move will open the door to money laundering and tax evasion and allow firms to circumvent labor rules that give workers a say in management.

“There’s a reason why the proposal is being called the letterbox company directive,”said Jutta Steinruck, a member of the European Parliament for Germany’s center-left Social Democrats.

Germany’s German Confederation of Skilled Crafts warned that the plan posed “serious risks to the proper conduct of business.”

The European Commission has argued that it’s too difficult for small and medium-sized enterprises to set up subsidiaries, joint ventures or branches in other E.U. member states. That’s because there are different national rules on the formation, registration, governance and dissolution of companies.

According to commission figures, the European Union has 20.7 million small and mid-sized companies that account for 58 percent of the bloc’s gross domestic product and 67 percent of all jobs in the private sector. If they were able to form foreign subsidiaries more easily, they could unlock the full potential of the European single market with its 500 million customers and grow faster, the commission said.

At present, only 2 percent of these business launch operations abroad.

The committee on employment and social affairs rejected the SUP in June with a large majority. But a few days later the internal market committee approved it.

The proposed directive would create a national company law for single-member private limited liability companies with harmonized main requirements and one common name, Societas Unius Personae, or SUP.

The aim is to make it cheap and easy to set up such a firm online with a few mouse clicks. The founder wouldn’t need to provide his or her identity. The €1 starting capital has only symbolic value and the commission’s proposal doesn’t include a requirement to form capital reserves. So creditors would likely often lose their money in insolvency cases.

Trade unions are particularly concerned that the new company format could damage labor rights. If a single-member company is set up in an E.U. country that doesn’t have a law ensuring co-determination, it could be able to avoid German standards for worker representation on works councils and company supervisory boards, German unions argue.

That wouldn’t just apply to small businesses. A large company with a foreign holding structure could use the SUP format to curb labor representation in its subsidiaries.

Germany takes pride in its co-determination law, which gives workers in firms employing more than 500 people a legal right to have a say in management. Workers in other European countries including Austria and the Netherlands have similar rights, while Spain and Italy have relatively weak rules on co-determination.

The trade union confederation cited a study by the Hans-Böckler-Foundation, which conducts research into labor issues on behalf of German trade unions, showing that German companies are increasingly opting for foreign legal status.

German Justice Minister Heiko Maas, a member of the Social Democratic Party, called the proposal “totally messed up” and both the upper and lower houses of the German parliament have rejected it.

But Germany’s resistance won’t be enough to stop the plan coming into force because it won’t require a unanimous vote by all 28 member states.

Elzbieta Bienkowska-action press
Elzbieta Bienkowska, the European commissioner for the single market, wants to make it easier for smaller firms to expand across the economic bloc. Source: action press

 

Germany almost managed to get a blocking minority in the E.U.’s Competitiveness Council, made up of ministers for trade, industry and the economy, but then Hungary dropped its opposition after the commission made concessions that addressed some of the criticisms.

Under the new proposals, member states would be able to demand that SUP founders form company reserves, and insist that entrepreneurs setting up companies online be identified.

Ms. Steinruck, the member of the European Parliament, called the concessions a sham. “The commission has done its best to water down the proposal at first glance for the layman,” she said. But the devil, she added, lay in the detail.

Even under the amended plan, it will be possible for SUPs to have different locations for their administrative seat and their articles of incorporation — a provision that will enable them to erode co-determination rights, she said.

The European Parliament is still struggling to arrive at a common position. The committee on employment and social affairs rejected the SUP in June with a large majority. But a few days later the internal market committee approved it. The legal affairs committee is expected to submit a report on SUPs in the late fall.

Peter Weiss, a German member of parliament for Chancellor Angela Merkel’s Christian Democratic Union party who represents employee interests, said he hoped that the European Parliament will block the SUP.

At the end of May, when the Competitiveness Council approved the commission’s compromise proposal, Mr. Weiss warned that it would lead to “competition for the lowest standards within the E.U.” He said the proposal could “do lasting damage to the European idea.”

 

Frank Specht writes about the jobs market and labor unions from Handelsblatt’s Berlin office. To contact the author: specht@handelsblatt.com

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