This edition provides more in-depth information about European Economic Interest Groupings (hereinafter referred to as ‘EEIG’). Care must be taken not to confound EEIGs with Economic Interest Groupings (‘EIG’); the latter did not survive the introduction of the CAC. The legislator decided to abolish EIGs for reason of absence of meaningful differences compared to commercial partnerships. As from 1 May 2019, EIGs can no longer be established. Existing EIGs must be converted into another company form no later than 1 January 2024. EIGs that have not done so by then, by operation of law will convert into commercial partnerships.
Abolishing the EIG as a company format has no consequences for EEIGs. The rules applicable to EEIGs are set forth in Council Regulation (EEC) No 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG), and in Book 2, Title 4 and Book 18 of the CAC.
This newsletter briefly recaps the existing legislation concerning EEIGs.
Reasons for establishing an EEIG
Members of an EEIG join resources, activities and skills with other members for the purpose of achieving better results than they would obtain when acting alone. As such, the role of EEIGs is of a supporting nature.
Consequently, EEIGs may not exercise administrative power or control over their members’ activities or those of other companies. Likewise, EEIGs may not hold shares or participation rights in any of their members. Having shares or participation rights in companies that are not a member to the EEIG is allowed only if it is necessary and if the members bear the costs. Furthermore, EEIGs may not be a member of another EEIG and may not employ more than 500 people.
In view of the supporting role of EEIGs, any profit resulting from their activities are considered profits of the members, not of the EEIG in question.
Who may form an EEIG?
EEIGs are formed by agreement and as a minimum requirement must consist of:
- two companies or legal persons under private or public law – excluding not-for-profit associations – that have their head office in different member states; or
- two natural persons who in different Member States carry on any industrial, commercial, craft or agricultural activity or practice a liberal profession; or
- a company or legal person that has its head office in one Member State and a natural person practicing their main activity in another.
Although an EEIG’s economic activity must relate to the economic activity of its members, it is not a company. Consequently, an EEIG may not replace the economic activity of its members.
The EEIG’s registered office must be in the European Union, at the same location of its head office or that of one of its members, or in the case of a natural person, the place where they practice their main activity. If the registered office is in Belgium, the EEIG must be entered into the legal persons’ register. Furthermore, the formation of an EEIG must be published in the Belgian Official Gazette and the Official Journal of the European Union.
Remarkably, EEIGs offer their members plenty of contractual freedom when it comes to the formation agreement. For instance: there is no capital requirement, therefore the members are at liberty to decide how to fund their EEIG. However, this does have far-reaching consequences for the liability of the members and furthermore, EEIGs cannot dip into public capital markets.
Admission to an EEIG requires unanimous approval from all of its members. Besides that, the Regulation provides flexible admission options, but Member States may impose stricter conditions at a national level. In that context, according to section 18:3 of the CAC, Belgian public credit institutions cannot become a member of any EEIG other than with the approval of the supervising Ministers.
EEIGs always consist of at least two bodies: the jointly acting members and the manager(s). Members may decide to establish additional bodies.
At meetings of the jointly operating members, each member in principle has one vote. The formation agreement may derogate from this principle, albeit that no member can hold a majority of the votes.
An EEIG will be managed by one or more directors elected by the members. Legal persons cannot be appointed manager of an EEIG.
Only managers shall represent the EEIG In respect of third parties, even if they act alone. Even if there are several managers or if the powers of a manager have been limited can such manager represent the EEIG, since these limitations cannot be relied on against third parties. Said limitations can be relied on against third parties only if the formation agreement provides that the EEIG can be legally bound only by at least two managers acting jointly and if said decision has been published in the Belgian Official Gazette.
Liability of the members
We explained above that EEIGs enjoy extensive liberty when it comes to drawing up the agreement and that there is no capital requirement. The other side of the coin is that members have far-reaching responsibility as regards the EEIG’s debts.
All the members have unrestricted joint and several liability for said debts, regardless of their nature. New members are even liable for debts which arose prior to their admission to the EEIG. This situation can be remedied only by including a clause in the admission decision which provides for the member’s exemption from liability for such debts. Any such decision can be relied upon against third parties only if it has been published in the Belgian Official Gazette.
Furthermore, creditors may proceed for payment from the members if, after having requested payment from the EEIG, the latter fails to make the payment within an appropriate period.
After termination of their membership of the EEIG, members remain liable for debts arising from activities performed by the EEIG prior to said termination.
EEIGs do not have legal personality and therefore are not subject to income tax.
Any profits will be distributed directly to the members, who consequently will be taxed according to the tax system applicable to each individual case. Profits are considered distributed or allocated at the closing date of the financial year to which they relate. Shares in undistributed profits shall be determined for each member as provided in the formation agreement or, in absence thereof, in equal parts.