What does Brexit mean for Company and Commercial Law?

Author: Douglas-Jones Mercer.

Date: November 22nd 2018

Following Brexit, the intention of the UK Government is to transpose EU law into domestic law under the European Union (Withdrawal) Bill. It will be up to Parliament to then determine which elements of that law to retain, modify, replace or remove from UK law.

The majority of English company law is not derived from EU legislation. The Companies Act 2006 is the core legislation affecting the incorporation and operation of UK companies. Parts of the Companies Act 2006 has been derived from EU Directives such as the provisions relating to accounts, disclosure of information and shareholder rights.

On the 21st November 2017, the European Commission has published a notice to stakeholders on the UK’s withdrawal from the EU and EU rules on company law. The notice sets out company law implications that will result from the UK leaving the single market.

  • UK incorporated companies will become “third country companies“. This means that each Member State’s national law or international law treaties will confirm as to how UK incorporated companies are recognised. There will no longer be an obligation on EU Member States to recognise the separate legal personality and limited liability status of companies incorporated into the UK which have their principal place of business in another EU Member state. This is a different approach from that of English law, which recognises the limited liability of companies incorporated in other jurisdictions, regardless of whether that jurisdiction is in the EU or not.
  • UK incorporated companies with branches in other EU Members States will no longer benefit from favourable rules applicable to branches of EU incorporated companies. They will instead be subject to the rules applicable to branches of third country companies.
  • The company law form of a European Company (Societas Europaea) will no longer be available in the UK.
  • EU law on disclosure, incorporation, capital maintenance and other matters will no longer apply to the UK. However, as outlined above, the laws governing UK companies are contained mainly in the Companies Act 2006 so this is likely to have little effect, if any upon us leaving the EU.

The extent to which discrepancies between UK corporate law and EU corporate law occur over time will, depend on multiple factors (both political and otherwise). So far Brexit negotiations have tended not to focus on this area but businesses likely to be affected by a Brexit should identify potential areas of risk as early as possible.

It is therefore important to UK corporate bodies to monitor the discussions and identify where their businesses may fall subject to any changes.

The full notice to stakeholders can be viewed on the European Commission’s website.

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