The European Commission Introduces the Concept of Micro-Entities to European Company Law In Order to Reduce Administrative Burdens And Stimulate the European Economy.

5 November 2010

The Commission of the European Communities has made a proposal for a Directive of the European Parliament and of the Council amending EC Council Directive 78/660 on the annual accounts of various forms of companies – specifically in that relating to micro-entities. The proposal will most likely be modified for subsequent approval in 2012 at the earliest.

This amendment introduces the concept of micro-entities in Europe and attempts to exempt them from the obligation of preparing annual accounts and thus reducing expenses and the time spent on preparing same. A micro-entity is defined as that which has less than ten employees, an annual balance below € 500,000 and turnover below one million euros.

According to studies carried out by the European Commission in accordance with that indicated in the Central Directory of Companies of the Spanish National Institute of Statistics, it is calculated that approximately 88% of companies in Spain could be considered micro-entities, whereas in the EU there are almost 6 million. The Commission calculates that the total success of the proposal would save micro-entities a total amount of 6.3 billion euros per year.

The modification of the Directive has sparked controversy in some countries, including Spain, Portugal, Belgium, Luxemburg, Austria, Italy and France. The worry is that, even though the reduction in the administrative burden may benefit companies, it may end up prejudicing the right to information of the market and tax authorities, hinder fraud prevention and, in short, decrease security in economic commerce. To that end, some are seeking a revision of the applicable regime in which the publication of the annual accounts, or a portion thereof, would continue to be obligatory although there might be a reduction in the periodicity and the option of electronic filing.

For further information, please contact Uri Geigle: ugeigle@mmmm.es