Developments in PIL Normative texts

Overview of the European Parliament Proposal on a Statute for a European Association

This post was written by Thomas Mastrullo, Associate Professor at University of Luxembourg.


Background

The European Commission has for several years expressed its desire to increase the range of supranational structures. Thus, the creation of a European Association has been considered since the beginning of the 2000s (Communication from the Commission to the Council and the European Parliament, Modernising Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward, p. 26).

This project, which has made no progress in 20 years, has now been given new relevance.

Indeed, on 15 September 2021, the European Parliament has published a Draft Report with recommendations to the Commission on a statute for European cross-border associations and non-profit organisations. This Proposal of Regulation on a statute for a European Association is furthermore complemented by a Proposal for a directive on common minimum standards for non-profit organisations in the EU (so called “Minimum standards” Directive).

This initiative is part of a wider project of integration and development of democracy in the European Union.

According to the Proposal, cross-border projects and other forms of cooperation involving civil society in particular contribute in a decisive way to the achievement of the Union’s objectives. In these conditions, the Proposal of Regulation seeks to promote cooperation across borders between citizens and representative associations because such a cooperation is “essential for creating an overarching European civil society, which is an important element of European democracy and European integration” (Prop. Reg., Recital 1 and 2).

More widely, European Parliament wants to incitate citizens to “actively participate in the democratic life of the Union” thanks to Associations which “play a key role in helping and encouraging individuals” (Prop. Reg., Recital 5).

However, economic considerations are also present in the Proposal of Regulation: European Parliament points out that “many associations play a significant role in the economy and in the development of the internal market, by engaging on a regular basis in economic activity” (Prop. Reg., Recital 3).

The main objective of the Proposal of Regulation is therefore to provide a supranational instrument to facilitate the pursuit of transnational objectives and activities by associations within the internal market.

Several reasons explain why this proposal is now being made.

Firstly, a legal policy element: the need to defend associations and associative freedom in the Union, at a time when these may appear to be under threat from the governments of some Member States. In this sense, the Proposal of Regulation expressly refers to the Judgment of the Court of Justice of 18 June 2020, C-78/18, European Commission v Hungary, from which it follows that Article 63 TFEU and Articles 7, 8 and 12 of the Charter of Fundamental Rights of the European Union protect non-profit organisations against discriminatory, unnecessary and unjustified restrictions to access to resources and the free movement of capital within the Union.

Secondly, an element of legal technique is invoked: the existing supranational structures, i.e. the European Company (SE) based on Regulation (EC) No. 2157/2001, the European Cooperatives Society (SCE) based on Regulation (EC) n° 1435/2003, the European grouping of territorial cooperation (EGTC) based on Regulation (EC) No. 1082/2006 and European Economic Interest Grouping (EEIG) provided by Regulation (EEC) No. 2137/85 either do not address associations, or do not meet the specific needs of civil society associations.

Hence the need, for the European Parliament, to establish at Union level appropriate rules which will permit the creation of European Associations.

Subject Matter and General Provisions (Prop. Reg., Articles 1 to 5).

The Regulation would lay down the conditions and procedures governing the formation, governance, registration and regulation of legal entities in the form of a European Association (Prop. Reg., Article 1).

The European Association would be defined as “an independent and self-governed cross-border entity established on a permanent basis within the territory of the Union by voluntary agreement between natural or legal persons for a common non-profit purpose” (Prop. Reg., Article 1(2)).

Several key notions would be clarified (Prop. Reg., Article 2). For instance, “non-profit” purpose would mean that “it is not the primary aim of the association to generate a profit, while it may still exercise economic activities”. And when profit would be generated, it would not be distributed among members, founders or private parties but invested in the organisation for the pursuit of its objectives. Another example: the “independence” would mean that the European Association must be free from State interference and not part of government or administrative structure.

In a general way, The European Association would be governed by freedom in the frame of European requirements:  freedom to determine its objectives and activities, provided that respect and support the promotion of the objectives and values on which the Union is founded; freedom to determine its membership in respect of the principle of non-discrimination (Prop. Reg., Article 1(3) to (5)).

Concerning the applicable law, Proposal of Regulation is based on a classical combination between material rules laid down at the European level and conflict-of-law rules designating national applicable law. Thus, on the well-known model of European entities such as SE, European Association would be ruled in priority by Regulation’provisions. For matters not dealt with the Regulation, it would be governed by the law of the Member State in which the European Association would have its registered office (Reg., Article 3(1)). As a consequence, Member States would have to identify the legal entity or the category of legal entities to which a European Association would be deemed (Prop. Reg., Article 3(2)). Therefore, like the others European structures, European Association would be conceived as a hybrid entity.

The application of the Regulation, and thus the regime of European Association, would be monitored by two authorities.

First, at a national level, the Regulation would provide the creation of a national supervisory authority defined as “an independent public authority” designated by each Member States. The aim of the authority would be to protect the fundamental rights and freedoms of European Associations while acting across borders (Prop. Reg., Article 4). These supervisory authorities would cooperate within the framework of a European Association Authority.

Second, at a supranational level, the Regulation would create a European Association Authority (Prop. Reg., Article 5). Certainly, it is one of the most remarkable provision of the Proposal. European Association Authority would be thought as a body of the Union with legal personality. The role of the European Association Authority would be to ensure that the Regulation is applied “in a consistent manner”.

Several important tasks would be given to the European Association Authority, such as (Prop. Reg., Article 5(6)):

  • develop a single e-registration procedure for European Associations and manage a digital e-Registry of European Associations at Union level;
  • process notices of registration, dissolution and other relevant decisions concerning European Associations for the purpose of publication in the Official Journal of the European Union;
  • process applications for the granting of “public benefit status” (cf. infra Reg., Article 19);
  • assess the adequacy of the identification of the comparable legal entities by the Member States concerning the applicable law (cf. supra Reg., Article 3(2));
  • receive, examine and follow-up on complaints concerning the application of the Regulation
  • take binding decisions;
  • examine any question relating to the application of this Regulation and issue guidelines, recommendations and best practices for national supervisory authorities and European Associations;
  • advise the Commission on any issue related to European Associations;
  • consult the Commission regarding structuring and operationalising funds aimed at financing civil society as well as protecting and promoting Union rights and values, sustaining and furthering the development of open, rights-based, democratic, equal and inclusive societies based on the rule of law;
  • promote the cooperation and the effective bilateral and multilateral exchange of information and best practices between national supervisory authorities and with the European Associations Authority;
  • promote common training programmes and facilitate personnel exchanges between national supervisory authorities.

The dialogue and exchanges between national supervisory authority and the European Association Authority would be one of the main features of the new status of European Associations.

Formation and Registration (Prop. Reg., Articles 6 to 17)

A European Association would be formed by three means, either contractual or corporate. In all cases, the European Association should have a strong legal link with the EU (Prop. Reg., Article 6). That is said, the European Association would be created:

  • by agreement of at least three founding members. The founding members would be natural persons, that are citizens or residents of at least two Member States, or legal persons that have their registered office in at least two Member States, or
  • by a conversion into a European Association of an existing entity formed under the law of a Member State and which would have its registered office within the Union, or
  • by a merger between at least two entities belonging to the categories identified pursuant to Article 3(2) of the Regulation proposed (cf. supra). These entities would have to be formed under the laws of Member States and would have to have their registered office within the Union, provided that at least two of them would be governed by the law of different Member States.

The formation of the European Association would need the signature of statutes whose mentions of the statutes would be listed by the Regulation (Prop. Reg., Article 8). The statutes would provide, inter alia, for the rights and obligations of members (Prop. Reg., Article 7)

Concerning the registered office of a European Association, two conditions would be required: on a formal aspect, the place of the registered office would be indicated in the statutes; on a material aspect, the registered office would be within the territory of Union. Moreover, following the material rule providing by model of the European company, the registered office would be located at the place where the European Association has its central administration (Prop. Reg., Article 9).

For registration of a European Association, the Regulation would rely on digital tools. Within 30 days of the date of its formation, a European Association would submit an application for registration in the digital e-Registry of European Associations (Prop. Reg., Article 10). Registration would occur via a standardised registration procedure to be developed and set up by the European Associations Authority. Besides, the registration procedure would be electronic and free of charge. The applicants would be allowed to use the official language or one of the official languages of the Member State where the European Association would have its registered office. A national “registering authority” would be designated by each Member States for processing applications for registration of European Associations that have their registered office in its territory.

European Association would be given two main prerogatives. First, on the model of others European entities, it would be able to transfer its registered office without creation of a new legal person to change its applicable law (Prop. Reg. Article 11). Second, it would have the legal personality acquired on the day of the publication of its registration as a European Association in the Official Journal of the European Union (Prop. Reg. Article 12). This legal personality would give European Associations “the capacity to exercise, in their own name, the powers, rights and obligations that are necessary for the pursuit of their objectives”, under the same conditions as a legal entity among those identified pursuant to Article 3(2) of the Regulation and formed in conformity with the law of the Member State in which the European Association would have its registered office. But some prerogatives would be expressly guaranteed at the European Level, no matter where the registered office is located, such as: conclude contracts, receive donations and legacies, employ staff, be a party to a legal proceedings and access financial services.

A European Association would be free to determine its internal management structures and governance in its statutes, provided that it would be rule by at least two bodies (Prop. Reg., Article 13): the Board of Directors, which would manage the European Association in the interests of the European Association and in pursuit of its objectives (Prop. Reg., Article 14), and the General Assembly which would gather all members (Prop. Reg., Article 15) and would be competent for amendments of the statutes (Prop. Reg., Article 17).

To pursue its objectives within Union, and give a real supranational dimension to its activities, a European would be able to have regional chapters which would not be considered as possessing a distinct legal personality but could organize and manage activities on behalf of the association (Prop. Reg., Article 16).

Provisions Concerning the Treatment of European Associations in Member States (Prop. Reg., Articles 18 to 21)

The treatment of European Associations in Member States is framed by several cardinal principles.

Firstly, the principle of non-discrimination from which it follows that any discrimination based on the place where the European Association would have its registered office would be prohibited and that (Prop. Reg., Article 18).

Secondly, a European Association could be granted public benefit status if four conditions would be met (Prop. Reg., Article 19):

  • the organisation’s purpose and actual activities would pursue a public benefit objective which would serve the welfare of society or of part of it, and is thus beneficial for the public good (arts, culture, environmental protection, social justice, humanitarian assistance, protection of animals, science, research and innovation, education and training, protection of health, consumer protection, amateur sports, for instance);
  • surplus from any economic or other income-earning activity generated by the non- profit organisation would be used solely to promote the organisation’s public benefit objectives;
  • in the case of dissolution of the non-profit organisations, statutory safeguards would guarantee that all assets would continue to serve public benefit objectives;
  • members of the organisation’s governing structures that are not employed as staff would be not eligible to remuneration beyond adequate expense allowance.

Thirdly, the principle of national treatment, from which it follows that European Association registered in a Member State would be subject to the provisions applicable to the legal entity or the category of legal entities to which a European Association would be deemed comparable by the Member State in application of Article 3-2 (Prop. Reg., Article 20). This principle seems very close to the principle of non-discrimination.

Fourthly, the principle of non-arbitrary treatment from which it follows that A European Association “would not be subjected to differential treatment by Member States based solely on the political desirability of its purpose, field of activities or sources of financing” (Prop. Reg., Article 21).

Financing and Reporting (Prop. Reg., Articles 22 and 23)

Two texts are dedicated to this issue.

The first text concerns the fundraising and free use of assets (Prop. Reg., Article 22). It is provided that European Associations would be able to solicit, receive, dispose of or donate any resources, and solicit and receive human resources, from or to any source (public bodies, private individuals or private bodies, in any Member State of the Union and in third countries). In return, European Associations would be subject to the provisions of Union and national law concerning customs, foreign exchange, money laundering and terrorist financing, as well as to the rules regulating the funding of elections and political parties. We can see here that Democratic considerations are at the heart of the Proposal of Regulation’s preoccupations.

The second text concerns accounting and auditing (Prop. Reg., Article 23). It provides that rules on accounting would be regulated by the statutes, subject to the provisions of the Regulation and to the provisions applicable to the legal entities identified pursuant to Article 3(2) in the Member State in which the European Association would have its registered office. Besides, the Regulation would demand that European Association draws up at least once a year: annual accounts, consolidated accounts, if any, and a budget estimate for the forthcoming financial year. This text underline the hybrid nature of the European Association which would be governed by the Regulation, its statutes and the law of the Member State where its registered office would be located. It confirms also that Proposal of Regulation is based on a combination between material rules and conflict-of-law rules.

Supervision and Liability (Prop. Reg., Articles 24 and 25)

The supervision of a European Association would be assumed by a national supervision authority within the framework of European Associations Authority (Prop. Reg., Article 24). The Proposal of Regulation draws up a complete scheme of supervision. The supervisory authority would consult the supervisory authorities of other Member States within the framework of the European Associations Authority on any substantial issues regarding the lawfulness and liability of European Associations registered in the Member State’s territory. The recommendations of supervisory authorities would be communicated and reviewed by the European Associations Authority. If the supervisory authority would fail to reconsider its recommendation in the light of the European Associations Authority’s recommendation, the European Associations Authority could adopt a binding decision. In case of the supervisory authority would fail to comply with a decision taken by the European Associations Authority, the latest would inform the European Commission, which would take action as appropriate. European Associations would have the possibility to obtain judicial review of any decisions taken by the supervisory authority.

Concerning liability, Proposal of Regulation provides once again a combination between of a conflict-of-law rule and a material rule. On a conflictual point of view, the liability of the European Association would be governed by the provisions applicable to the legal entities deemed comparable in application of Article 3(2) by Member State in which the European Association would have its registered office. On a material point of view, the Proposal of Regulation states that the members of the Board would be jointly and severally liable for loss or damage sustained by the European Association as a result of a breach of the obligations attaching to their functions. Proceedings against the members of the Board would be laid down by the statutes.

Dissolution, Insolvency, Liquidation (Prop. Reg., Articles 26 to 29)

First of all, the Proposal of Regulation provides a voluntary dissolution (Prop. Reg., Article 26). More precisely, the European Association could be dissolved by decision of the Board pursuant to provisions in the European Association’s statutes, with the agreement of the General Assembly, or by decision of the General Assembly – with a possibility to annul such decision before any dissolution or liquidation of a European Association. The supervisory authority would inform the European Associations Authority of any dissolution and The European Associations Authority would, immediately after such notification, publish a notice of dissolution of the European Association in the Official Journal of the European Union and remove the European Association from the digital e-Registry of the Union.

The Regulation would also lay down an involuntary dissolution (Prop. Reg., Article 27). In that circumstance, the dissolution would result from a binding decision of the European Associations Authority, taken on its own initiative or at the request of the supervisory authority of the Member State in which the European Association would have its registered office. Three kind of circumstances could justify such a binding decision: the transfer of the registered office outside the territory of the Union; the conditions for the formation of the European Association, as set out in the Regulation, would be no longer fulfilled; the activities of the European Association would cease to be compatible with the objectives and values of the Union or would “pose a serious threat to public policy, public security or public order”. The binding decision would be taken after the national supervisory authority has communicated a reasoned opinion concerning the European Association’s dissolution. The European Association would be granted a “reasonable period of time” to regularize its position before the decision takes effect. The decision to dissolve the European Association would be reflected in the digital e-Registry of European Associations and publish it in the Official Journal of the European Union.

Finally, the Proposal of Regulation deals with liquidation and insolvency of European Associations (Prop. Reg., Article 28). The Proposal states that the winding up of a European Association would entail its liquidation. Such liquidation would be governed by the law applicable to the legal entities identified pursuant to Article 3(2) in the Member State in which the European Association would have its registered office.

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