LLPs can flourish under new EU Services Directive
27 November 2006
One aim of the EU is freedom of movement of goods, people, services and capital. Services account for 70 per cent of the EU's gross domestic product (GDP), but only 20 per cent of cross-border trade because of unnecessary regulatory and administrative burdens. A huge opportunity is being missed.
That's why I'm pleased that the EU Services Directive has been agreed by the European Parliament. The UK Government has been a strong supporter of the directive, which will genuinely open markets. The measures will affect a wide range of businesses, including legal services.
A PricewaterhouseCoopers study provides insight into the difficulties faced by law firms looking to expand their services across Europe. The study shows that one international law firm with 165 partners and 600 staff faced real barriers when it tried to expand into two EU countries outside the UK.
The major issue the firm encountered in both countries related to the UK firm's legal status as a limited-liability partnership (LLP). The firm wished its overseas offices to be branches of this LLP. This wasn't acceptable in either country. In one a compromise was reached, whereby the office became a branch of the US firm, which has a different form of LLP status.
In the other member state, however, the authorities do not accept law practices having any kind of limited liability. Therefore the firm was forced to create a small, additional, unlimited partnership in the UK, solely with the purpose of operating the branch in this country. This led to significant ongoing administrative costs of around £50,000 a year.
In addition, the partners suffer increased risk through operating in the country where they do not have limited liability protection. This impacts on all partners, not just those who work in the office in the member state, by exposing them to increased risk of claims from clients, which is not being insured against.
The Services Directive is a landmark move worth up to £5bn a year to the UK economy. The directive will cut red tape across the EU, making it easier for service providers to set up and offer their services in other member states.
When it is implemented companies will be able to use online forms, available at single points of contact, to set up, saving huge amounts of time and money in the process. Through the directive businesses will face fewer barriers to trade, and where there are requirements to be met they will easily be able to find out what they are. More than 90 barriers to the provision of services across the EU have been identified by the European Commission, including the restriction of workers of different nationalities, lengthy authorisation procedures and barriers to obtaining information. The directive will tackle these barriers to ensure Europe becomes a place where businesses and entrepreneurs can tap in to new markets without facing a mountain of unnecessary rules and regulations. Importantly, it achieves this goal without affecting essential protections for individuals in areas such as health and employment.
Member states will be required to screen their legislation and authorisation procedures to prove that they are necessary and in the public interest. Where justified procedures remain they will have to be simple, transparent and available from one point - a website where service providers will be able to complete most necessary formalities. It will also be necessary to show that member states do not discriminate against service providers from any EU country. Each member state will be required to report to the Commission on how it has implemented the directive, and each member state will be able to comment upon this.
This directive is one of the biggest improvements to the internal market since its creation. With services included in the directive representing 45 per cent of the UK's GDP, the UK will be one of the largest beneficiaries.
The directive will be finally approved and published soon and member states will have three years in which to implement it. I look forward to working alongside the legal sector during this time.