Whilst the European Single Market provides businesses access to a market with enormous potential, these same businesses must navigate an ever changing economic, legislative and regulatory environment as well as increased competition. This is particularly challenging for small or medium sized enterprises which are unable to apply economies of scale but which nevertheless make up more than ninety nine percent of all European businesses.  

Cooperation is therefore a natural response, allowing enterprises to pool resources, access new customers, capital and markets as well as share in the risks. Since the introduction of the European Economic Interest Grouping (EEIG), businesses operating in Europe have had a legal instrument of European cooperation through Council Regulation (EEC) No 2137 /85 and certain unique feature means that interest is on the rise.  

The grouping exists solely to support the economic activities of its members, has a separate legal personality and can operate in any EU Member State. Formation has only two requirements: a contract of formation and registration at the designated authority of the desired Member State. Whilst certain formal requirements are applicable, the contract usually comprises of no more than a few pages capable of suitably expressing the members' wishes. Furthermore, registration does not require the deposit of share capital. 

From a tax point of view, the EEIG is similar to a partnership. Article 40 of the Regulation sets out the principle of fiscal transparency in that the grouping itself is not subject to tax as net income is subject to taxation at member level. As such, national tax laws apply and members need only concern themselves with the tax rules applicable in their place of domicile or establishment.  

Members also have the ability to adjust to changing economic and regulatory circumstances. Unlike the efforts associated with re-domiciliation, the EEIG simply submits a transfer proposal with the competent authority and waits for the lapse of two months. In practice this means that an EEIG can cut legislative ties and move to a more favourable jurisdiction within a relatively short time period and at minimal cost. And whilst the fact that the members of a grouping have "unlimited joint and several liability for its debts and other liabilities..." may be initially discouraging, this can be easily overcome by placing a vehicle such as a limited liability company between the grouping and the entrepreneur. 

It can be made up of either natural persons or legal persons or both. When made up of only natural persons, such persons must be carrying on an activity or providing a service in different Member States. However, whilst accepted practice is that in the case of a grouping consisting of legal entities, such entities must be from different Member States, a proper reading of Article 4 of the Regulation seems to provide otherwise.  

Article 4(1) which sets out who may form part of a grouping provides that, in the case of legal persons, such persons must have "their registered or statutory office and central administration in the Community". It further provides that if, as a result of the law of a Member State, such legal person is not required to have a registered office, it is enough that it has its central administration within the Community. Therefore the Regulation itself denotes the difference between both real seat and incorporation theory and seems to embrace both. 

Article 4(2) which provides the conditions to be applied in respect of the members that may form part of the grouping in terms of Article 4(1) continues to provide that a grouping must consist of at least two legal persons "which have their central administrations in different Member States". Therefore, after Article 4(1) recognizes the distinction between the registered office and place of central administration, 4(2) purposely omits the use of registered office.  

Finally, the intention of the legislator is clearly directed towards where the activity of the person (be it natural or legal) is based as is evident in the case of natural persons in that they must simply be performing an activity or service in different member states and need not be a citizen of different Member States or indeed any Member State at all.  

This is an important distinction for jurisdictions deemed, for whatever reason 'attractive'. Because of their simplicity, low costs and flexibility, the use of EEIGs is on the rise. However, attractive jurisdictions such as Malta that deal in the incorporation of a large number of legal entities which have places of central administration across the union can also serve as an introductory platform and are therefore poised to see the use of EEIGs grow rapidly.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.