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How to expand your business across borders

OPPORTUNITIES, RISKS & PITFALLS

EUROJURISINTERNATIONAL

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HOW TO EXPAND YOUR BUSINESS ACROSS BORDERS

Opportunities, Risks & Pitfalls

©2013 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means including photocopying and recording, without permission. Permission must also be obtained before any part of this publication is stored in a retrieval system of any nature.

The contributors do not accept responsibility for any errors, omissions, misstatements or mistakes. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the contributors. The articles are not intended to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

The omission of any lawyer or practice in the publication does not indicate that they don’t practice in the area or are not well regarded. You should do your own research before engaging lawyers in any jurisdiction. The views expressed by the contributors are not necessarily those of the entire International Business Group of Eurojuris.

PREFACE

The Eurojuris International Business Group (“Eurojuris IBG”) is a practice group within Eurojuris International, a leading network of independent law firms, and is a proactive, business generating group that was formed to enable an elite group of Eurojuris International members to focus on the needs of business clients. Members of the Eurojuris IBG are experienced in their practice areas and are leaders in the international legal and business community.

Eurojuris IBG members fulfill very strict criteria: they are business minded, they work with business clients across Europe and overseas, they all work in the English language and have knowledge of other foreign languages.

The guide on How to Expand Your Business Across Borders was initially prepared for the Eurojuris IBG meeting in Brussels (February 2008) and is the result of a completed questionnaire aimed at providing, in a consistent manner, firsthand responses to a great deal of legal concerns of companies looking to expand their business.

The guide on How to Expand Your Business Across Borders was updated by the Eurojuris IBG members in 2012 and also extended to include the jurisdictions of its newest member firms.

It goes without saying that the contributions of the different law firms only provide some general comments on the examined topics. More detailed information and legal advice or assistance shall be sought in each individual case, and in this respect, all of the Eurojuris IBG member law firms are entirely at your service

Directory IBG members

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Member law firms Eurojuris IBG

AUSTRIAProksch & Partner Rechtsanwälte OGViennawww.prokschundpartner.at

BELGIUMRacine & VergelsBrussels www.racinevergels.eu

DENMARKMAQS Law FirmCopenhagenwww.maqs.com

FRANCECornet - Vincent - SegurelParis/Nanteswww.cvs-avocats.com

IDAvocatsParis/Rouenwww.idavocats.com

GERMANYBusekist Winter & PartnerDusseldorf www.busekist.de

Glock Liphart Probst & Partner, RechtsanwälteMunichwww.glock-liphart-probst.de

Caemmerer LenzKarlsruhewww.caemmerer-lenz.de

Von Einem & PartnerBremen/Frankfurt www.einem.de

HONG KONGHampton, Winter and Glynn Central Hong Kongwww.hwg-law.com

HUNGARYSzecskay Attorneys at LawBudapestwww.szecskay.hu

ITALYBacciardi and PartnersPesaro/Milanwww.bacciardistudiolegale.it

MEXICOCampos Galvάn AbogadosMexico City www.cg-abogados.com

NETHERLANDSMarree & DijxhoornAmersfoort/Amsterdamwww.mend.nl

NORWAYSvensson NøklebyDrammenwww.svenssonnokleby.no

Nordia LawOslowww.nordialaw.com

SPAINMariscal & Asociados AbogadosMadridwww.mariscal-abogados.com

SWITZERLANDHäusermann + PartnerBernwww.haeusermann.ch

Klein Rechtsanwälte AGZurichwww.kleinlaw.ch

Lenz CaemmererBaselwww.lclaw.ch

UKHarris Cartier LLPLondon/Sloughwww.hclaw.co.uk

Lamb Brooks SolicitorsBasingstokewww.lambbrooks.com

Matthew Arnold & Baldwin LLPWatford/Londonwww.mablaw.com

USACampos Galván AbogadosNew York/Miamiwww.cg-abogados.com

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Table of Contents

1 Austria

13 Belgium

57 Denmark

77 France

91 Germany

117 Hungary

129 Italy

173 Mexico

211 The Netherlands

225 Spain

239 Switzerland

253 England and Wales

275 The Protection and use of Intellectual Property Rights within the EU

AUSTRIA

Austria

PART I: CONTRACTUAL – NO OFFICE IN THE TARGET COUNTRY

A Direct sale

A.1. Without written agreement – general terms

1. What are the formalities a foreign seller must complete in your jurisdiction in order to make sure that its terms and conditions of sale are binding and enforceable towards local purchasers? Are these conditions enforceable towards non commercial parties?

Under Austrian law agreements can be entered into in writing, orally or tacitly. Thus, there are no special formalities required, the contractual partner however must be aware of the terms and conditions of sale and must agree to them. In practise sellers refer to the applicability of their own general terms and conditions and clarify that they are only prepared to enter into a contractual relationship subject to their terms and conditions (concurrently excluding applicability of the counterparty’s general terms and conditions). Strict consumer protection rules (generally implementing EU-law) apply in relation to consumers.

A.2. With a written agreement2. What are the clauses a foreign seller should integrate in a written

sales agreement (or in his general terms and conditions) and the reasons why?

(a) Retention of title: Is this provided for in your jurisdiction? What are the conditions to make it enforceable towards local purchasers and third parties?

Retention of title is permissible and always advisable. No special form requirements are to be observed. As to timing, the agreement on retention of title must be reached prior to delivery of the respective object of sale.

Generally, retention of title is valid also towards third parties, unless such third party has acquired the object of sale in good faith. In this respect it is advisable to agree on an extended retention of title (verlängerter Eigentumsvorbehalt) under which the purchaser assigns its future claims against potential third party acquirers of the object of sale to the (initial) seller.

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How to expand your business in Europe

Perfection requirements as to such assignments need to be observed.

(b) Interest and penalty clause: Are these clauses enforceable in your jurisdiction? Can they be reduced or annulled? What are the consequences if this clause is not integrated in the agreement? What is the legal rate in your jurisdiction?

Interest and penalty clauses are useful. Penalty clauses are, however, subject to judicial discretion.

The legal interest rate applicable between entrepreneurs is 8% above the basic interest rate published by the Austrian National Bank and adjusted every 6 months. The legal interest rate in connection with consumers contracts amounts to 4% per annum. Restrictions to agreements on interest payable on default interest apply.

(c) Applicable law and competent jurisdiction: Are these clauses enforceable in your jurisdiction? What are the consequences if this clause is not integrated in the agreement?

Under Austrian law generally parties have freedom to choose governing law and/or jurisdiction. As a default rule a contract for the sale of goods shall generally be governed by the law of the country where the seller has his habitual residence. The purchaser may not only be sued in the courts of the state of their domicile but also in the state where the goods were delivered or should have been delivered in case of a sale of goods.

B Commercial Intermediaries 3. What types of commercial intermediaries do exist in your

jurisdiction.

Given the basic liberty to conclude any contract the parties agree upon (unless for unlawful purposes), the parties may create any type of commercial intermediary they wish. The most common are:

• franchisees;

• distributors;

• commercial agents.

4. What legislation does apply in your jurisdiction with regard to the above mentioned types of distribution agreements?

Austrian law transposed EU-law on commercial agents, including

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Austria

special provisions on notice periods, post contractual non-compete clauses and compensation on termination of the agency contract. The provision is applied by way of analogy to certain distributors and also franchisees.

PART II: BRANCH – OFFICE IN THE TARGET COUNTRY BUT NO LEGAL PERSON:

5. What are in your jurisdiction the differences between starting up a branch and starting up of a company (subsidiary)?

Creating a subsidiary is usually more time efficient since the establishment of branches requires translation of the constitutional documents of the company establishing the branch and filing of such documents with the companies register. Furthermore certain documents will have to be translated to be filed with the competent trade authority. On the other hand incorporation of a subsidiary is usually more costly since Austrian companies have a minimum registered capital in the amount of EUR 35,000 (LLC) or EUR 70,000 (stock corporation), respectively.

6. What formalities must be fulfilled for opening a branch?

Formalities to open a branch office: Evidence has to be provided as to:

1. Existence of the parent company; and

2. Commencement of conduct of business by the branch.

The application must be signed by all representatives, certified by a notary. All documents to be submitted must generally be translated into German.

7. Why would you rather advise a foreign seller to set up a branch and not a company in your country, or vice versa?

The decision whether to open a branch or rather a subsidiary is mainly driven by the scope of business conducted in Austria and the risk associated therewith. Larger size business units and risky business is generally conducted by Austrian subsidiaries. Furthermore in certain business areas Austrian costumers prefer entering into agreements with Austrian counterparties, i.e. a subsidiary rather than a branch.

8. Is a branch authorized to act before the court, to engage people, …?

From a mere legal perspective no agreements are entered

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into by the branch as such but rather on behalf of the parent company. This however does not limit the possibility to act as an employer or before courts.

9. What is the liability of the legal representative of the branch?

Liability of representatives is generally determined by the laws of the jurisdiction of incorporation i.e. not Austrian law. Nevertheless certain Austrian provisions apply to representatives of a company irrespective of such company´s place of incorporation if it conducts business in Austria. In particular legal representatives are liable for the accurate payment of certain taxes, social security contributions and fines under public law (in the latter case unless a special representative is appointed).

10. Is there an automatic liability of the head office for the operations or acts of the branch?

The head office is liable for all obligations of its branch since it qualifies as the legal entity assuming all rights and obligations.

11. Which language will the documents be in?

If the branch deals with courts or public authorities, then they are obliged to use the official language – German. Documents in other languages must generally be translated when used vis-à-vis Austrian authorities.

12. What are the accounting requirements for a branch?

Under Austrian law, the Austrian branch has to file accounting / financial information pertaining to the branch’s foreign holding entity (to be drawn up in accordance with the laws of incorporation of such entity) with the Companies Register in German language.

PART III: SUBSIDIARY – LEGAL PERSON (SEPARATE LEGAL LOCAL ENTITY) IN THE TARGET COUNTRY

13. What are the advantages of establishing a subsidiary compared to establishing a branch?

The subsidiary is an independent legal entity and therefore the parent company is generally not liable for its subsidiary´s obligations (banks and other creditors might however require parent guarantees or other securities to be granted by the parent company).

The advantage of creating a subsidiary on a local market mainly

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Austria

results from the fact that such subsidiaries are considered local firms thus creating more confidence by its customers and suppliers. It might also be useful to check tax advantages under the EU parent-subsidiary directive or the various double tax treaties.

Of course, authorities and tax advisors are more familiar with Austrian companies and the rules provided for them. Furthermore, Austrian subsidiaries do not require special translations, certification, etc.

14. Can you present the main characteristics of the company forms existing under your jurisdiction in the following schedule:

Company Form Aktiengesellschaft (stock corporation)

GmbH (limited liability company)

OG (General partnership)

Limited liability yes yes no

Free transferability of the shares

yes yes (notarial deed required; the articles of incorporation may provide for restrictions)

no (generally consent of all other partners is required unless otherwise provided for in the AoA)

Fixed or variable capital

fixed fixed no registered share capital (AoA to usual provide for fixed capital accounts)

Minimum capital 70,000.00 EUR 35,000.00 EUR (minimum payment EUR 17,500)

no

Number of founders

1 1 2 (the partnership must have at least 2 partners during the entire term of its existence)

Notarial deed yes yes no

15. Which of the company forms is used most frequently in your jurisdiction?

Most Austrian companies are GmbHs (> 100,000). Small enterprises (eg family businesses) are often operated in the form of OGs or KGs (limited partnerships). Most subsidiaries of

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foreign parent companies are GmbHs (due to the fact that the management of GmbHs is obliged to obey instructions by its shareholders)

16. Which company form is used most frequently in case of small or family business?

see above

17. What are the main formalities a foreign company has to comply with in order to establish a subsidiary (filial/filiale)?

Depending on the legal form of the company, the establishment of a subsidiary basically requires:

• articles of incorporation (notarial deed with respect to AG and GmbH);

• payment of registered share capital to the extent required by law (only AG and GmbH);

• registration with the Companies Register;

• application for a VAT number with the tax authorities;

• payment of company tax (1% of the registered capital);

• appointment of managing directors (GmbH, AG) and supervisory report (AG).

18. What are the costs of establishing a subsidiary in your jurisdiction?

The establishment of a GmbH – which is the most common company form – requires the payment of the minimum capital (at least EUR 17,500– see above) plus court fees, legal advisors’ fees and certification costs (notary fees).

19. How long does it take to establish a subsidiary in Austria?

The incorporation of a GmbH can be managed within a few days. In case of urgency transfer of shelf companies is offered.

20. Is there specific legislation with regard to the liabilities of the founders and the directors of the most used company form?

The founders are liable for the company (GmbH) only in rather extreme cases (eg fraud). They remain liable for unpaid parts of the minimum capital (jointly and severally at least for EUR 17,500 – see above). The director, however, may be liable vis-à-vis the company if he damages the company in negligence. Tax authorities and social security bodies sometimes hold the director liable in insolvency of the company – if the director has acted negligently.

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Austria

In recent years it has become more common for creditors to hold directors of a GmbH liable in case of insolvency of the company (in particular based on delayed filing for insolvency)

PART IV – MISCELLANEOUS

A Real estate

A.1. Purchase of a real estate

21. Who do you turn to in order to close a valid purchase agreement?

The parties may draft the contract themselves. In most cases, however, they have the contract drafted by an attorney or by a notary. In order to be registered with the land register the respective transfer agreement needs to be certified.

To be enforceable against third parties transfer of ownership has to be registered in the land register.

22. What are the costs related to the purchase agreement?

The overall costs of a real estate purchase amounts to roughly 10% of the purchase price (including court fees, notary fees, attorney’s fees, real estate transfer tax).

23. Is there in your jurisdiction legislation that can slow down the purchase process (e.g. environmental legislation requiring preliminary soil examinations)

In some provinces, foreigners need to prove that they are residents of EU member countries in order to purchase real estate. Furthermore, the acquisition of agricultural real estate is restricted. This may slow down the purchase process.

General rules on the land owner’s liability for contaminations (in case of lacking knowledge of the identity of the polluter or the polluter’s ability to remedy) may result in extended investigations (including with respect to contaminations and bombs).

A.2. Rent a real estate:

24. Is there imperative law in your jurisdiction with regard to the rent of offices, industrial real estate or commercial real estate? Can you give a summary of the major stipulations of these regulations?

Austrian tenancy law basically does not differentiate between rent of real estate for private or for business reasons.

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Strict tenant protection laws may in certain cases apply. In such case, the tenancy contract may only be dissolved for cause (eg non-payment of rent).

It is possible to conclude the contract for a limited or for an unlimited term. In case the Austrian Tenancy Act (MRG), applies the landlord is entitled to raise the rent upon a change in (beneficial) ownership in the tenant (change of control).

25. Are there any formalities to be fulfilled in order to enforce the lease agreement towards third parties?

Following handover of the property no specific formalities apply. In particular it is not necessary – and therefore almost never done – to have the tenancy contract registered in the Property Register.

A.3. Environmental issues:

26. For what types of activities is an environmental permit required?

Austria has rather strict environmental laws. If a subsidiary plans to set up a business having potential impact on the environment or on the neighbours, then – depending on the expected emissions – a public law permit must be obtained. If the neighbours decide to appeal against the respective administrative decision, the procedure may take some time (6 months up to one year). The opening of mere office space requires no special permits, as long as the place is dedicated to such use.

27. Can you describe briefly this procedure? How much time will this procedure normally take

see above

A.4. Employment:

28. Are there any specific regulations with regard to outsourcing of employees?

Outsourcing of employees is possible under Austrian law. In fact, many companies tend to hire their employees from companies specialized in the supply of workforce. It is not uncommon that companies later conclude employment contracts with employees initially supplied by a supply firm directly.

29. Applicable legislation according to the type of employment (differences between employment by local company or by head office for the local branch)

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Austria

It makes no difference whether the employee is hired by a branch office or by a subsidiary. In both cases, Austrian labour law and collective bargaining agreements as well as Austrian social security laws apply.

30. Legal engagement and dismissal requirements and formalities

Employment contracts can be concluded without observing formalities. Following commencement of the employment relationship a written document (Dienstzettel) setting out the key terms of the employment contract must, however, be issued by the employer if no written employment agreement is concluded.

As a general rule Austrian employers are entitled to terminate at will, subject to compliance with notice periods (6 weeks to 5 months depending on the employee´s tenure) and effective dates (quarter´s end unless otherwise provided for). Employees may contest their respective termination in case of

1. Unlawful motif (e.g. Employee’s membership to a union, sex, or religion) or

2. Unfair termination (i.e. the employee is particularly affected by the termination due age, expected duration of unemployment or private situation) in which case the employer is obliged to justify termination.

31. Social security regulations

The legal provisions are quite complex and grant a high level of social protection in case of illness, unemployment and pension. Both employer and employee contribute to the social security instituttion. Employer’s contributions amount to approximately 31 % of the employee’s gross wage (up to an amount of such wage of approximately EUR 4,130 per month).

* *

*

BELGIUM

Belgium


A Direct sale:



- There are no special formalities a foreign seller must respect. The general terms will be binding on the local purchaser if the following two conditions are fulfilled: (1) The purchaser needs to have the chance to examine the general terms and conditions of sale. (2) The purchaser needs to accept the general terms and conditions.

The seller who wants to call upon the general conditions will have to give evidence that the purchaser had a reasonable chance to examine the general terms and conditions of sale before the actual contract was closed and the goods were sold Therefore, in principle the general conditions have to be mentioned on the order form, enabling the purchaser to examine these conditions before the closing of the agreement.

- However, contrary to this general rule that applies only to non commercial parties, the general terms and conditions will be binding on a purchaser-merchant even if they are only mentioned on the invoice According to article 25, 2° of the Belgian Code of Commerce the sales and purchase agreement can be proven by means of an invoice that has not been protested by the purchaser-merchant. The acceptation of the invoice includes the acceptation of the conditions mentioned on this invoice

The acceptance of the general terms and conditions can also be silent by a commercial party in the hypothesis of a long-term contractual relationship between the parties. In this case the seller can prove that his purchaser already examined the conditions, e.g. because he already received an invoice that he didn’t protest.

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– `To avoid any problems with regard to the enforceability of the general terms and conditions both towards commercial and non commercial parties, it is advisable to bear in mind the following recommendations:

○ It is always safest to ask for a signature of the purchaser on the general conditions.

○ The general conditions should be drafted in a language that can be understood by the purchaser. In case of Belgium: French and Dutch.

○ The general conditions should be printed in a typography that is easily readable and if they are printed on the backside, there should be a reference to these conditions on the front side. There might be no doubt about the fact that the purchaser could take notice of the general conditions

○ The general conditions printed on the invoice and on the order confirmation have to be exactly the same;

○ When the invoice or the order confirmation is printed in multiple exemplars, the general conditions have to be printed on the backside of each one of them;

○ When an order is done by phone, it is recommended to send the order in different copies to the purchaser and make him return it with the signature of an authorised person;

A.2. With a written agreement:

1. What are the clauses a foreign seller should integrate in a written sales agreement (or in his general terms and conditions) and the reasons why?


– Yes, the retention of title can validly be provided within contractual conditions

– The conditions to make the retention of title enforceable towards local purchasers are the same as the conditions mentioned above with regard to the general terms and conditions

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BELGIUM

– The enforceability of retention of title towards third parties in matters of insolvency is provided in the Bankruptcy law (article 101 of the Belgium Bankruptcy Law, applicable on all forms of concourse between creditors in matters of bankruptcy).

– The retention of title has to be agreed on by the parties in writing and at latest at the time of delivery. A retention of title agreed upon after the purchase and delivery of the goods is not valid as it is considered as a (prohibited) transfer of title by means of a surety.

– When the retention of titles is included in the general terms and conditions of the seller, it is recommended to have the signature of the purchaser on it, in order to have an express proof of acceptance of the clause.

– Furthermore, retention of title can only be executed as long as the goods can still be identified after its sale. This condition will not be met when the goods have become immovable after its instalment (e.g. bathroom furniture) or when they have been mixed up with other goods so that they can be no longer identified. In case it is likely that the goods will become mixed up / become immovable after its delivery, it is recommended to the seller to register his invoices at the clerk’s offices of the commercial court within 15 days after the delivery. In that case, the seller will maintain his legal privilege as a non-paid seller of goods.

– If the goods have been sold to a third party in good faith, the seller can ask for payment from the third party, as long as the third party has not paid the purchaser. In this case the property title is transferred from the goods towards the claim on the third party.

– There are no registration formalities to be fulfilled to make the retention of title enforceable towards third parties.

– However, in order to avoid a conflict with a landlord, who has a legal privilege on all the goods that furnish the rented premises, a written notice of the retention of title to the landlord is recommended in case the purchaser-tenant brings the goods, subject to the retention of title, into the rented premises. If not, in matters of bankruptcy the landlord will have preferential rights on these goods for outstanding rent to be paid.

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– When the purchaser is a consumer who bought the goods ‘on credit’, i.e. with a postponement of payment, with a loan or with any other payment arrangement, the law restricts the enforceability of a retention of title clause. Once the consumer has paid more than 40% of the price in cash, the goods can only be retained by a judicial decision or by a written agreement conducted after a letter of default has been sent by registered mail.


– Since parties in Belgium, like in most West-European jurisdictions, enjoy freedom of contract, parties are free to agree on payment, interest and penalty clauses in their agreements.

However, a court can temper the enforceability of grossly unfair contract terms.

Contractual provisions regarding payment terms and the consequences of late payments in commercial transactions that deviate from the provisions of the Law of 2 August 2002 on combating late payment in commercial transactions are subject to review by the Courts at request of the debtor. If these provisions are deemed grossly unfair to the debtor, the Courts may revise them. The judge disposes of a same possibility to temper contractual clauses on late payments as regards non-commercial transactions

The law of 2 August 2002 was the Belgian implementation of the European Directive 2000/35/EC of 29 June 2000 on combating late payment in commercial transactions. This law is also the default law for commercial transactions in case that the parties have not contracted on payment, interest and/or penalty clauses The scope of the law is limited to all payments made as remuneration for commercial transactions Members of liberal professions are also covered by the Law. Consumers, however, are excluded from its scope.

- General rule of the law: Unless the parties have agreed otherwise (“agreed payment period”), each payment subject to the Law is due within 30 days as from the day following the day on which (“statutory payment period”):

(i) the debtor receives the invoice or equivalent request for payment;

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BELGIUM

(ii) the goods or services are received, if the date of receipt of the invoice or the equivalent request for payment is uncertain or if the debtor receives the invoice or the equivalent payment request before the goods or the services;

(iii) the acceptance or the verification of the goods’ or services’ conformity with the agreement takes place, if such procedure is provided for in the agreement or by law and the debtor receives the invoice or the equivalent request for payment before the acceptance or verification takes place.

- Sanctions: Creditors who are not paid within either the agreed payment period or the statutory payment period, are automatically and without the necessity of a preliminary default letter entitled to interests at the conventional or legal interest rate. The legal rate is published each semester in the Belgian law gazette. For the second semester of 2012, the statutory rate amounted to 8,00 %, which is considerably higher than the Belgian legal interest rate (currently at 4,25 %).

However, if in international relationships the CISG (the Vienna Convention on the International Sales of goods) is found applicable to the contract, an interest rate that does not only want to compensate the creditor, but that also wants to sanction late payment and that wants to give an incentive for timely payment, is not in accordance with the international context of the CISG. The interest rate should be determined in an international way and thus not by the lex contractus. Therefore, the interest rate of the ECB can be used.

- Unless agreed otherwise, the creditor is also entitled to claim reasonable compensation from the debtor for all relevant recovery costs incurred through the latter’s late payment. These recovery costs must respect the principles of transparency and proportionality. If the claimed recovery costs are disproportioned the court can moderate the claimed recovery costs. However, such a claim for recovery of costs cannot be combined with a claim for legal defence costs. The latter is a fixed amount determined in function of the value of the claim as provided in the Judicial Code, and is awarded to the winning party.


* National transaction:

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A clause that determines the territorial competent jurisdiction is valid between parties if it has been accepted by both parties (see supra).

* International transaction:

– Applicable law

Regulation No. 593/2008 of 17 June 2008 on the law applicable to contractual obligations (Rome I) is applicable in Belgium. This regulation provides that a contract shall be governed by the law chosen by the parties. This choice can be made expressly or can be clearly demonstrated by the contract or the circumstances of the case.

When all elements relevant to the situation at the time of the choice are located in another country than the one whose law has been chosen in the contract, the choice of the parties may not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement.

In case no such a choice has been made by the party, the Regulation determines the applicable law per sort of contract.

- Competent jurisdiction

As regards transactions between persons domiciled in a EU member state, the Regulation No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I) applies. The general rule is that persons, regardless their nationality, have to be sued in the courts of the country where they have their domicile (article 2 Regulation n°44/2001).

Pursuant to article 23 of this Regulation the parties can agree to confer jurisdiction to the courts of a specific Member State. This agreement conferring jurisdiction shall be either (a) in writing or evidenced in writing, (b) in a form which accords with practices which the parties have established between themselves, or (c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.

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BELGIUM

B Commercial Intermediaries3. What types of commercial intermediaries do exist in your

jurisdiction.

– Franchising: An agreement between two parties (Franchisee and Franchisor) whereby the Franchisee has the right, in exchange for a direct or indirect financial consideration, to use the Franchisor’s trade name, and/or trade mark and/or service mark, know-how, business and technical methods, procedural system, and other industrial and/or intellectual property rights, supported by continuing provision of commercial and technical assistance by the Franchisor.

– Distribution agreement: (verkoopsconcessie /concessions de vente): An agreement whereby one party (the supplier) agrees with another (the distributor) to supply the latter with products or services for the purpose of resale. The distributor sells the products or services in his own name and on his own account.

– Commercial representative: (handelsvertegenwoordiger / représentant de commerce) An agreement whereby a white-collar employee, the commercial representative (handelsvertegenwoordiger / représentant de commerce) agrees to solicit potential customers for payment with a view of negotiating and/or concluding transactions under the authority, on the account and in the name of one or more employers. The legal intermediary acts on behalf of his principal in such a manner that the legal relationship is created directly between the principal and the customer. The commercial representative is subordinate to the principal.

– Commercial agent: (handelsagentuur / agence commerciale) An agreement whereby an independent intermediary has on a lasting basis the authority to negotiate, and eventually to conclude agreements in the name and on behalf of the principal. The legal intermediary acts on behalf of his principal in such a manner that the legal relationship is created directly between the principal and the customer.


– Franchising:

○ Under Belgian law, there are no specific rules governing

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franchising, except for the pre-contractual phase (see here-after).

Parties are thus free, within the framework of the general principles of contract law and public policy, to enter into contracts as they wish.

○ Law relative to pre-contractual information in the framework of commercial partnership agreements (19 December 2005).

This law contains provisions of imperative law.

Scope of the law: any agreement of commercial partnership concluded between two persons, each of them acting in their own name and on their own behalf, by which one party grants against compensation of whatever nature, direct or indirect, to the other party the right to use a commercial formula in one or more forms as listed in the law, in the sale of products or the provision of services .

At least one month before the conclusion of the commercial partnership agreement, the person granting the rights has to provide the other with (1.) a draft agreement and (2.) a special disclosure agreement. If the person granting the rights fails to do so, the person receiving the rights may invoke the annulment of the contract within two years of conclusion of the contract.

i. The special disclosure document has to contain two separate parts: The first part must summarize the important provisions of the commercial partnership agreement, such as the method of calculating royalties, the consequences of the franchisee’s failure to comply with its obligations, the conditions of renewal, the reservation of rights of the franchisor, the non-compete restrictions, the franchisor’s right of first refusal, … When the party granting the rights fails to reproduce those important provisions, the party receiving the rights may invoke the annulment of the corresponding clauses in the commercial partnership agreement.

ii. The second part must provide the necessary details to enable to evaluate the franchise-agreement : the history and perspectives of the market, the

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BELGIUM

history and experience of the franchise system, the intellectual property rights being granted, the data about the number of units, the data about the units that were opened / terminated / not renewed over the last three years, the perspectives on expansion, …

○ Law of 27 July 1961 on the unilateral termination of certain categories of distribution agreements.

In some cases the franchising agreement might trigger as well the applicability of this law (see hereafter).

– Distribution agreement:

○ Law of 19 December 2005 relative to pre-contractual information in the framework of commercial partnership agreements (entered into force since 1 February 2006).

Opinions are divided on the question whether this law applies to distribution agreements or not. Because of the severe sanctions in case of violation of its provisions, it is recommendable to respect the provisions of this law. (See Law of 27 July “franchise-agreement”)

○ 1961 on the unilateral termination of certain categories of distribution agreements.

This law has a limited scope, but its provisions are of imperative law.

It only covers the following categories of distribution agreements:

(1.) exclusive distribution agreements: this kind of agreement does not necessarily imply that an exclusive right to sell the supplier’s products within a defined area has to be granted to only one distributor:

i. the right can be granted to several distributors (shared exclusivity)

ii. the supplier may reserve the right to distribute the products himself;

(2.) quasi-exclusive distribution agreements: the distributor sells nearly all of the contract products in his territory. The law does not specify what must be understood by “nearly all of the products”;

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(3.) distribution agreements imposing onerous obligations upon the distributor: the supplier imposes important obligations upon the distributor which are closely and specifically related to the distribution agreement and the burden of which is so heavily that the distributor would suffer serious prejudice if the agreement is terminated.

The law only covers the problem of termination of these agreements in case they have been concluded for an indefinite period Nevertheless, the law provides that, in cases where a distribution agreement of fixed duration has been concluded:

(1.) for termination to be valid, an express notice of termination has to be given by certified post between the sixth and third month before the expiry date;

(2.) in case no such termination has been given and the agreement does not indicate the duration in case of renewal, it is renewed provide for an indefinite period of time;

(3.) in case it has been renewed twice, any subsequent renewal of the agreement will automatically result in the prolongation of the agreement for an indefinite period.

The protection offered to the distributors (and suppliers) operating under such agreement concluded for an indefinite period is as follows:

Either party may terminate a distribution agreement of indefinite duration only by giving reasonable notice or by paying an indemnity in lieu of notice.

Article 2 of the law requires a mandatory payment of an indemnity if, in the absence of a serious fault, a distribution agreement of indefinite duration is terminated unilaterally without providing a reasonable notice period. The required length of the notice period is “the time needed by the terminated party to find a comparable source of income”. The compensation will be equally to the benefits the distributor could have realized, when the principal had respected the reasonable period of notice.

Article 3 of the law provides that the distributor shall be entitled to an equitable supplementary indemnity if the termination is not attributable to him. The compensation is calculated in function of:

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(1.) the surplus value associated with the clientele created by the distributor and which remains with the supplier after the termination;

(2.) the expenses incurred by the distributor in developing the distributorship from which the supplier benefits after the termination of the distributorship;

(3.) indemnities payable by the distributor to employees whose employment contract has been terminated as a result of the termination of the distributorship;

This regulation is mandatory.

– Commercial representative:

○ A commercial representative is generally subject to Belgian Labour Law and more specific to The Contracts of Employment Act of 3 July 1978.

The Contracts of Employment Act provides that any agreement concluded between a principal and an intermediary will be deemed to be a commercial representation agreement until it is proven to be otherwise. This rebuttable presumption is valid irrespective of any explicit contractual clause to the contrary and also applies in cases where the contract is silent on this issue.

○ The Law contains specific provisions concerning the remuneration of commercial representatives, the goodwill indemnity after the termination of commercial representation agreement and the covenant in restraint of competition

(1.) Wages

In principle, the level of a commercial representative’s remuneration may be freely determined by the parties to the agreement. However, due regard should be given to local collective labour agreements (collectieve arbeidsovereenkomst / convention collective de travail) which may provide for mandatory minimum wages, indexation of fixed salaries and year-end bonuses.

According to the Law sales representatives are entitled to commission on all accepted orders

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arranged through their efforts and agency, even if such orders take effect at a time when their contract of employment is suspended or has terminated.

An order is deemed to be accepted by the employer, unless he has made an express provision or has refused expressly an order within the term agreed in the contract or – by default of a term in the contract – within one month.

They are also entitled to commission on orders given by a customer during the suspension or after the termination of their contract, on condition that they prove that during the performance of their contract they established a direct contact with the customer which led to the acceptance of the orders in question. The orders must have been communicated within a period of three months after the termination of their employment contract.

Sales representatives whose contract of employment stipulates that they visit only one clientele or only enterprises in one industry are entitled, during the performance of their employment contract, to commission on business transactions concluded by their employer with that clientele or with enterprises in that industry without the efforts and agency of the sales representative concerned.

(2.) Termination of the contract

See hereafter “termination of employment contracts”.

(3.) Goodwill Indemnity

A goodwill indemnity is a form of compensation payable by an employer to a sales representative who has recruited new customers in case the contract of employment is terminated in absence of a serious fault of the sales representative. However, if the employer is able to prove that the sales representative has suffered no prejudice as a consequence of the termination, no goodwill indemnity has to be paid.

The right to a goodwill indemnity is mandatory law and a clause wherein a sales representative renounces to a goodwill indemnity is voidable.

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The indemnity is equal to three months’ pay, increased by one month’s pay for the start of every additional five-year period of service.

(4.) restraint of trade clause

A restraint of trade clause is only valid if the annual pay of the representative exceeds 31.467 EUR (as from January 1st 2012 on).

Moreover, the covenant is subject to three conditions:

i. The prohibited competition must regard similar activities

ii. the clause must be limited geographically to those “areas” where the employee can truly constitute competition

iii. The clause may not last for more than twelve months.

– Commercial agent

○ Law of 19 December 2005 relative to pre-contractual information in the framework of commercial partnership agreements (entered into force on 1 February 2006).

Opinions are divided on the question whether this law applies to commercial agency agreements or not. Because of the severe sanctions in case of violation of its provisions, it is recommendable to respect the provisions of this law. (See “franchise-agreement”)

○ Law of 13 April 1995 on the commercial agency agreements.

The law has been enacted in accordance with the council directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents.

(1.) Remunerations

A commercial agent is entitled to remunerations consisting in a fixed fee or a commission or a combination of both. In the absence of any agreement, a commercial agent shall be entitled to remuneration that is customarily in the place where he carries on his activities.

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In case the remuneration consist in part or wholly of commission, a commercial agent shall be entitled to commission on transactions concluded during the period covered by the agency contract:

i. If the transaction has been concluded as a result of his efforts;

ii. If the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind;

iii. If he is entrusted with a specific geographical area or group of customers and the transaction has been entered into with a customer belonging to that area or group.

During the period covered by the agency contract, commissions are due when the principal has (or had to) conclude the agreement with the third party or when the third party fulfilled his contractual obligations.

A commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has been terminated:

i. if the transaction is mainly attributable to the commercial agent’s efforts during the period covered by the agency contract provided that the transaction was entered into within six months after that contract terminated; or

ii. if the order of the third party reached the principal or the commercial agent before the agency contract terminated.

(2.) Termination of the contract

If the agency contract is concluded for an indefinite period (or for a definite period with a provision that the contract can be terminated) either party may terminate it by notice.

The period of notice shall be one month for the first year of the contract, and increases with one month for

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every year that is commenced with a maximum of six months. The parties cannot agree to shorter periods.

If a party fails to respect the period of notice a compensation is due.

No period of notice has to be respected in case the contract is terminated for reason that a professional collaboration between the parties is definitely no longer possible or for reason that the other party sincerely lacks to fulfil his obligations. This provision is of mandatory law.

(3.) Goodwill Indemnity.

A goodwill indemnity is due if the agent has recruited new customers or if the agent has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits. However, in some cases this indemnity is not due (eg. when the agreement has been terminated following a serious failure of the agent).

If the contract provides a restraint of trade clause, there is a rebuttable presumption that the principal continues to derive substantial benefits.

The amount may not exceed a figure equivalent to an indemnity for one year calculated on the remuneration over the preceding five years.However, in case the real damage suffered by the agent is higher than the amount granted by way of goodwill indemnity, the agent can claim additional compensation if he is able to prove his real damage. Both the goodwill indemnity and the additional compensation are mandatory law in the benefit of the agent; parties can only draft clauses which are more beneficial for the agent.

The agent will lose his entitlement to the indemnity when he has not notified the principal within one year following termination of the contract l that he intends pursuing his entitlement.

(4.) Restraint of trade clause

A restraint of trade clause can be agreed to if:

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i. it is concluded in writing; and

ii. it is restricted to the geographical area, or the group of customers and the geographical area, entrusted to the commercial agent;

iii. it relates to the kind of goods covered by the agency contract;

iv. it does not exceed 6 months after the termination of the contract.

○ The provisions are mandatory law but can, under specific circumstances, be renounced to.


5. What are in your jurisdiction the differences between starting up a branch and starting up a company (subsidiary)?

As a branch has no legal personality, obligations incurred through such branch can be enforced on the assets of the foreign company, even if they are located abroad.

Since the subsidiary is a separate legal entity, its liability is limited to its own assets. The shareholders will therefore not be personally affected by the liabilities of the subsidiary beyond the amount of subscribed capital.


– In the jurisdiction of the head office.

○ Corporate resolutions: The board of directors of the head office must formally adopt resolutions deciding to open the branch office. Those resolutions should at least mention:

– The address and activity and starting date of the branch;

– The name of the branch, when it differs from the company name;

– The nomination and the identity of the persons with the competence of managing the branch and representing the company in dealings with third parties and in legal proceedings in connection with the activities of the branch, together with their competence;

– Also the company itself has to be duly identified in the resolutions.

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Those identification requirements are more rigid in case the company is incorporated outside the European Union.

○ Legalized affidavit: For filing purposes with the clerk’s office of the Court of Commerce, the following documents must be included in, or attached to, an affidavit issued by the foreign corporation’s secretary (or any other duly authorized officer), certifying that the attached documents are true copies:

• The corporate resolutions relating to the opening of the branch and stating the extent of the powers granted to the company’s legal representative for the activities of the branch; these resolutions must be certified as true resolutions of the competent corporate body of the head office (usually the board of directors);

• A document certifying the foreign corporation’s existence;

• A copy of the foreign corporation’s articles of incorporation and articles of association (if the latter are contained in a separate document) or an amended and restated version of these documents as currently in force if there have been amendments;

• Various information about the foreign corporation and its Belgian branch (e.g. principal place of business of the company, address and activities of the branch, etc.).

This affidavit must be legalized in the foreign corporation’s jurisdiction. When the corporation is incorporated in a country that is party to The Hague Convention of 1961, the simplified “apostille” (stamp) procedure can be used for the legalization. Otherwise the legalization should be done by the Belgian embassy or the nearest Belgian consulate.

However, for some countries, a legalization procedure is no longer necessary as a result of a (bi- or multilateral) treaty (eg. The Convention of Brussels of 25 may 1987 adopted by Belgium, Denmark, Germany, France, Ireland and Italy).

– In Belgium

○ Translate documents into one of Belgium’s official languages: For filing purposes, the affidavit and all attached documents (i.e., the articles of incorporation,

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the articles of association and, as the case may be, the document certifying the foreign corporation’s existence) must be translated by a certified translator into one of the three official Belgian languages. The region where the branch will be located determines the language to be used. A free translation is allowed for the annual accounts and the consolidated accounts.

○ File annual accounts with Belgian National Bank: A copy of the foreign corporation’s annual accounts (and, as the case may be, its consolidated accounts) of the last fiscal year must be translated and filed with the National Bank of Belgium, the country’s central reserve bank. The certificate from the National Bank of Belgium, confirming that the annual accounts (and, as the case may be, the consolidated accounts) have been duly filed, must be filed with the clerk’s office of the Court of Commerce together with all other required documents. This requirement applies to privately held as well as publicly held companies.

○ File documents with local Court of Commerce: The above-mentioned documents and corporate resolutions, as well as a translation, must be filed with the clerk’s office of the Court of Commerce in the judicial district where the branch is located.

○ File for publication in Belgian Official Gazette: An excerpt of the translation of the corporate resolutions must be published in the Annexes of the Belgian Official Gazette (Belgisch Staatsblad).

○ Obtain a trade registration number

○ Apply for a VAT identification number


– Advantages of a branch:

○ Mobility: a branch can easily be opened and closed down. No notary public required, no financial plan, etc...

○ Belgian corporate law, with a few exceptions, does not impose requirements such as a board of directors or shareholders’ meetings.

○ No minimum capital requirements.

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○ A branch benefits from the reputation of the head office.

○ The head office can more easily allocate expenses to a branch.

– Disadvantages of a branch:

○ The head office is fully liable for the debts of the branch.

○ A branch’s annual filing will reveal financial information about the foreign entity that it may prefer to keep confidential.

○ From a marketing viewpoint, a branch can be regarded, not as a Belgian or European company, but rather as a foreign entity.

○ Since a branch may easily be closed down, the local market may be reluctant to enter into transactions with the branch.

○ The fulfilling of a number of formalities, both when establishing a branch as well as during the existence of the branch. As already mentioned all these documents must be written or translated in one of Belgium’s official languages.

8. Is a branch authorized to act before the court, to engage people,…?

A legal representative must be designated for the purposes of managing the branch and representing the company in dealings with third parties and in legal proceedings in connection with the activities of the branch.


The legal representative of a branch has the same liability towards third parties as a director of a Belgian Company.


The head office is entirely liable for all undertakings of the branch office in Belgium.


Branches are subject to Belgian regulations on the use of languages. All documents required by law must be drafted in one of Belgium’s official languages (i.e., French, Dutch or German)

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depending on the region where the branch has its registered office.


A branch has the obligation to keep accounting records in accordance with the Belgian accounting rules but is not required to publish its own annual accounts. Only the accounts of the head office need to be published. The parent company’s accounts must be audited and certified according to its own national regime.



– Because the subsidiary and the parent company are separate legal entities, the parent company is not exposed to any liabilities of the subsidiary. In contrast, a foreign investor remains fully liable for all the commitments of its branch. Obligations incurred through such a branch can be enforced on the assets of the foreign investor, even if they are situated abroad.

– From a marketing viewpoint, a subsidiary will be regarded as a Belgian or European company, rather than a foreign entity.

– A subsidiary can benefit from several tax advantages:

• The ability to repatriate or distribute net profits with little or no dividend withholding tax;

• Subsidiaries can benefit from the advantages given under the double tax treaties concluded by Belgium.

– In most cases, qualification as a “parent company” under the EU Parent-Subsidiary Directive.

– Annual filing requirements are less stringent for subsidiaries than for branches. A branch’s annual filing will reveal financial information about the foreign entity that it may prefer to keep confidential.


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COMPANY FORM NV / SANaamloze vennootschapSociété Anonyme Public limited liability company

BVBA / SPRLBesloten vennootschap met beperkte aansprakelijkheidSociété Privée à Responsabilité Limitée TClosely held limited liability company

CVBA / SCRLCooperatieve vennootschap met beperkte aansprakelijkheidSociété Coopérative à Responsabilité Limitée Co-operative company with limited liability

Limited liability YES YES YES


YES NO NO


Fixed Fixed Fixed and Variable

Minimum capital 61.500,00 EUR

18.550,00 EURAt least 6.200,00€ of the capital must be paid up on the day of the incorporation, at least 12.400,00€ if only one founderSince June 2010, a BVBA can also be established with a capital of 1 EUR (“Starter-BVBA”). However, as soon as the S-BVBA has 5 FTE’s and in any case at latest after 5 year, the capital has to be brought at the minimum of 18.550,00 EUR

18.550,00 EURAt least 6.200,00€ of the capital must be paid up on the day of the incorporation, at least 12.400,00€ if only one founder

Number of founders 2 2Exception EBVBA (only one founder)

3

Notarial deed YES YES YES

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COMPANY FORM

VOF/SNCVennootschap onder firma Société en Nom Collectif The general partnership

Comm VA / SCACommanditaire vennootschap op aandelenSociété en Commandite par ActionsThe co-operative company with unlimited liability

CommV / SCSDe gewone Commanditaire VennootschapSociété en commandite simpleThe limited partnership

CVOA / SCRICooperatieve vennootschap met onbeperkte aansprakelijkheidSociété Coopérative à Responsabilité IllimitéeCo-operative company with unlimited liability

Limited liability

NO YES, butonly for the limited partners, not for the managing partners

YES, butonly for the limited partners, not for the managing partners

NO


NO YES NO NO


Variable with possibility to make a contribution of labour

Fixed Variable Variable

Minimum capital

0 61.500,00€ 0 0

Number of founders

2 2 1 3

Notarial deed NO YES NO NO


NV , BVBA and CVBA.


BVBA and CVBA.


The legal steps required when establishing a company are similar

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for all types of companies and consists of the following steps:

– Draft an incorporation deed

The incorporation deed will be drafted by a Belgian public notary based on the specifications of the shareholders.

The incorporation deed must amongst others state the details (name and address) of the shareholders who incorporate the company and specify the amount of the capital contribution made by each shareholder. The incorporation deed also includes the company’s articles of association (“statuten”), which determine the rules governing the company. The directors will be appointed on incorporation of the company.

– Draft a business plan

New legal entities must prepare a business plan covering the first two years of operation. A Belgian accountant can help to draft the business plan.

– Deposit of the share capital in a blocked bank account

In the case of a contribution in cash, a bank account must be opened in the name of the company “to be incorporated” with a bank in Belgium and each shareholder must transfer the amount to be paid up on its shares to this account, prior to the execution of the incorporation deed. The bank will issue a certificate, which must be delivered to the notary on the date of execution of the incorporation deed, confirming that the paid-up amount of the capital is in the bank account.

- Draw up the appraisal reports

A shareholder can also do a contribution in kind (assets other than cash) to the company, provided that such assets have an economic value (e.g. real estate, shares in another company, a claim for the payment of an amount of money etc). In such cases, an appraisal report must be issued by an auditor. In addition, the founding shareholders must prepare a report stating the reasons why the asset contribution is in the interest of the company. Both reports must be delivered to the notary on the date of execution of the incorporation deed.

They, together with the incorporation deed, must be filed with the Registrar Office of the Commercial Court by the notary.

– Notarize the incorporation deed

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The incorporation deed must be recorded in a notarial deed to be executed by the founders and a Belgian public notary. The founding shareholders must be present or represented when the incorporation deed is enacted before the public notary. To be represented, a power of attorney must be provided and attached to the incorporation deed. The signature on such a power of attorney does not need to be legalized.

– Register the incorporation deed

A corporation obtains a legal personality separate from that of its shareholders as of the date of filing of the incorporation deed at the Registrar Office of the Commercial Court in the judicial district where the company has its registered office. This filing is handled by the notary who executed the incorporation deed.

– File for publication in Belgium’s Official Gazette

An extract of the company’s incorporation deed must be filed for publication with the Belgian Official Gazette.

– Obtain a corporate registration number

A company may not commence business activities prior to its registration at the Crossroads Bank for Enterprises (CBE) (KruispuntBank van Ondernemingen / Banque-Carrefour des Entreprises) in the judicial district where it has its registered office.

Apart from the fulfillment of other conditions, a company cannot be registered at the CBE unless people having management powers (typically the managing director) give proof of good management skills. Consequently, a certificate of basic knowledge of managerial skills needs to be obtained, based on either a diploma or the experience of the manager. This formality might sometimes prove to be time consuming but

can be avoided if the company can prove that it (or its parent) does not qualify as a small or medium sized company (i.e. has more than 50 employees, a turnover above EUR 7,000,000 or a balance sheet exceeding EUR 5,000,000). In this respect, a declaration of honor (“affidavit”) by the foreign corporation or its parent is sufficient.

– Apply for a VAT identification number

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As a general rule, a subsidiary must also be registered with the local VAT Administration.


– Contrary to a branch, the establishment of a subsidiary in Belgium does not include either translation costs or administrative legalization formalities and costs. However, a fee of approximately 1500 EUR must be paid to the public notary who will enact the incorporation deed.

– Other incorporation expenses include costs in relation to the publication of an abstract of the notarial deed in the Belgian Official Gazette (229,17 EUR - VAT included), stamp duties and registration at the Crossroads Bank for Enterprises (77 EUR – not subject to VAT).

19. How long does it take to establish a subsidiary in Belgium?

– A public limited liability corporation or a private limited liability company can be established within a short period of time. There are no government approvals or waiting periods. If the foreign investor has approved the articles of association, opened a bank account and prepared its business plan, the incorporation is a matter of days.

– However, attention should be given to work permit regulations and the certificate of proof of good management skills, which might be delaying factors.


– Although the founders of a NV/SA constitute a separate legal person, in which the shareholders potential liability is normally limited to their subscription, the founders can be held responsible if the NV / SA has been declared bankrupt within the first three years of its creation In that case the court will examine the financial plan, the budget that was edited by the founders and that provided a forecast covering the company’s first two years of activity. If the court considers that the capital was manifestly insufficient to carry out the planned activities the founding shareholders may incur personal liability. The draft budget must be submitted and kept by the notary.

– The directors of an NV/SA can incur liabilities in the following situations.

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○ The Belgian Company Code provides for a mandatory procedure in case the company has substantial losses The board of directors must convene an extraordinary meeting of shareholders within two months in the event that the net assets of the company have reached a level which is inferior to half of the stated capital.

The shareholders must than decide whether to dissolve the corporation or whether to accept the measures in an attempt to restructure the company’s financial situation. The decision to dissolve the company is taken in accordance with the rules that govern the modification of the by-laws (3/4 of the votes). If the losses amount to more than three-quarters of the company’s stated capital, the decision to dissolve the company can be taken by 1/4 of the votes represented at the meeting.

The penalty provided for in case the board does not convene such a meeting of shareholders in due time, consists of the liability of the board of directors towards third parties for the losses that the third parties have sustained as a result of the fact that the meeting was not held.

○ In accordance with the Belgian Company Code, directors can be held liable in the following circumstances:

• Liability for the improper execution of their tasks as directors;

• Liability for the violation of the Belgium Company Code or of the charter of the company.

○ In accordance with article 1382 Civil Code directors can be held liable for wrongful acts

○ A director can be held liable if he or she had a direct or indirect personal interest in a decision and obtained an unjustified advantage to the detriment of the company as a result of that decision.

○ The Belgian company code provides that directors can be held personally and jointly liable if it can be established that a clearly wrongful act committed by them have contributed to the bankruptcy of the company

○ In specific situations, a director can be exposed to criminal sanctions

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○ The new Program Law 20th July 2006 provides for some specific liabilities:

• Personal and several liability of directors for unpaid VAT or advance tax in case of non-payment of three terms of due VAT or advance tax in a period of one year (when working with monthly payments) or non-payment of two terms of due VAT or advance tax within one year (when working with three-monthly payments)

• Personal and several liability of directors for unpaid social security contributions in case of bankruptcy when:

– directors of the bankrupt company were involved in at least two bankruptcies or liquidations with social security contribution debts in the preceding 5 years;

– a grossly fault of a director caused the bankruptcy.

○ The Belgian company code establishes the so-called minority action

This means that the minority shareholders can file an action on the account of the corporation if a director executes his task in an improper manner without having to prove that they suffered damage which is distinct from the damage suffered by the corporation.

With regard to the NV / SA, the minority action can be instituted by shareholders who control (on the day the general meeting of shareholders is called to vote on the discharge of the director) either:

– at least one percent of the votes;

– shares worth at least 1.250.000,00 EUR.

Shareholders with voting rights can only file a minority action if they have not approved the director’s discharge or if their vote in this respect was invalid. Once the procedure for the minority action has started it becomes impossible to enter into a settlement agreement unless all the plaintiffs consent.


A Real estate


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– A transfer of real estate does already occur when the parties mutually agree on price and object of the sale. This (first) agreement does not necessarily need to be enacted by Notarial Deed and may take the form of a private contract (“verkoopscompromis”/”compromis de vente”).

– Nevertheless, to be enforceable against third parties, a transfer of real estate requires a Notarial deed (or judgement). This Deed must be registered at the mortgage office and from that moment the transfer is enforceable against third parties. The Notary Public enacting the Deed will take care of this registration and will receive the registration tax from the Purchaser.


– Transfer of real estate is subject to:

• a transfer tax of, in the Flemish region of Belgium, 10 % of the purchase price and, in the Brussels or Walloon region of Belgium, 12,5 % of the purchase price,

• notarial fees and

• other small fees related to inquiries performed by the Notary.

– In case of newly built property (meaning the sale takes place at the latest at the end of the second year, following the year of occupation), the transfer is subject to a VAT of 21% instead of the above mentioned transfer tax.


• Soil Clean-up Regulation

– If the real estate is located in the Flemish region of Belgium, one should take into account the Flemish Decree on Soil Clean-up of 11 October 2006.

According to the stipulations of this Decree, the contractual transfer of land will be void when the transfer deed is not accompanied by a soil condition certificate issued by the Flemish Waste Agency (OVAM). This soil certificate, issued by OVAM must be delivered prior to the transfer (article 101 of the Decree). A fee of 36 EUR is charged per cadastral parcel for which a certificate is delivered.

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Moreover, if certain potentially soil threatening activities are or were carried out on the land to be transferred, a severe procedure has to be observed. (Article 102-115 of the Decree) A preliminary soil survey must be submitted to OVAM, prior to the transfer. Upon receipt of the preliminary soil survey, OVAM has to decide within a term of 60 days whether the transfer can take place without any further measures or whether the preliminary soil survey revealed pollution that needs further investigation such as a descriptive survey (outlining the extent of the pollution and the physical profile of the contaminated spots). Once this second survey has been carried out, it has to be submitted to OVAM who decides whether the transfer can take place without any further measures or whether the condition of the soil requires a soil clean-up proposal. Once this soil clean-up proposal has been drafted and submitted to OVAM, transfer will be possible if the Seller:

– commits to OVAM to do any required soil clean-up and

– provides financial security to cover clean-up costs.

The whole procedure can easily take several months.

– The Walloon region adopted its own Soil Clean-Up Act (Décret relatif à la gestion des sols), aimed at safeguarding the quality of soil in the region, on 5 December 2008 (entered into force on 18 May 2009). The governmental institution responsible for the execution is called SPAQuE (Société Publique d’Aide à la Qualité de l’Environnement).

– In the Brussels Capital region, the Ordinance of 5 Mars 2009 (entered into force on 1 January 2010) has to be respected. The responsible governmental institution is IBGE-BIM (Institut Bruxellois pour la Gestion de l’Environnement - Brussels Instituut voor Milieubeheer).

• Energy performance of buildings Regulation

– The European Directive 2002/91/EC of 16 December 2002 on the energy performance of buildings imposed on Member States an obligation to ensure that, when buildings are constructed, sold or rented out, an energy performance certificate is made available to the owner or by the owner to the prospective buyer or tenant, as the case might be. In Belgium, this subject is a regional competence, so that each region has enacted its own rules:

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- Flanders region: Order of the Flemish government of 11 January 2008

- Walloon region: Order of the Walloon government of 3 December 2009

- Brussels Capital region: Order of the Brussels government of 17 February 2011

- The price of a certificate varies between 150 EUR and 300 EUR, depending on the size of house subject to the audit and the audit provider (liberal system of pricing).



– There is no imperative law on rent of offices.

– There is no imperative law on rent of industrial real estate.

– But there is imperative law on rent of commercial real estate. The law of 30 April 1951 on commercial lease contains mandatory provisions in case of rent for purposes of retail trade (“kleinhandel”/”commerce de detail”) or crafts activities (“ambacht”/”activité d’un artisan”) whenever there is a direct contact with the consumer in their premises.

This law provides for a series of binding provisions, sometimes protecting the tenant, sometimes protecting the landlord, sometimes protecting both. As a result, in case of violation of these legal provisions, it will be either the tenant, either the landlord, either both who can invoke the nullity of the incompatible provision in the agreement.

• The term of the lease has to be at least nine years. The tenant can terminate the lease every three years. The landlord can do this every three years, but only for specific reasons and only if this has been stipulated in the agreement. When there is a mutual agreement to terminate the lease prematurely, the tenant and landlord have to ratify it by appearing before the Notary Public or the judge. (Article 3 of the Law)

• In case the business – ran in the rented premises – is sold or leased by the tenant to a third party, a clause in the lease

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that prohibits the transfer or sub-lease of the commercial rent will have no effect, provided that certain formalities are observed (article 10 and 11 of the Law).

• In case of transfer of the rented premises, the new landlord must respect the on-going lease of nine years if this lease was registered. If the lease was contracted for more than nine years, the new landlord has to respect the duration exceeding the current nine year period provided that the lease was enacted by Notary Public. In case of non-registered lease agreements, two hypotheses are possible. If the tenant has occupied the places for less than six months, he can be demanded to leave the premises without any notice period. If the tenant has occupied the places for more than six months, the new landlord can demand the tenant to leave when observing certain formalities and, in some circumstances, only after paying compensation. (article 12 of the Law)

• The tenant has the right to apply for renewal of the agreement thrice. The tenant has to ask the renewal by registered letter or by writ between the 18th and the 15th month before the end of the on-going lease period. He has to outline the conditions of the intended renew lease he is willing to accept. Subsequently, the landlord has three months upon receipt of the demand to answer the request. In case of refusal to renew, he has to indicate the reason of refusal. If he lacks to do so, he has to pay a compensation which equals the rent of three years. Beside it, the law also outlines some reasons that might trigger a compensation of one or two years of rent. (article 25 of the Law)

25. Are there any formalities to fulfill in order to enforce the lease agreement towards third parties?

– Registering a lease is a mandatory formality imposed by Belgian fiscal legislation. A tax of 0.20 % is imposed on the total amount of the rent and costs covering the entire lease period.

The registration of the lease agreement makes it enforceable against third parties (such as a new owner), but only for a period of nine years. When the lease agreement exceeds the period of nine years, it needs to be subscribed at the mortgage office which requires a Notarial Deed. When the latter kind of agreement has been registered without subscription at the mortgage office, the agreement will only be enforceable for the on-going period

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of nine years. For instance, a lease agreement of 27 years for a premise which is sold after ten years, will ‘lose’ its power of enforceability vis-à-vis the new owner at the end of the on-going nine years period, thus after 18 years.



Since 1980, reforms in Belgium have resulted in the creation of regions (the Brussels Region, the Walloon Region and the Flemish Region) and communities (the Dutch Community, the French Community and the German Community).

Since July 1993, the regional authorities have full competence in environmental protection matters except for waste transit, protection against ionizing and uniformity of product requirements, where the federal authority retains exclusive competence. As a consequence, each region has its proper legislation on environmental issues. The procedure to obtain an environmental permit will be different depending on the location of the plant: if it is located in the Flemish Region, the Brussels Region or the Walloon Region, it will be respectively governed by the Flemish Decree, the Brussels Ordinance or the Walloon Decree.

1. The Flemish Region

The procedure in the Flemish Region is governed by the Flemish Decree of 28 June 1985 on the Environmental Permit and its implementing Decree of 6 February 1991, commonly referred to as VLAREM I.

The regional act and its implementing decree classify enterprises into three classes, depending on the nature and the importance of the impact on the environment:

I. Class 3 operations, which do not need to be authorized in an actual permit. The operator must only notify the municipal authorities.

This category includes activities deemed to have “limited” effects on the environment.

II. Class 2 operations, which must be authorized by the municipal authorities.

This category includes activities that are deemed more harmful to the environment.

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III. Class 1 operations, which must be authorized by the provincial authorities.

This category includes truly hazardous activities, such as the production of pesticides.

When an establishment is listed into different categories, the procedure according to the highest category must be applied.

2. The Brussels Region

In the Brussels Region, the procedure is governed by the Ordinance of 5 June 1997 on the Environmental Permit.

Listed exploitations under the Ordinance are classified into five categories:

I. Class III exploitations: Class III covers exploitations which have only a very limited impact on the environment and which do belong to the competence of the municipalities. The operator only needs to inform the municipal authority, whom will hand out a confirmation receipt. No formal permit is delivered.

II. Class I.C exploitations: Class I.C covers exploitations which have, just like class III, only a very limited impact on the environment, but do belong to the competence of the IBGE-IBM (part of the Brussels Capital region), since it concerns regional competences.

III. Class II exploitations: Class II covers exploitations which have a moderate impact on the environment. The permission is delivered by the municipal authority.

IV. Class I.B exploitations: Class I.B covers exploitations which have a considerable impact on the environment. The permission is delivered by IBGE-IBM.

V. Class I.A exploitations: Class I.A. covers exploitations which have a very considerable impact on the environment. The permission is delivered by IBGE-IBM.

3. The Walloon Region

The procedure is governed by the Walloon Decree of 11 March 1999 on Environmental Permits.

The regional act covers three types of listed facilities, depending on the nature and the importance of the impact on the environment:

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I. Class 3 activities, which only need to be notified to the municipal authorities.

II. Class 2 activities, which have to be authorized by the municipal authorities.

III. Class 1 activities, which have to be authorized by the municipal authorities.


1. The Flemish Region

I. Class 2 operations

The applicant files a request for an environmental permit with the municipal authorities. The applicant receives notification when the request is admitted. This notification starts the approval procedure.

The request is published and a public investigation is conducted. The appropriate authorities give their advice.

The municipal authorities decide whether the permit is granted within 3,5 months. The absence of a decision within the required time limit equals a negative decision. An extension of one and a half months is possible.

All interested parties can file an appeal with the provincial authorities within 30 days after the decision is published.

The permit is generally granted for 20 years.

II. Class 1 operations

The applicant files a request for an environmental permit with the provincial authorities.

For certain listed categories of activities the request needs to be accompanied by an “environmental impact assessment” or a “safety report”. This can take more two months.

The applicant receives notification when the request is admitted. This notification starts the approval procedure.

The request is published and a public investigation is conducted. The appropriate authorities give their advice.

The provincial authorities decide whether the permit is granted within 4,5 months. The absence of a decision within the required time limit equals a negative decision. An extension of two months is possible.

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All interested parties can file an appeal with the Flemish Minister of the Environment within 30 days after the decision is published.

The permit is generally granted for 20 years.

2. The Brussels Region

The applicant submits an application form to the relevant authorities.

The permit must be delivered within the following timespan:

Class III: the confirmation receipt should be handed out at latest 20 days after submission of the completed file. If no confirmation receipt or reaction follows, the operator can start.

Class I.C: 20 days after the file has been considered complete.

Class II: 60 days after the file has been considered complete.

Class I.B: 160 days after the file has been considered complete. The application form has to be accompanied of a report of the operator outlining the effects on the environment.

Class I.A: 450 days after the file has been considered complete. The application form has to be accompanied of a study of a certified institution outlining the effects on the environment.

When the legal deadline is exceeded, the permit is considered by law to be refused, except for class III. For Class II, I.B. and I.A., a ‘public investigation’ during 15 days is conducted which aims to inform (eg. via a notice board on the premise of the exploitation and at the city hall) the public about the demanded permission.

If not satisfied with the decision or if the official deadline has been exceeded, the company has the right to appeal within 30 days of issuing; first before the “Environment College” and then the Brussels government.

The decision (also a negative one) has to be displayed on the premises for a term of 15 days. In case of a positive decision, neighbours have subsequently 30 days to appeal against the permission.

Permits are usually issued for 15 years, except for class III

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permissions which are granted without a timespan, and can be renewed once.

3. The Walloon Region

All requests for environmental permits, except those relating to the mobile establishments, must be introduced at the municipality in which the activity is situated.

The municipality issues the permit, if the activity takes place in one municipality. If the activity takes place in different municipalities or is a mobile installation, the technical civil servant grants the environmental permit.

The time of treatment of the file is the following:

Class 3 establishments: 15 days

Class 2 establishments: from 110 to 140 days

Class 1 establishments: from 160 to 190 days

A.4. Employment:


– Yes, in Belgium outsourcing of employees (i.e. to place an employee at someone’s disposal or the “terbeschikkingstelling van werknemers”) is only allowed under several conditions, to be retraced in the Law of the 24tJuly 1987 on temporary labor, temporary deployment by specialized agencies and outsourcing of employees at the disposal of a third user.

– This law stipulates a principle prohibition to outsource employees to third users (article 31, § 1 of the law), because outsourcing results in a situation that the authority is exercised by the third user instead of the employer. Thus, whenever an employee performs tasks for a third party, one should take care that the authority is still exercised by the employer.

– However, the following elements are not considered to be an execution of power contrary to the prohibition: (i.) instructions given by the third user according to the agreement conducted between him and the employer, when those instructions relate to the performance of the task or the break and labour time;

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(ii.) measures taken by the third party vis-à-vis the employee in execution of his duties under the Law of the welfare at work (cfr. Infra).

– Beside it, the law made two exceptions for employment by means of outsourcing to be allowed: (i.) outsourcing of employees is not prohibited when it is done by special employment agencies whose main activity consists amongst others in outsourcing employees, provided that they have obtained a license for it; (ii.) When an employer’s main activity does not consist of outsourcing employees, he can outsource his employees engaged on a permanent basis for a limited period when the procedure set out in article 32 of the law is followed.

– Sanctions: In case an employee is engaged with a view to be outsourced” in contradiction of the legal prohibition, the employment contract is considered to be null from the beginning on. When the third user ignores to respect the prohibition of executing authority, he will be considered to have granted an employment contract for an indefinite term However, the employee can terminate the agreement without notice or compensation. The law also stipulates that users and employers that outsource employees contrary to the provisions of the law are severally and jointly liable for the payment of social security, wages, compensations and benefits related to the employment contract. Moreover, they are subjected to several criminal and administrative sanctions


In principle no differences exist with regard to the applicable labour law and social security between employees employed by the head office for a local branch or by a subsidiary.

Labor Law:

– The applicable labor law in cases containing cross-border elements (a foreign employer, a foreign employee, a foreign law choice…) is mainly regulated by the EU Regulation n° 593/2008 of 17 June 2008 on the law applicable to contractual obligations (Rome I).

– Parties can, under several conditions, choose the applicable

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labor law (art. 8). However, this choice cannot deprive the employee of the protection given by the law normally applicable and can, in certain cases, not prevent the application of compulsory labor law of a certain third and involved country (art. 8).

– When no choice has been made, the law of the country where the employee habitually carries out his work in performance of the contract will apply, regardless the fact whether it concerns an employment by a branch (with no separate corporate personality) or by a subsidiary (with a separate corporate personality). The normally applicable law will thus be Belgian labor law

– When the applicable law cannot be determined pursuant the above mentioned factors, the contract shall be governed by the law of the country where the place of business through which the employee was engaged is situated. However, when it appears from the circumstances as a whole that the contract is more closely connected with another country, the law of that country shall apply.

Social security:

– The applicable social security system is in general regulated by the national law of each country

– The Belgian social security law is of public order and an employee is submitted to the Belgian social security law when he is employed in Belgium by an employer established / settled in Belgium, or when the employer is established / settled abroad and the employee is connected with a registered office in Belgium.

– On EU-level, Regulation n° 883/2004 of 29 April 2004 on the coordination of social security systems sets out the rules to determine to which social security law of a member state an employee (or self-employed person) is subject. The general rule is that the employee is submitted to the law of the country he works in, even when the employee lives in a different country or when the employer or the registered office is established in another country.

– An important exception however is present in case of the posting of an employee (“detachering”) who usually works in one country, to another country for a temporary period (maximum 24 months). This employee is, under several

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conditions, allowed to stay submitted to the social security of the original country of labor (see also below).


– Engagement: as from the engagement on, the employer needs to fulfill several formalities concerning the personnel/staff:

○ he is obliged to join several (social security) institutions, namely:

¾ The Public Service of Social Security (“Rijksdienst voor de sociale zekerheid” [RSZ] / “Office Nationale de Sécurité Sociale” [ONNS]) (article 21 of the Law of 27 June 1969 on the Social Security of employees)

¾ A family allowance fund (“Kinderbijslagfonds” / “Caisse d’allocations nationales”) (article 34 of the Royal Decree of the 19 December 1939): the employer needs to join within 90 days as of the employment. The fund can be freely chosen for most industries, but when an employerrefrains from connecting, he will be officially joined with the Public Service of Family Allowances of Employees (“Rijksdienst voor Kinderbijslagen van werknemers” / “Office national d’allocations familiales pour travailleurs salaries”).

¾ A fund for annual vacation (“Rijksdienst voor Jaarlijkse Vakantie” [RJV] / “l’Office National des Vacances Annuelles” [ONVA]), unless the employer only employs white-collars (“bedienden” / “employés”).

¾ The employer is also obliged to close an insurance for industrial accidents (“Verzekering tegen arbeidsongevallen” / “assurance contre les accidents du travail”) (art. 49 of the law of 10 April 1971 on industrial accidents)

¾ An external service for prevention and protection (“externe dienst voor preventie en bescherming op het werk” / “service externe de prévention et de protection”) (art. 40 of the Law of 4 August 1996 on the welfare of employees during their performance). Joining is mandatory when the internal service for prevention and protection cannot perform all of

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its tasks. The internal service for prevention and protection is a mandatory department in every firm and is perceived by at least one prevention advisor. As long as the firm counts less than 20 employees, the employer might execute the function.

○ other formalities:

¾ The employer and the employee need to close an employment agreement (orally or in writing). An oral agreement is always considered to be of an indefinite duration and for full-time performances.

¾ The employer needs to draw up a Code of Labour (“Arbeidsreglement” / “Règlement du travail”) (art. 4 of the law of 8 April 1965 on the Code of Labour)

¾ The employer needs to dispose of staff files (or a “personeelsregister” / “register du personnel”) in which he needs to record several data of his employees (Royal Decree of 8 August 1980 on the keeping of social records). However, the system of keeping staff files (in paper) has been largely replaced by the “DIMONA-system”. Every engagement or termination of employment, as well as every change or correction of working hours, needs to be registered electronically via the internet by means of a so called DIMONA-declaration (Royal Decree of 5 November 2002).

¾ The employer needs to set up certain services: in case of an employment of an average of at least 50 employees, the employer needs to set up a Committee for prevention and protection at work (art. 49 of the law on Welfare of employees during the performance of their work). When he employs at least an average of 100 employees, he needs to set up a Work Council (“Ondernemingsraad” / “Comité d’entreprise”).

– Dismissal:

○ By the employer:

¾ The employer can end the employment agreement at any time by dismissing the employee, without any formalities. In the beginning, he disposes of a “dismissal power”

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¾ However, a difference needs to be made between a lawful dismissal (this is a resignation / notice or a dismissal for urgent matters) and a unlawful dismissal (in which case the employer will need to pay a compensation to the employee)

¾ A dismissal can also be lawful, though unjustly (“onrechtmatig”), in which case a compensation will also be due

¾ Notice / resignation: the employer can lawfully make an end at an employment agreement for indefinite period by granting the employee a notice period. The notice has to be either by registered post or by writ of a bailiff and has to mention the duration and the beginning date of the notice period, on pain of being void (art. 37 of the Law of 3 July 1978 on the Employment Agreements). An employment agreement for definite period cannot – in principle - be terminated by notice.

¾ The notice period and, in the absence of this period, the compensation are determined according to the type of employee (blue collar or white collar) and in main order by taking into account the seniority of the employee. For certain categories of white collars, the wage and the age of the employee play a very important role (see art. 59 and 82 of the law concerning the Employment Agreements). In some cases (namely for white collars with a wage across a certain border), the notice period can be determined at forehand in the employment agreement. It should also be noted that the existing differences in notice periods between blue and white collar workers are gradually disappearing.

¾ Dismissal for urgent matters: every party to the agreement can make an immediate end at the agreement without notice period or compensation in case of an urgent matter. An urgent reason / matter is a serious shortcoming that makes every future cooperation in an immediate and definitive way impossible (art. 35 of the law concerning the Employment Agreements). The judge considers whether the invoked facts are a valid reason.

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This dismissal is submitted to severe formalities which have to be fulfilled otherwise a dismissal compensation can be triggered.

○ By the employee:

¾ Also the employee can make at any time an end at the agreement for urgent matters or by granting a notice period.

¾ In case of a dismissal without notice or without complying to the rules for dismissal for urgent matters, he will have to pay a compensation to the employer.


- See above: The applicable social security system is in general regulated by the national law of each country

- The Belgian social security law is of public order and an employee is submitted to the Belgian social security law when he is employed in Belgium by an employer established / settled in Belgium, or when the employer is established / settled abroad and the employee is connected with a registered office in Belgium.

- The Belgian Social Security covers amongst others the regulation concerning the pensions, the unemployment, the insurance for work accidents, the insurance for occupational diseases, the family allowances, the annual vacation and the health insurance.

- The employer needs to contribute to the financing of the social security and pays a contribution of among 32 % of the gross wage of the employer.

* *

*

This memo provides only some general comments on the topic.

It is obvious that more detailed information and legal advice or assistance might be required in each individual case.

* *

*

DENMARK

Denmark


A Direct sale



• There are no special formalities a foreign seller must complete.

• The acceptance of the general sales terms and conditions can be silent by a commercial party in the hypothesis of a long-term contractual relationship between the parties. In this case the seller can prove that his purchaser already examined the conditions, e.g. because he already received an invoice that he didn’t protest.

• To avoid any problems with regard to the enforceability of the general terms and conditions both towards commercial and non commercial parties, it is advisable to bear in mind the following recommendations:

○ It is always safest to ask for a signature of the purchaser on the general conditions before the first delivery.

○ The general conditions should be drafted in a language that can be understood by the purchaser.

○ The general conditions should be printed in a typography that is easily readable and if they are printed on the backside, there should be a reference to these conditions on the front side. There may be no doubt about the fact that the purchaser could take notice of the general conditions

○ The general conditions printed on the invoice and on the order confirmation should be exactly the same;

○ When the invoice or the order confirmation are printed in different exemplary, the general conditions have to be printed on the backside of each one of them;

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○ When an order is done by phone, it is recommended to send the order in different copies to the purchaser and make him return it with the signature of an authorised person;




• Yes, the retention of title can validly be provided within contractual conditions.

• The conditions to make the retention of title enforceable towards local purchasers are the same as the conditions we mentioned with regard to the general terms and conditions.

• The enforceability of retention of title towards third parties in matters of insolvency is provided with in Bankruptcy law.

The retention of title has to be agreed on by the parties in writing and at the latest at the time of delivery. In order to have proof of the acceptation of the purchaser it is best to have his signature on the general terms and conditions.

Furthermore, retention of title can only be executed on goods that are still available and that can be identified on the premises of the purchaser as being the goods the retention of title has been provided for.

• There are no registration formalities to be fulfilled to make the retention of title enforceable towards third parties. Exceptions:

○ Retention of title in vehicles has to be registered in a Public Register, the so called “carbook” in order to obtain protection against agreements in good faith which is contracted over the vehicle. This is also the case in legal proceedings if the debtor hasn’t been deprived the disposal of the vehicle.

If the vehicle isn’t or hasn’t been registered in the Public R-egister for motor vehicles (retention of title in vehicles on consignment between importers and dealers of new cars) the retention of title doesn’t have to be registered

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to obtain p-rotection against legal proceedings. Unless the vehicle is e-xempt from registration which can be decided by the Minister of Taxation if the vehicle mainly is used off the public roads.


• Since parties in Denmark, like in most West-European jurisdictions enjoy freedom of contract, parties are free to agree on payment, interest and penalty clauses in their agreements.

• Grossly unfair contract terms are unenforceable under certain conditions.

• General rule of the law: Unless the parties have agreed otherwise, each payment falling within the scope of the Law is due within 30 days as from the day following the day on which (statuary payment period):

1. the debtor receives the invoice or equivalent request for payment;

2. the goods or services are received, if the date of receipt of the invoice or the equivalent request for payment is uncertain of if the debtor receives the invoice or the equivalent payment request before the goods or the services;

3. the acceptance or the verification of the goods’ or services’ conformity with the agreement takes place, if such procedure is provided for in the agreement or by law and the debtor receives the invoice or the equivalent request for payment before the acceptance or verification takes place.

• Sanctions: Creditors, who are not paid within either the agreed payment period or the statutory payment period, are automatically and without the necessity of a reminder entitled to interests at the interest rate agreed between the parties or, failing such agreed rate, at the statutory rate. The statutory rate and any modification thereto will be published every half year by the Danish National Bank However, if in international” relationships the CISG (the Vienna Convention on the International Sales of goods) is found applicable to the contract, an interest rate that does not only want to compensate the creditor, but that also

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wants to sanction late payment and that wants to give an incentive for timely payment, is not in accordance with the international context of the CISG. The interest rate should be determined in an international way and thus not by the lex contractus.

• Unless agreed otherwise, the creditor is also entitled to claim reasonable compensation from the debtor for all relevant recovery costs incurred through the latter’s late payment. These recovery costs must respect the principles of transparency and proportionality. If the claimed recovery costs are disproportioned the court can moderate the claimed recovery costs


• National transaction:

A clause that determines the territorial competent jurisdiction is valid between parties if it has been accepted by both parties.

• International transaction:

○ Applicable law

Denmark has signed the 1980 Rome Convention on the Law applicable to Contractual Obligations (The European Contracts Convention).

This convention provides that contracts with an international dimension are governed by the law chosen by the parties. The choice made by the parties must be expressed or demonstrated with reasonable certainty the terms of the contract of the circumstances of the case.

The national law chosen by the parties must not have specific links with the subject matter of the contract. The parties may choose freely the national law which they consider suits their contractual relationship best.

If the parties have not made a definite choice regarding the law applicable to their contract, it shall be governed by the law of the country with which it is most closely connected. There is a presumption the contract is most closely connected with the country where the party

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who must effect the performance which is characteristic of the contract has, at the time of conclusion of the contract is located.

With regard to international sales of goods, Denmark has ratified the Vienna Convention on the International Sales of goods (CISG).

○ Competent jurisdiction

As regards transactions between persons domiciled in a EU member state, the council regulation nr. 44/2001 of 22 December 2000 applies. The nationality of the defendant is the decisive criterion.

The Brussels convention of 27 September 1968 on jurisdiction and enforcement of judgments in civil and commercial matters is the main international convention in force in Denmark regarding the rules of international jurisdiction. As a general rule, this convention provides that persons domiciled in a contracting state shall, whatever their nationality, be sued in the courts of that state. If the defendant is not domiciled in a contracting state, the jurisdiction of the courts of each contracting state shall, subject to the provisions of the Brussels Convention, be determined by the law of that state.


jurisdiction?

• Franchising: An agreement between two parties (Franchisee and Franchisor) whereby the Franchisee has the right, in exchange for a direct or indirect financial consideration, to use the Franchisor’s trade name, and/or trade mark and /or service mark, know-how, business and technical methods, procedural system, and other industrial and /or intellectual property rights, supported by continuing provision of commercial and technical assistance by the Franchisor.

• Distribution agreement: Agreement whereby one party (the supplier) agrees with another (the distributor) to supply the latter with products or services for the purpose of resale. The distributor sells the products or services in his own name and on his own account.

• Commercial representative: An agreement whereby a

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white-collar employee, the commercial representative agrees to solicit potential customers for payment with a view to negotiating and/or concluding transactions under the authority, for the account and in the name of one or more employers. The legal intermediary acts on behalf of his principal in such a manner that the legal relationship is created directly between the principal and the customer. The commercial representative is subordinate to the principal.

• Commercial agent: An agreement whereby an independent intermediary has on a lasting basis the authority to negotiate, and possibly tot conclude agreements in the name and on behalf of the principal. The legal intermediary acts on behalf of his principal in such a manner that the legal relationship is created directly between the principal and the customer.


• Under Danish law, there are no specific rules governing franchising, distribution agreements and commercial representatives.

Parties are thus free, within the framework of the general principles of contract law and public policy, to enter into contracts as they wish.

• Commercial agent

○ Law on the commercial agency agreements.

The law has been enacted in accordance with the council directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents.

1. Remunerations

A commercial agent is entitled to remunerations consisting in a fixed fee or wholly or in part by commission. In the absence of any agreement, a commercial agent shall be entitled to remuneration that is customarily allowed in the place where he carries on his activities. A commercial agent shall be entitled to commission on transactions concluded during the period covered by the agency contract:

i. Where the transaction has been concluded as a result of his action

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ii. Where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind.

iii. Either where he is entrusted with a specific geographical area or group of customers and where the transaction has been entered into with a customer belonging to that area or group.

The commissions become due during the period covered by the agency contract if the principal has (or had to) conclude the agreement with the third party or the third party fulfilled his contractual obligations.

A commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated:

i. if the transaction is mainly attributable to the commercial agent’s efforts during the period covered by the agency contract and if the transaction was entered into within reasonable time after that contract terminated

ii. if the order of the third party reached the principal or the commercial agent before the agency contract terminated.

2. Termination of the contract

If the agency contract is concluded for an indefinite period (or for a definite period with a provision that the contract can be terminated) either party may terminate it by notice.

The period of notice shall be one month for the first year of the contract, two months for the second year and three months for the third year commenced and subsequent years. They cannot agree to shorter periods.

No period of notice should not be respected if the termination contract has been terminated by exceptional circumstances that make further collaboration impossible. This provision is of mandatory law.

3. Goodwill Indemnity.

A goodwill indemnity is due if the agent has recruited new customers or if the agent has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits.

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If the contract provides a restraint of trade clause there is a rebuttable presumption that the principal continues to derive substantial benefits.

The right to a goodwill indemnity is mandatory law but can, under specific circumstances, be renounced to.

The amount may not exceed a figure equivalent to an indemnity for one year calculated on the remuneration over the preceding five years.

The agent shall lose his entitlement to the indemnity if within one year following termination of the contract he has not notified the principal that he intends pursuing his entitlement.

4. Restraint of trade clause

i. A restraint of trade clause can be agreed if:

ii. it is concluded in writing

iii. it relates to the geographical area or the group of customers and the geographical area entrusted to the commercial agent and to the kind of goods covered by his agency under the contract.

iv. it does not exceeds 2 years after the termination of the contract;

The provisions are mandatory law but can, under specific circumstances, be renounced to.

PART II: BRANCH – OFFICE IN THE TARGET COUNTRY BUT NO LEGAL PERSON





• In the jurisdiction of the head office

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○ Corporate resolutions: The board of directors of the head office must formally adopt resolutions deciding to open the branch office and appointing in Denmark a legal representative for the purposes of managing the branch and representing the company in dealings with third parties and in legal proceedings in connection with the activities of the branch.

• In Denmark

○ Registration in the Danish commerce and companies’ agency.

○ Documentation that the signer represents the parent company

○ Documentation that the parent company is registered in the mother land.


• Advantages of a branch:

○ Mobility: a branch can easily be opened and closed down. No notary public required, no financial plan, etc...

○ Danish corporate law, with a few exceptions, does not impose requirements such as a board of directors or shareholders’ meetings.

○ No minimum capital requirements.

○ A branch benefits from the reputation of the head office.

○ The head office can more easily allocate expenses to a branch.

• Disadvantages of a branch:

○ The head office is fully liable for the debts of the branch.

○ A branch’s annual filing will reveal financial information about the foreign entity that it may prefer to keep confidential.

○ Since a branch may easily be closed down, the local market may be reluctant to enter into transactions with the branch.


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A legal representative must be designated for the purposes of managing the branch and representing the company in dealings with third parties and in legal proceedings in connection with the activities of the branch.


The legal representative of a branch has the same liability towards third parties as a director of a Danish Company.


The head office is entirely liable for all undertakings of the branch office in Denmark.


Branches are subject to Danish regulations on the use of languages. All documents required by law must be drafted Danish.


A branch has the obligation to keep accounting records in accordance with the Danish accounting rules but are not required to publish their own annual accounts. Only the accounts of the head office need to be published. The parent company’s accounts must be audited and certified according to its own national regime.



• Because the subsidiary and the parent company are separate legal entities, the parent company is not exposed to any liabilities of the subsidiary. In contrast, a foreign investor remains fully liable for all the commitments of its branch. Obligations incurred through such a branch can be enforced on the assets of the foreign investor, even if they are situated abroad.

• From a marketing viewpoint, a subsidiary will be regarded as a Danish or European company, rather than a foreign entity;

• A subsidiary can benefit from several tax advantages:

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○ The ability to repatriate or distribute net profits with little or no dividend withholding tax;

○ Subsidiaries can benefit from the advantages given under the double tax treaties concluded by Denmark.


COMPANY FORM A/S ApS I/S KS

Limited liability YES YES NO YES, but only for the limited partners, not for the managing partners


YES YES NO NO


Fixed Fixed Variable with possibility to make a contribution of labour

Variable

Minimum capital Approx 67,000.00 EUR

Approx 16,700.00 EUR

0 0

Number of founders

1 or more 1 or more 2 or more 1 or more

Notarial deed NO, but registration in the Danish commerce and companies agency

NO, but registration in the Danish commerce and companies agency

NO NO


A/S and ApS


I/S and ApS

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The legal steps required when establishing a company are similar for all types of companies and consists of the following steps:

• Draft an incorporation deed

The incorporation deed will be drafted mostly by a Danish lawyer based on the specifications of the shareholders.

The incorporation deed must among other things state the details (name and address) of the shareholders who incorporate the company and specify the amount of the capital contribution made by each shareholder. The incorporation deed also includes the company’s articles of association, which determine the rules governing the company. The directors will be appointed on incorporation of the company.

• Deposit of the share capital in a blocked bank account

In the case of a contribution in cash, a bank account must be opened in the name of the company and each shareholder must deposit the amount to be paid up on its shares in this account, prior to the execution of the incorporation deed. The bank will issue a certificate, which must be delivered to the notary on the date of execution of the incorporation deed, confirming that the paid-up amount of the capital is in the bank account.

• Draw up the appraisal reports

The shareholders may also make a contribution in kind to the company consisting of assets other than cash, provided that such assets have an economic value (e.g. real estate, shares in another company, a claim for the payment of an amount of money etc). In such cases, an appraisal report must be issued by an expert.

• Signature of the incorporation deed

The incorporation deed must be signed by the founders. The founding shareholders must be present or represented when the corporate deed is signed. To be represented, a power of attorney must be provided and attached to the incorporation deed. The signature on such a power of attorney need not be legalized.

• Registration of the company

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Denmark

A corporation obtains a legal personality separate from that of its shareholders as of the date of filing of the incorporation deed at the Danish commerce and companies’ agency. This filing is mostly handled by the lawyer who executed the incorporation deed. After registration in the Danish commerce and companies agency the company obtains a corporate registration number.

• Apply for a VAT identification number

As a general rule, a subsidiary must also be registered with the local VAT Administration.

The corporate registration number and the VAT identification number is the same.


The establishment of a subsidiary in Denmark does not include either translation costs or administrative legalization formalities and costs. However, a fee of approximately 1500 EUR must be paid to the lawyer who will enact the incorporation deed and fulfill the registration.

19. How long does it take to establish a subsidiary in Belgium?

A public limited liability corporation or a private limited liability company can be established within a short period of time. There are no government approvals or waiting periods. If the foreign investor has approved the articles of association, opened a bank account and prepared its business plan, the incorporation is a matter of days.


The directors of an ApS/A/S can incur liabilities in the following situations.

• The Danish Company Code provides for a mandatory procedure in case the company has substantial losses. The board of directors must convene an extraordinary meeting of shareholders within short time in the event that the net assets of the company have reached a level witch is inferior to one-half of the stated capital.

The penalty provided for, in case the board does not convene such a meeting of shareholders in due time, consists of the liability of the board of directors towards third parties for the losses that the third parties have occurred.

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• In accordance with the Danish legislation directors can be held liable in the following circumstances:

○ Liability for the improper execution of their tasks as directors;

○ Liability for the violation of the Belgium Company Code or of the charter of the company.

• In accordance with Danish legislation directors can be held liable for wrongful acts.

• A director can be held liable if he or she had a direct or indirect personal interest in a decision and obtained an unjustified advantage to the detriment of the company as a result of that decision.

• The Danish company law provides that directors can be held personally and jointly liable if it can be established that a clearly wrongful act committed by them contributes to the bankruptcy of the company.

• In specific instances a director can be exposed to criminal sanctions.


A Real estate



A transfer of real estate does already occur when the parties mutually agree on price and object of the sale. This (first) agreement does not necessarily need to take the form of a private contract.

Nevertheless, to be enforceable against third parties, a transfer of real estate requires a Notarial deed (or judgement). This Deed must be registered at the registration office and from that moment the transfer is enforceable against third parties. The Notary Public enacting the Deed will take care of this registration and will receive the registration tax from the Purchaser.


Transfer of real estate is subject to:

• a transfer tax of 0,6% of the purchase price and a fixed registration fee on about 250 EUR.

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Denmark

• Lawyer fees


No, unless agreed in the sales contract.

A.2. Rent a real estate


• There is no imperative law on rent of offices.

• There is no imperative law on rent of industrial real estate.

• There is indeed imperative law on rent of commercial real estate. The law of on commercial lease.

This law provides for a series of binding provisions, sometimes protecting the tenant, sometimes protecting the landlord, sometimes protecting both. As a result, in case of violation of these legal provisions, it will be either the tenant, either the landlord, either both who can invoke the nullity of the incompatible provision in the agreement.


• Registration of the lease contract. A public registration fee on approximately 250 EUR.

• Lawyer fee.



In accordance to Danish legislation all environmental questions and regulations are registered in the local commune or region. If you want to know if an environmental permit is required you have to contact the local commune or region.

A.4. Employment:


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Yes, law on the legal position of the employees in company conveyance, cf. EU dir 77/187.


In principle no differences exist with regard to the applicable labour law and social security between employees employed by the head office for a lokal branch or by a subsidiary.

• Labour Law:

○ The applicable labour law in cases containing cross-border elements (a foreign employer, a foreign employee, a foreign law choice…) is mainly regulated by the Convention on the law applicable to contractual obligations opened for signature in Rome on 19 June 1980.

○ Parties can, under several conditions, choose the applicable labour law (art. 3), which however cannot deprive the employee of the protection given by the law normally applicable and can, in certain cases, not prevent the application of the compulsory labour law of a certain third and involved country.

○ When no choice has been made, the law of the country where the employee usually performs the labour finds application, this without regard to the fact if it concerns an employment by a branch (with no separate corporate personality) or by a subsidiary (with a separate corporate personality). The normally applicable law will thus be the Danish labour law.

○ When this law of the country where the employee usually performs labour cannot be determined, the law of the country of the establishment or branch of the employer is of application.

• Social security:

○ The applicable social security system is in general regulated by the national law of each country.


• Engagement: as from the engagement on, the employer needs to fulfill several formalities concerning the personnel/staff:

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Denmark

○ The employer is obliged to join several (social security) institutions, namely:

– A fund for annual vacation or pay holiday pay directly to the employee.

– Danish labour market supplementary pension (ATP)

– An approved maternity fund

– The employer is also obliged to close an industrial injury insurance

– The employer is also obliged to pay

- a subscription to the labour market occupational disease insurance.

- a labour market contribution

- a contribution to the employers traineerefund (AER).

- financing contribution (FIB), if you are registered after the Danish VAT-law or law on fee of payroll

○ other formalities:

– The employer and the employee need to close an employment agreement (by writing).

• Dismissal:

○ By the employer:

– The employer can end the employment agreement at any time by dismissing the employee, without any formalities.

– However, a difference needs to be made between a lawful dismissal (this is a resignation / notice or a dismissal for urgent matters) and a unlawful dismissal (in which case the employer will need to pay a compensation to the employee)

– A dismissal can also be lawful, though unjustly, in which case also a compensation will have to be granted to the employee

– Notice / resignation: the employer can lawfully make an end at the agreement by granting the employee a notice period, during which he can stay at work. This notice has to be done in writing, according to

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several formalities. Otherwise the notice will be considered as null and a compensation will have to be paid.

○ By the employee:

– Also the employee can make at any time an end at the agreement for urgent matters or by granting a notice period.

– In case of a dismissal without notice or without complying to the rules for dismissal for urgent matters, he will have to pay a compensation to the employer.


The Denmark Social Security implies mainly: the regulation concerning pension, the unemployment, the insurance for work accidents, the insurance for occupational diseases, the family allowance, annual vacation and the health insurance.

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FRANCE

France


A Direct sale:



In the case of an international contract of sale of merchandise, the Vienna Convention may be applicable.

The last conditions sent (sale or purchase) are the ones that apply to the contract, as they constitute a counter-offer (Article 19).

Under French law (sale between two French entities), the terms and conditions must be accepted by them which means, in practice, that they must be established in a document which is given prior to or at the time of delivery.

In case of conflict between sale and purchase conditions, the Judge will cancel the conflicting provisions and judge in accordance to the principles of contract law. Given the prominence of sale conditions (article L.441-6 of the Commercial code), the judge will often rule in favour of the seller.

A master agreement may also be entered into with the purchaser in order to define precisely the rights and duties of the parties.

Special rules apply for consumers’ protection.


2. What are the clauses a foreign seller should integrate into a written sales agreement (or into his general terms and conditions) and the reasons why?


The seller can retain the title of ownership until the price of the

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purchased good is fully paid.

The stipulation of retention of title must be made in writing before the delivery occurs.

This means the purchaser has to accept in writing.

It is advisable to ensure the clause is made clear on the front page of the delivery note.

Retention of title can only be used when goods are still available and can be identified on the premises of the purchaser.

On the contrary, retention of title cannot be used if the goods cannot be identified.

For instance, if one buys a kilogram of rice but this kilogram is mixed with more rice in a bag, the purchased kilogram cannot be separated from the other one and consequently, the retention of title cannot be used.

It is important to bear in mind that the retention of title cannot be used against the bona fide purchaser, in the event of a subsequent sale.

(b) Interest and penalty clause: Are these clauses enforceable in your jurisdiction? Can they be reduced or annulled? What are the consequences if this clause is not integrated into the agreement? What is the legal rate in your jurisdiction?

Penalty clauses are enforceable so long as the amount of the penalty is clearly defined in the contract.

The Judge can always reduce the penalties if they are deemed excessive .

Unless this is provided for in the contract, the creditor can only seek a legal rate starting from the date of request for payment.

This is an annual rate which depends on the global banking rate. It was 0.35% per annum in 2011, 0.68% in 2010.

(c) Applicable law and competent jurisdiction: Are these clauses enforceable in your jurisdiction? What are the consequences if this clause is not integrated into the agreement?

Notwithstanding any international convention (such as Rome or Vienna) which may apply, the French rules concerning the governing law are:

The international contract will be governed by the law chosen by the party.

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France

If the parties have not chosen the governing law, it shall be submitted to the law of the country with which it is closely connected. (i.e.: the location of the delivery…)

B COMMERCIAL INTERMEDIARIES

3. What types of commercial intermediaries do exist in your jurisdiction?

– commercial agents who enjoy a very protective status;

– salaried commercial agent with special status called “VRP”;

– distribution agreements;

– Commission agent


– commercial agency contracts are governed by articles L.134-1 et seq. of the French Commercial Code;

– salaried commercial agents are governed by articles L.7311-1 et seq. of the French Labour Code;

– distribution agreements are governed by miscellaneous articles contained in the Commercial Code, such as:

• article L.330-1 relating to exclusivity clauses;

• article L.330-3 relating to the disclosure of compulsory information prior to entering into the agreement;

• article L.442-6 sanctioning the breaking off without sufficient notice of established business relationships.

Commission agents are governed by articles L.132-1 of the French Commercial Code


5. In your jurisdictions what are the differences between starting up a branch and starting up of a company (subsidiary)?

Unlike a subsidiary a branch is not a legal person on its own.

The foreign company is liable for all debts and obligations of the branch.


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The foreign company must apply for registration of the branch to the local Commercial Court.

The company has to file in a number of documents relating to its own legal status including the articles of association of the mother company, and has to mention the name of the person who will represent the foreign company in this branch.


Branches are easier to be set up and closed: formalities are also easier. Thus, they can ensure a cost-effective representation in foreign countries.

To start up a business, it could be convenient to set up a new company because the mother company is liable for all decisions or debts of its branch. Besides, a branch may only pursue the activity undertaken by its mother company.

8. Is a branch authorized to act before the court, to engage people ?

A branch may act before the court, but solely insofar as it represents the mother company.

The person registered at the Commercial Court (point 6) represents the mother company.


The representative of the branch is an employee of the company. His liability is that of an ordinary employee except if there is a delegation of authority by the mother company.

In this case, the employee may be liable if there has been a proper delegation.


The head office is bound by all decisions or debts of its branch.


All documents required by law must be written in French.

Documents in other languages must be translated when they are transmitted to French authorities.

Contracts between professional parties may be drafted in another language.

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France


The branch must have its own financial statements.



Having a separate legal entity liable to third parties instead of the foreign company itself.


COMPANY FORM SARL SA SAS

Limited liability yes yes yes


Shares may not be transferred to third parties unless the majority of members representing at least half the shares approve, subject to higher majority requirement in the “statuts”.Shares are freely transferred between members, to their spouses, ascendants and descendants. However, the « statuts » may provide for prior approval as for transfers to third parties.

No approval required by the law; freedom to include clauses to control the shareholding or to ensure it remains stable in the statuts.

No approval required by the law; freedom to include clauses to control the shareholding or to ensure it remains stable in the statuts.


fixed or variable fixed fixed or variable

Minimum capital no more minimum (1st Aug. 2003 Act)1/5th to be paid up

37,000 €½ to be paid up

1 €

Number of founders 2 minimum or 1 in the case of the one-person SARL (called “EURL”)

7 minimum 2 minimum or 1 in the case of the one-person SAS (“SASU”)

Notarial deed no no no

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COMPANY FORM SNC SCI SEP

Limited liability no, unlimited joint and several liability

no, but liability is not joint and several; each member is liable proportionally to his share in the capital

no, this company cannot be registered and therefore does not enjoy legal capacity


no, must be approved by all the members

no, must be approved by all the members

no, must be approved by all the members, except clause to the contrary in the “statuts”


fixed or variable fixed or variable fixed or variable

Minimum capital no no no

Number of founders 2 2 2

Notarial deed no no no


SAS


SARL and SAS


– ability of the officers to chair the company;

– signature of the memorandum and articles of association (“statuts”);

– signature of a lease;

– share capital deposit in a bank;

– stamp duties: free of charge;

– publication in a legal notice newspaper;

– companies house registration.


Depending on the chosen form expenses range between € 600 and € 1 000.

Fees are paid in addition.

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France

19. How long does it take to establish a subsidiary in France?

1 month after receipt of all the necessary documents duly signed by the client.


Founders: no specific legislation.

Directors:

• civil liability may be incurred towards the company or some members in the event of mismanagement, infringement of statutory and regulatory provisions;

• criminal liability may be incurred especially in respect of environment law and labour law (companies can now be held criminally liable);

• tax liability: directors may be held jointly and severally liable towards the tax administration when fraudulent acts have been committed.

21. What are the main taxes for which a French company is liable?

21.1 Corporation tax:

– SA, SAS and SARL: company tax law is assessed on the company’s profits up to:

• 15% up to an amount of € 38 120 of the profits providing that:

the turnover is less than € 7 630 000 and that at least 75% of the share capital is held by individual shareholders or by a company which itself is held by at least 75% of individual shareholders.

• 33, 33 % if the profits are higher than € 38 120.

– SNC, SCI and SEP: the profits of those transparent companies are not subject to tax at corporate level but their shareholders will be subject to personal income tax.

21.2 Dividends:

– 15,15% CSG, CRDS and social taxes if dividends are paid to individual shareholders.

21.3 Value added tax (VAT): 19, 60% for deliveries of goods and for supplies of services (to be raised to 20% as from 1st January 2013)

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A Real estate



A “notaire” for the final purchase deeds and anyone for the preliminary binding contract (“compromis”); therefore the assistance of a lawyer is strongly advised at this earlier stage.


Between 7% and 8% of the purchase price (covering “notaire” remuneration and duties paid to the state) + legal assistance cost.


Yes, such as, depending on each case:

– energetic performance survey;

– asbestos survey;

– lead survey;

– pollution survey;

– insect survey;

– natural risk statement;

– mortgage certificate;

– town planning regulations;

– pre-emptive rights;

– electricity survey;

– surface area survey;

– gas survey.


25. In your jurisdiction is there imperative law with regard to the rent of offices, industrial real estate or commercial real estate? Can you give a summary of the major stipulations of these regulations?

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France

Articles L.145 et seq. of the French Commercial Code relating to commercial leases mainly provide as follows:

– 9-year lease duration;

– right of renewal;

– compensation right when the landlord terminates;

– no sub-lease without the landlord agreement;

– limitation of the rent increase / decrease upon renewal;

– tenant entitlement to transfer the lease upon sale of his business;

– right to add new lines of business to the initial activities.

– Asbestos survey

– Environmental survey

– Town planning regulations

26. Are there any formalities to fulfil in order to enforce the lease agreement towards third parties?

No need to. Tenants should be made aware that landlords often require the lease agreement to be executed with a “notaire” to give it “authentic” effects. This then eases enforcement of the lease obligations onto the tenant.



In order to prevent environmental damage, many industrial projects are subject to declaration or authorization.

The higher the environmental risk, the heavier the formalities will be.

If the activity represents a real risk for the environment, a prior authorization may be necessary in order to start up the project.

If the activity has a lower risk for the environment, the company may need to file a request for simplified authorisation.

If the risk is even lower, a simple declaration is sufficient.

The classification of dangerous industries is made according to some criteria contained in State regulations.

28. Can you describe briefly this procedure? How much time will this procedure normally take?

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The process in order to obtain an authorization is quite complicated.

The company has to describe its project and particularly the environmental impacts or dangers and the various precautions taken against the aforementioned dangers.

Besides, it must prove its technical and financial capacity to control the environmental risk and to respect the French regulations.

The population must be informed and can obtain a copy of the company’s environmental file and to make observations.

This takes between ten and twelve months.

However, the process is easier when a simple declaration is necessary. In this situation, the State only checks that the file is complete. This takes approximately 3 months.

A.4. Employment:


Outsourcing of employees is possible under French law.


No differences exist in the applicable labour law between employees employed by a local branch or by a subsidiary.


The employer needs to fulfil several formalities concerning his staff. The contract can be concluded orally except for some specific contracts (concluded for a limited period generally) which will need to be made in writing.

The employer can stop the employment agreement at any time but pursuant to a quite complicated procedure. Employers must always justify their dismissals. The procedure is very strict for employers and any mistake can be costly.

In case of dismissal, an indemnity must be paid to the employee.

If the dismissal is illegal or unjustified, the sum might be higher (up to 2 years of salary).


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France

Both employer and employee contribute to the social security payment.

Employers have to employ disabled people depending on the number of their employees. If not, they may be liable to pay a special tax.

* *

*

GERMANY

Germany

Part I – IV submitted by Thomas RINNE, v. Einem & Partner, Frankfurt / Bremen

Part V – submitted by Urs Breitsprecher, Rechtsanwalt & Solicitor, Busekist Winter & Partner, Düsseldorf

QUESTIONNAIRE

Part I: Contractual - no office in the target country

A Direct sale

A.1. Without written agreement - general terms


a) Towards a commercial party

Under German law, the foreign seller has to actually submit the General Terms and Conditions of Sale (GTC) to the purchaser when the sales agreement is entered into (according to a ruling of the German Federal Court of Justice). GTC can either form part of the contractual document or be submitted as a separate document.

However, any individual agreement overrules general terms (Sec. 305b German Civil Code - BGB -).

If clauses in GTC are ambiguous or deviate from the corresponding statutory provisions they may be considered as null and void (Sec. 305c para.1 BGB).

In case of doubt the interpretation of the GTC will be made to the detriment of the user of the terms (Sec. 305c para.2 BGB).

If isolated clauses of GTC are invalid, the contract as such will remain in force and the invalid clause will be replaced by the corresponding statutory provision (Sec. 306 BGB).

Terms and conditions are deemed to be invalid if they

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discriminate the other party in a way which violates the principle of good faith. In particular, this happens to be the case when they contravene the basic idea of a statutory provision or when they limit essential contractual rights and obligations in a way jeopardizing the purpose of the contract (Sec. 307 BGB).

b) Towards a non-commercial party

Towards end-consumers the inclusion of GTC is subject to more formal requirements than in B2B-contracts. GTC only become part of the contract, if the complete text of the terms and conditions is part of the contract signed by the consumer. Where this is not possible – because the contract uses to be concluded verbally – the text of the GTC has to be displayed at prominent place of the business (a typical case would be the limitation of liability in a laundry). The seller (or provider of a service) has to make sure that the customer is actually able to get knowledge of the terms and conditions and the customer has to agree to its terms (Sec. 305 para.2 BGB).

In German law any of limitation of the consumer’s legal standard protection in the fields of defects (remedies) as to quality (supplementary performance, lowering of price due to defects, or warranties) is invalid (Sec. 434 - 435, 437, 439 - 443 BGB). This standard protection cannot be reduced neither by terms and conditions nor by individual agreement (Sec. 475 BGB).

The law contains a catalogue of special provisions which are prohibited when dealing with a consumer. These include exclusions of liability for injuries or defects in new products, short-term raise of prices, reversal of the burden of proof, fictitious statements, unreasonably long or short time limits etc. (Sec. 308, 309 BGB).

There is no statutory provision on the mode of presentation of the GTC to the consumer. However, the German Federal Court of Justice ruled that five lines on one centimetre is still a readable size.

The language of GTC has to be German if they are used in Germany.

A.2 With a written agreement


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Germany

a) Retention of title: Is this provided for in your jurisdiction? What are the conditions to make it enforceable towards local purchasers and third parties?

Retention of title is a very common clause in German sales agreements and General Terms of Sale. It does not require any specific form or registration. However, for reasons of proof, it should always be made in writing.

Retention of title clauses can be drafted in a way so to prevent loss of title if the goods are resold by the customer or mixed or blended with goods of the customer (so-called extended retention of title).

Retention of title clauses are opposable to creditors and towards the liquidator of the purchaser.

If the good sold under retention of title becomes subject to a distraint procedure, the holder of the title is entitled to object to it by filing a claim at the court in the circuit where the distraint has been executed (Sec. 771 para.1 German Code of Civil Procedure - ZPO -).

b) Interest and penalty clause: Are these clauses enforceable in your jurisdiction? Can they be reduced or annulled? What are the consequences if this clause is not integrated in the agreement? What is the legal rate in your jurisdiction?

Provisions on interest and penalty clauses exist in German jurisdiction.

A debtor has to pay interests for money debts when he is behind schedule with a payment due, when the creditor has sent him a reminder, and when he cannot show that he/she is not responsible for the delay. A reminder is not necessary when the due date has been agreed upon beforehand (or can be determined), or when the debtor ultimately refuses to pay. The debtor of an invoice automatically will be in arrears 30 days after the payment was due (provided he received an invoice). The seller has to use a certain wording on the invoice to make sure that consumers are informed about the consequences of late payment (Sec. 286 BGB).

Generally, the interest rate is five percentage points above the basic interest rate (since 1 July 2012 fixed at 0,12 % p.a., redetermined every 6 months). If both parties to the contract are dealers, the rate is eight percentage points above the base rate. Parties are also free to claim higher interest rates for arrears, if

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they can prove that they pay their own loans at a higher rate (Sec. 288 BGB).

If the parties agreed on a penalty clause the payment of the penalty clause will be due when the above mentioned requirements for delays are fulfilled (Sec. 339 BGB). Penalty clauses towards non-commercial parties cannot be included in general terms and conditions (Sec. 309 Nr. 6 BGB) but have to be made individually. If the penalty rate is unreasonably high it will be reduced by the judge to a reasonable amount (Sec. 343 I BGB). If the party in breach of the clause is a business there will be no such reduction (Sec. 348 German Commercial Code - HGB -).

c) Applicable law and competent jurisdiction: Are these clauses enforceable in your jurisdiction? What are the consequences if this clause is not integrated in the agreement?

Choice-of-law and jurisdiction clauses are common in German contracts. However, admissibility is restricted if included in a sales agreement between a German business and a consumer.

(1) Choice-of-law clauses

As a general rule, parties are free to choose which law shall be applicable in cross-border transactions. In the case the parties choose a “neutral” law (which has no connection to the contractual relationship) mandatory provisions of the countries of the parties shall still apply (Art. 3 VO (EC) 593/2008, hereafter referred to as “Rome I”).

In agreements between a business and a consumer the choice of law may not deprive the consumer of mandatory provisions of the law applicable in the country of consumer’s residence if the commercial party follows its commercial or professional activities in this country or aims such activities to that country (Art. 6 Rome I).

In the absence of a choice of law by the parties, the law of the country applies in which the party, who is supposed to effect the characteristic performance of the contract, has its habitual residence. In a sales agreement, this is the country of Seller’s head office; if the contract has to be performed in another country and if the seller maintains a branch in that country, this branch determines the applicable law.

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Germany

(2) Jurisdiction clauses

In principle, jurisdiction clauses are enforceable in Germany if included in contracts between businesses. For the competent jurisdiction within the German territory there are some mandatory provisions. Generally, it is possible to choose a court of a given place even if that court would not be competent pursuant to the applicable legal provisions. However, both parties have to be commercial parties or legal entities. If individuals are involved, the choice of jurisdiction clause is valid only if either party does not have its ordinary place of jurisdiction in Germany and agrees to the choice of jurisdiction in writing. In all other cases a jurisdiction clause will only be valid after the controversy has arisen or in the case that the individual party intends to leave Germany permanently and thus will not have an ordinary place of jurisdiction in Germany in the future anymore (Sec. 38 ZPO). Jurisdiction clauses have to refer to a distinct legal relationship and are invalid if the statute provides for a mandatory place of jurisdiction (Sec. 40 ZPO). This is the case, for example, in litigations involving real estate located in Germany (exclusive competence of the circuit jurisdiction where the real estate is situated), rent of real estate, the causation of detrimental effects to the environment, and misleading information about the capital market (Sec. 24, 29a, 32a, 32b ZPO).


jurisdiction?

a) Franchising: an agreement between two parties (franchisee and franchisor) whereby the franchisee has the right, in exchange for a direct or indirect financial consideration, to use the franchisor’s trade name, and/or trade mark and/or service mark, know-how, business and intellectual property rights, supported by continuing provision of commercial and technical assistance by the franchisor.

b) Distributorship agreement (Vertragshändler): an Agreement whereby one party (the supplier) agrees with another (the distributor) to supply the latter with products or services for the purpose of resale. The distributor sells the products or services in his own name and on his own account.

c) Commercial representative (angestellter Vertreter): An agreement whereby a white-collar employee, the commercial

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representative, agrees to solicit potential customers for payment with a view to negotiating and/or concluding transactions under the authority, for the account, and in the name of one or more principals. The legal intermediary acts on behalf of his principal in such a manner that the legal relationship is created directly between the principal and the customer. The commercial representative has to follow the principal’s instructions as an employee.

d) Commercial Agent (Handelsvertreter): An agreement whereby an independent intermediary has on a lasting basis the authority to negotiate, and possibly to conclude agreements in the name and on behalf of the principal. The legal intermediary acts on behalf of his principal in such a manner that the legal relationship is created directly between the principal and the customer.

e) “Kommissionsverkäufer”: Sells or buys professionally goods or commercial papers under the authority of the owner but under his own name.


a) Franchising: There is no specific statute on franchising in Germany. Therefore, parties are relatively free to design their contracts as long as they respect the German legal framework. However, concerning franchise situations, there are some rulings that point out certain pre-contractual and continuous disclosure requirements. Many German franchisors are voluntarily members of the DFV, the German Franchise Association. This association has drafted a code of ethics including pre-contractual and continuous disclosure requirements, provisions stipulating that all conduct of the parties be led by the principles of fairness and good faith, the franchisor’s obligation to choose its franchisees with care and consideration etc. The more common this code becomes the more contractual parties will accept it as a sort of standardized content of franchise agreements.

b) As an ordinary employee a commercial representative is subject to German labour law.

c) Commercial agent: Sec. 84 - 92c HGB contain the provisions on commercial agents.

The principal has to provide the agent with all necessary documents, price lists, samples, etc. (Sec. 86a HGB).

The commercial agent is paid by means of commissions to which

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Germany

he is entitled if his activities actually lead to a business deal during the term of the agency contract. Agents with an exclusively defined district or clientele are also entitled to a commission if they did not take any action within the development of a business deal. If the deal is completed after the termination of the agency contract the agent will still be entitled to the commission if the deal is made shortly after the termination and has been prepared predominantly by the agent, or if the customer made an offer to the principal before the termination of the agency contract (Sec. 87 HGB).

Generally, the commission is due at the time when, and to the extent to which, the deal is executed. If the customer does not perform, the agent will have to pay back the commissions, but the entitlement to the commission will be upheld if the principal does not perform the deal as contracted, unless the non-performance is not attributable to the principal (Sec. 87a HGB).

If the agency contract is concluded for an indefinite period it can be terminated within the first year with a period of one month, in the second year with a period of two months, and from the third to the fifth year with a period of three months. After the fifth year the notice period is six months. Termination notice has to be given to the end of a calendar month unless otherwise agreed by the parties. The statutory notice periods are mandatory and cannot be shortened by contract. In any case, the periods must not be shorter for the principal than for the agent (Sec. 89 HGB).

Termination without notice is possible in the event of a material breach by either party (Sec. 89a HGB).

After the termination of the contract the agent is entitled to a reasonable amount of goodwill indemnity

if the principal continues to derive substantial benefits from the commercial relationships with customers brought by the agent,

and if, in consideration of all circumstances, in particular, the commissions lost by the agent from business with such clients, the payment of a goodwill indemnity appears to be reasonable.

The amount may not exceed a figure equivalent to commissions earned in one year calculated on the remuneration over the preceding five years (or the respective shorter actual duration of the agency contract). The right to goodwill indemnity is

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mandatory; agreements in the agency contract to the detriment of the agent are null and void. The good will indemnity must be claimed within one year after the termination of the agency contract (Sec. 89b HGB).

The former agent must not to reveal any company secrets (Sec. 90 HGB).

A restraint of trade clause can be concluded if it is made in writing. It can only prohibit competition in similar activities and in the same geographical area or with the same customers. Furthermore, such an agreement may not exceed 2 years and must be remunerated by a reasonable indemnity (Sec. 90a HGB).

d) Distributorship Agreements

In contrast to commercial agents, distributors buy and resell the products of a manufacturer in their own name and on their own account. Typically, a distributor is granted an exclusive right to sell goods of a certain brand in a given territory. In return, he has to assure certain quality standards and very often is subject to various instructions from the manufacturer regarding advertising, etc. There are no statutory provisions on distributorship agreements in Germany; to some extent, statutory provisions on commercial agency have been applied by the courts mutatis mutandi (e.g. notice periods).

Under German case law a distributor may, under certain conditions, even be entitled to a good will indemnity payment by the manufacturer in case of termination of the distributorship agreement by applying Sec. 89 b HGB, mutatis mutandis. This will typically be the case if the distributor has been incorporated into the manufacturer’s sales structure like a commercial agent and if the distributor has the obligation to communicate names and addresses of his customers to the manufacturer when the distributorship agreement ends.

Part II: Branch - Office in the target country but no legal person:5. What are in your jurisdiction the differences between starting up

a branch and starting up a company (subsidiary)?

A branch office does not have legal personality of its own, it is just the „extended arm“ of the foreign company.

If a foreign company intends to set up a business in Germany

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the most popular legal form is the private limited liability company (Gesellschaft mit beschränkter Haftung, GmbH). The shareholders of a GmbH cannot be personally held liable for the company’s debts. The statutory minimum share capital has to be 25.000 € (Sec. 5 German Private Limited Liability Companies Act - GmbHG -). A subtype of the private limited liability company is the so-called “Unternehmergesellschaft (haftungsbeschränkt)” which can be incorporated with a statutory capital of only 1 Euro (but common practise is a capital of 1.000 Euro because its amount must reflect the capital required by the company for the intended business activity) and which is designed as an entry to the GmbH with the obligation to save capital in order to accrue the minimum capital of Euro 25,000.00. In the general partnership (Offene Handelsgesellschaft, OHG) all shareholders are personally liable for the company’s debts (Sec. 105 HGB). If only some of the shareholders shall be personally liable whereas one or more others benefit from a limited liability German law offers a Private limited partnership (Kommanditgesellschaft, KG).


The foreign company has to apply for registration of the branch office in the Commercial Register of its place of business. The company has to file a number of documents relating to its own legal personality and identity (such like copy of its own registration in the Commercial Register, by-laws, etc). The branch has to apply for its own tax numbers in Germany. The registration formalities are quite time-consuming, so it is wise to start well ahead of the tentative date of starting the business activities.


Branches are more flexible as their opening and closing down demands less effort and formalities. At the same time, the flexibility of branches might also raise concerns as to their reliability as a long-term business partner.

A branch benefits from the name of the head company from a marketing point of view. However, the marketing argument can also be turned against the branch by assuming that customers would prefer to deal with a domestic company rather than with the branch of a foreign entity.

The head office can allocate costs to branches more easily than to independent companies. On the other hand, the head office is fully liable for the branch’s acts and omissions.

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8. Is a branch authorized to act before court, do engage people etc.?

There is the possibility to designate an authorized representative (Prokurist, Sec. 48 HGB) with a range of capacities to represent the company determined by statute. Generally, the power of procuration is unlimited, but it can be restricted to one branch if the branch has another name than the foreign company itself (Sec. 50 HGB). However, the company has to file an entry into the commercial register for the designation of such an authorized representative (Sec. 53 HGB).


The representative of the branch usually is an employee of the company. The foreign company as such is liable for all acts or omissions of the branch. The representative can be held personally liable only under certain circumstances, e.g. if he negligently or intentionally acted to the detriment of a third party (usually this must fall under the concept of tort).


The head office is liable for all acts and operations entered into in the name of the branch.


All official documents will have to be filed in a sworn German translation.


The branch has to have its own accountings, namely if it is considered as a permanent establishment in terms of the double taxation treaties (which is the typical situation). It will then also have to have its annual accounts prepared and audited.

Part III: Subsidiary - legal person (separate legal local entity) in the target country


Since the company and its subsidiary are separate legal entities, the parent company is not liable for its subsidiary’s debts and conducts.

Commercialization of the subsidiary’s products is considered to be easier when the company is a domestic entity because consumers

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tend to be more confident when dealing with a company acting under a well known legal form (e.g. “GmbH”).

14. Can you present the main characteristics of the company forms under your jurisdiction in the following schedule?

COMPANY FORM

GbR (Gesellschaft bürgerlichen

Rechts) Private partnership

OHG (Offene

Handelsgesellschaft) General partnership

KG (Kommanditgesellschaft)

Private limited partnership

Limited liability NO NO YES/NO (only for those partners whose liability is limited)


NO NO NO


Fixed capital only

Fixed capital only Fixed capital only

Minimum capital --- --- ---

Number of founders

2+ 2+ 2+

Notarial deed NO NO, but entry in commercial register is required

NO, but entry in commercial register is required

COMPANY FORM

PartnerschaftsgesellschaftPartnership (available only

for certain professions such as lawyers, physicians, etc)

GmbH (Gesellschaft mit

beschränkter Haftung) Private limited liability

company

AG (Aktiengesellschaft)

Public limited company

Limited liability NO YES YES


NO NO YES


variable fixed by entry in commercial register

fixed

Minimum capital --- 25.000 € 50.000 €

Number of founders

2+ 1+ 1+

Notarial deed NO, but entry in the register for partnerships

YES, as well as entry in commercial register

YES, as well as entry in commercial register

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COMPANY FORM GmbH & Co KG (limited partnership with a private limited liability company as general partner)

KGaA (Kommanditgesellschaft auf Aktien = Limited partnership with one general partner and limited partners holding shares)

Limited liability YES (for the partners with limited liability due to the legal form of the KG and for the GmbH due to its own legal form)

YES/NO (there is at least one partner with unlimited liability; the others hold shares of the capital without being personally liable)


NO YES

Fixed or variable capital see above GmbH and KG Fixed

Minimum capital see above GmbH and KG 50.000 €

Number of founders GmbH + at least 1 2+

Notarial deed see above GmbH and KG YES, as well as entry in commercial register


GmbH – Private limited liability company.


For small businesses the partnership organized under the Civil Code (Gesellschaft bürgerlichen Rechts) is the company form which is easy to establish since it does not require a notarial deed and no registration. It is often used by professional persons (lawyers, architects, etc). However, if this partnership engages in commercial activities, it will be converted by virtue of law into a general partnership (OHG) and registration is compulsory. The down side of this legal form is the unlimited personal liability of the partners. For larger family businesses the KGaA is an interesting option because the company can raise money at the stock market while the risk of takeovers is low when the partners with unlimited liability are family members.

17. What are the main formalities a foreign company has to comply with in order to establish a subsidiary (filial)?

Typically, the subsidiary will be a GmbH which will be established in a notarial deed. Both notary and commercial register will

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ask for all documents relating to the foreign shareholder in a legalized form (such as extract from the Commercial Register if the shareholder is a company, its by-laws, board resolution, etc.). All official documents will have to be filed in a sworn German translation, and, unless exempt by bilateral treaties, they have to be provided with the apostille according to the Hague Convention.


The cost for setting up a GmbH will be around 2.500,00 Euros (taking that it will be endowed with the minimum capital of 25.000 Euros).

19. How long does it take to establish a subsidiary in Germany?

It takes some 2 to 4 weeks to register the notarial deed with the Commercial Register. However, the preparation of the documents (like translations of extract of Commercial register of foreign parents company, by-laws, etc.) that have to be presented before the Notary public, takes time that should be taken into account when planning the establishment of a subsidiary.


The founders (the shareholders who approved the memorandum of association) of a public company (Aktiengesellschaft, or AG) can be held personally liable for the correctness and completeness of the declarations made in the foundation phase (Sec. 46 German Stock Corporation Act - AktG -).

The same can be said with regard to the members of the management board and the supervisory board who were in breach of their duties when the company was founded (Sec. 48 AktG). The AG’s titles against those persons become time-barred five years after the foundation.

The founders of a GmbH are also personally liable for any conduct before the GmbH’s registration (Sec. 11 GmbHG). The GmbH itself has a title of restitution of its statutory capital against its shareholders if the founders used up the capital in the foundation phase. Also the GmbH can claim damages from its executives and associates for misrepresentation in connection with the formation of the company.

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Part IV: Miscellaneous

A Real estate

A.1 Purchase of real estate


The purchase agreement must necessarily be contained in a notarial deed (Sec. 311 b BGB). No notarial deed is required when the declaration about the transfer of property is made in an insolvency plan or in a settlement before the court. Furthermore, a request for entry in the land register must be made.


The purchaser has to pay

a transfer tax, which varies in the different Länder between 3.5 and 5 per cent of the purchase price;

the notarial fees (depending on the agreed purchase price);

the land register fees (also depending on the purchase price).

23. Is there in your jurisdiction legislation that can slow down the purchase process (e.g. environmental legislation requiring preliminary soil examinations)?

The vendor of real estate must represent that he has no knowledge of contaminated soils. If he does not tell the truth he can l be held liable. The purchaser has to bear the costs for the cleaning of previously unknown contamination. If there are indications for contaminated soils but no certainty about its extent, lengthy pre-negotiations might occur. The German Federal Soil Protection Act (Bundesbodenschutzgesetz, BBodSchG) does not limit the possibility to sell the property as such, but both the vendor and the purchaser can be held liable for contamination of soil or ground water. In general, however, the purchase process is not slowed down by environmental legislation.

A.2 Rent a real estate:


Most of the German law concerning rental agreements can be

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found in the area of living space. Nevertheless, some of the provisions are also valid for other rental agreements, hence including the rent of offices, industrial, and commercial real estate (Sec. 578 BGB):

If the duration of a rental agreement is for more than one year it has to be in writing, otherwise it will be deemed to be for an indefinite period (Sec. 550 BGB).

The landlord ipso iure has a lien on the movables the tenant has brought in the property as a security for his outstanding receivables of the rental agreement (Sec. 562 et seq. BGB).

If the owner/landlord sells the property to a third party, the purchaser will automatically enter into the existing rental agreement (Sec. 566 et seq. BGB).

Especially for rental agreements on space, which is no living space, there are provisions concerning the tenant’s toleration of renovations, the tenant’s right to indemnify the landlord in order to prevent the removal of objects which the tenant put on the property, and the right of termination without notice for disturbance of the sanctity of the home (Sec. 552 para.1, 554 para.1-4, 569 para.2 BGB).

If the rental agreement is on space which - without being living space - is destined for people to stay in, there is also a right of termination without notice due to health risks (Sec. 569 para.1 BGB).


A tenant has the contractual right to possess the rental object. This right does not require any kind of official registration.

A.3 Environmental issues:


In order to prevent environmental damages, many projects are subject to a preliminary control. Some of these controls are special examinations in connection with protected biota, bodies of water, soil, immissions etc. However, many projects which put the environment at risk also require administrative planning and control for other reasons. Thus, the environmental control is often included in the approval procedure of different administrative areas. E.g., there is a mandatory control of

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environmental aspects for the creation of each development plan. There are many aspects which might make certain projects or systems subject to authorization - with the authorization procedures being classified according to the hazardousness of the project. Also, since Germany is a federal state, there might be variations in the legislation of the different Länder.

When talking about environmentally damaging industrial sites or business enterprises the authorization procedure will be made according to the German Federal Pollution Control Act (Bundesimmissionsschutzgesetz - BImSchG). The competent agency delegates each request to all the other agencies whose field of responsibility is affected and which make their analyses of the request. Thus the different procedures are bundled in one process. Depending on the classification of the examined project there is a formal (with participation of the public) and a simplified process available.


The procedure includes the following examinations:

protection of the environment and the public at large against hazardous impacts or other dangers as well as serious disadvantages or inconveniences

securing the necessary precaution measures against the dangers mentioned above

orderly removal of waste material or - if possible - its avoidance or recycling

efficient and economical use of energy

other administrative regulations (examined by third agencies) such as laws on nature conservation, water, building, or occupational health and safety.

The Federal law on protection against immissions demands different time limits for the authorization procedures:

7 months for newly authorized systems in the formal procedure

3 months for newly authorized systems in the simplified procedure

6 months for alternations of authorizations in the formal procedure

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3 months for alternations of authorizations in the simplified procedure

It is possible to prolong these time limits for another three months, but the decision has to be justified to the applicant.

A.4 Employment:28. Are there any specific regulations with regard to outsourcing of

employees?

There is a provision in the BGB regulating outsourcing of business units or parts of business units (Sec. 613a BGB):

If the old employer sells a business unit or a distinct part of it, the purchaser will have to take over the employees with their original employment contracts. The same applies to collective labour agreements (for at least one year), unless the character of the new employment is subject to another collective labour agreement. Both the former and the new employer are liable for the employees’ claims which accrue before and become due no longer than one year after the purchase. (If they become due after the outsourcing, the former employer’s liability is reduced to the part of the claim which accrued before the outsourcing.)

Outsourcing is not a proper argument for dismissals. If an employer lays off an employee by giving the outsourcing of a business as the reason, the dismissal will not be valid. The former or the new employers have vast disclosure obligations. They have to inform the employee in writing about the (estimated) date of the outsourcing, the reasons, the legal, economic and social impact, and the intended measures concerning the employees. The employee has the right to object to the transition of his/her employment contract within one month after reception of the disclosure document. The main practical difficulty in applying this statutory provision (Sec. 613a BGB) is to determine whether the concept of “outsourcing” of a business unit or part of it actually applies to a given situation. According to jurisprudence, there must be a transition of a considerable amount of production means and/or skilled workforce, know-how, clientele, in order to prevent this provision from being applicable for all layoffs due to minor restructurings.


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In principle, it does not make any difference whether an employee is hired by the head office or a local company. If an employment contract features a cross-border situation, parties are free to determine what legislation shall be applicable to their contract. In the absence of a determination by the parties, Art. 8 Rome I states that the applicable legislation shall be the one of the state in which, or failing that, from which the employee usually does his/her work or - in case the applicable law is not determinable by this means - the country where the branch office which employed him/her is situated. However, if the contract has a closer connection to another country, the law of the other country shall apply. If the parties choose the applicable law this may not deprive the employee of the mandatory protection he/she would have had under the law which would be applicable in the absence of an explicit choice of law.

Concerning the social security regulations, German law stipulates that the German regulations on social security insurance (s. below question 31) are also applicable for employees who are seconded to work in another country by their employer provided the occupation in that country is of a limited time. Likewise, the German regulations are inapplicable for employees who were engaged in another country and do temporary work in Germany (Sec. 4, 5 German Social Welfare Act - SGB IV -).


There is no special law on the conclusion of employment contracts in Germany. Thus one has recourse to the general provisions on service contracts, cf. Sec. 611 et seq. BGB):

The contract can be closed orally or in writing. If the parties did not negotiate the remuneration, an adequate payment is deemed to be agreed upon.

The employee is entitled to paid holidays of at least 24 working days (all days except Sundays and public holidays).

In business units with at least five permanent employees (aged at least 18 years) it is possible to elect a works council. The employer cannot dismiss a member of the works council (Sec. 15 German Protection against Dismissal Act - KSchG -).

In the case of dismissals the applicable notice period is four weeks to the fifteenth or the end of each month. The longer the employment has lasted the longer the termination periods become: after two years of employment one month to the end

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of a calendar month, after five years two months after each calendar month, after eight years three months, after ten years four months, after twelve years five months, after fifteen years six months, and after twenty years seven months (Sec. 622 para. 2 BGB). A termination notice must be given in writing. The employer must also give a reason for the dismissal which can either lie in the employee’s person, in his/her behaviour, or in an urgent operational necessity. In the latter case the employer is obliged to make a careful choice among his/her employees taking into consideration the following factors: job tenure, age, obligations to support, severe disabilities (Sec. 1 para. 3 KSchG). If the employee is laid off for reasons of urgent operational necessity and does not bring the matter before the court, he/she will be entitled to a compensation of one half of his monthly income per year of employment (Sec. 1a KSchG).

A dismissal without notice requires an important reason, a careful consideration of all factors, and a special contemplation of the particular case. It must be effectuated within the first two weeks after the reason became known to the employer (Sec. 626 BGB).

If the company has a works council, the employer has to hear the works council in case of any kind of dismissal. If the employer does not abide by this obligation, the dismissal can be challenged before the labour court and be declared without effect. The works council can communicate its concerns to the employer and under certain circumstances even object against the dismissal. For the employer, this can lead to an obligation to keep the dismissed person as a regular employee until the labor court’s final judgement (Sec. 102 German Works Constitution Act - BetrVG -).

The modalities of the employee’s termination of the contract are mainly left to the parties. However, the notice period to be observed by the employee may under no circumstances be longer than the one for the employer (Sec. 622 para. 6 BGB).


In Germany, there is a mandatory social security insurance for employees (Sec. 3 No. 1, 7 SGB IV). The employer has to notify the collection agency for health, nursing, and pension insurances of all changes as to the employment contract or the employee’s social status (Sec. 28a SGB IV). The employer has to withhold the insurance contributions and pay them to the collection agency (Sec. 28d SGB IV).

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Concerning the obligatory health insurance Sec. 5 et seq. SGB V determine the upper and lower limit for compulsory insurance deductions (taxable wage base). Generally, the lower limit is an income of not more than 400 € per month, the higher limit is annually adapted by the Federal Government and amounts in 2012 yearly income of more than 50.850 € (Sec. 7 SGB V, Sec. 8 SGB IV, Sec. 6 SGB V). Employees are entitled to sickness benefits when their illness renders them incapable of working or when they are treated as an in-patient in a hospital or rehabilitation centre at the expenses of the insurer (Sec. 44 SGB V).

Employees are entitled to old-age pensions at the age of 67 and after completion of the qualifying period of at least 5 calendar years. They can also claim pensions at the age of 63 and after completion of a qualifying period of at least 35 calendar years. Severely handicapped employees are entitled to pensions at the age of 65 and after 35 years. (Sec. 35 et seq. SGB VI) Employees can also ask from their employer to discuss their options concerning a limitation of job performance combined with a fractional claiming of pensions (Sec. 42 SGB VI).

Furthermore, there is a mandatory accident insurance with the insured event being occupational accidents and illnesses (Sec. 7 SGB VII). The insurer enacts regulations on accident prevention and provides for the necessary staff training, the employer is obliged to execute these measures and to appoint an in-plant safety officer (Sec. 21 - 23 SGB VII).

Employers are obliged to employ severely handicapped people. If the number of employees equals a monthly average of 20 or higher, the employer must engage at least five per cent of disabled people (Sec. 71 SGB IX); failing this he has to pay a compensation charge (Sec. 77 SGB IX). The employer’s duties in the context of and towards handicapped employees are too vast to give a comprehensive presentation here.

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Annex

Translations of the used German and European acts in alphabetical order:

AktG German Stock Corporation Law

BBodSchG German Federal Soil Protection Act

BetrVG German Works Constitution Act

BGB German Civil Code

BImSchG German Federal Pollution Control Act

GmbHG German Limited Liability Companies Act

HGB German Commercial Code

KSchG German Protection against Dismissal Act

Rome I Regulation (EC) No 593/2008 of the European Parliament and of the council on the law applicable to contractual obligations

SGB German Social Welfare Act (I – X)

ZPO German Code of Civil Procedure

Part V Comments on Tax Law in GermanyThe reputation of Germany’s tax law is worse than reality even though German tax law definitely is rather complex. Consequently, the following comments may just give a short overview. As always in tax law there are more exceptions to the rules than rules as such.

In the last years the Government tried to promote Germany as a better marketplace, for example by reducing the corporate tax from 50% in 1993 to 15% since 2008.

32. Income Tax (Einkommenssteuer)

For 2011 a taxable income of less than € 8,004 is tax-free for a single person (for a married couple always the double of it)). Incomes up to € 52,881 for a single person are then taxed with a rate progressively increasing from 14% to 42%. Incomes from € 52,882 up to €250,730 are taxed at 42%. Amounts over those are taxed at 45%. In addition to this there is the “solidarity surcharge” of 5.5% of the tax, to cover the costs of integrating the states of the former East Germany. Additionally, businesses

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not organised as a limited liability company very often must pay a local business tax (Trade Tax) amount depending on local cities (average 14%). As in many other countries, Germany allows a variety of deductions that can lower taxable income.

The German income tax differs between permanent residents and non-residents. Whereas residents have more possibilities of certain deductions, and the choice of a combined income for spouses. Especially the last tax benefit will not be applicable for non-residents. Non-residents do not qualify for many deductions.

The personal income tax of every shareholder by a partnership, i.e. a company with no limited liability (including Kommanditgesellschaft (KG), Gesellschaft bürgerlichen Rechts (GbR), Partnerschaftsgesellschaft, offene Handelsgesellschaft (OHG)), is applied on the personal profit of the individual shareholder.

In general, in the case of a non-resident shareholder, the profit of the partnership will be taxed as income of a non-permanent resident in Germany. Double Tax Treaties can have different regulations.

33. Corporate Tax (Körperschaftssteuer)

Corporate tax is charged first and foremost on corporate enterprises, in particular public and private limited companies, as well as other corporations such as e.g. cooperatives, associations and foundations. Such corporations domiciled or managed in Germany are deemed to have full corporate tax liability. This means that their domestic and foreign earnings are all taxable in Germany. Sole proprietorships and partnerships are not subject to corporation tax: profits earned by these set-ups are attributed to their individual partners and then taxed in the context of their personal income tax bills (cf. above).

The corporate tax charged in Germany is 15% (flat rate tax). Additionally the corporation must pay a solidarity surcharge as well as a local business tax (Trade tax) the amount of which differs locally (average 14%).

Under most Double Tax Treaties the home country has the right of taxation. However, the residene state of the corporation has the right to apply a withholding tax (§ 10 Abs. 2 OECD MA).The withholding tax is limited to an amount of 5%, 10% or 15%

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(depending on the Double Tax treaty) of the dividend. This is a privilege compared to resident tax payers who are subject to the capital gain tax of 25% plus solidarity surcharge. If there is no Double Taxation Treaty, Germany has the right of taxation. Dividends are qualified as domestic income, § 49 Abs. 1 Nr. 5 EStG (Income Tax Act) and the shareholder is subject to the Capital Gain Tax of 25% plus solidarity surcharge. This withholding tax is paid by the domestic corporation to the German tax office. If the home state of the foreign shareholder raises taxes as well, the double taxation is avoided normally by the tax credit method.

There is one speciality regarding holding or umbrella companies. In the case of a Double Tax Treaty, or within the EU (Mother-Daughter-Directive 90/435/EC of 23.7.1990) the dividends of 100% daughter companies normally are tax free. Under § 50d sec 3 EStG the German authorities implemented an anti-misuse-clause. Therefore, the holding or umbrella company must prove an own business activity other than simply holding shares. Otherwise, the dividend is taxed with 25%.

34. VAT (Value-Added Tax) (Umsatzsteuer)

Companies must add value added tax (VAT) to their prices. Thus, VAT is only paid by the end user of a product or service. Companies transfer the VAT received to the tax authorities on a monthly, quarterly, or annual basis. The frequency generally depends on the level of company turnover. The normal VAT rate of 19 % is just below the European average. A reduced rate of 7 % applies to certain consumer goods and everyday services (such as food, newspapers, local public transport and hotel stays (but not the breakfast). Some services (such as bank and health services or community work) are VAT exempt. On purchasing goods or making use of services, companies regularly have to pay VAT themselves. The taxes collected and paid can be balanced out in the input tax deduction (Vorsteuerabzug). For companies, value-added tax represents a transitory item only.

Trade within the EU is free from customs and other restrictions. However, goods traded between different EU member states are subject to a so-called acquisition tax (Erwerbssteuer) and a reverse charge procedures may be applicable. For trading within the EU a business in Germany must apply for a VAT identification number and has to file a special tax return..

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Also with respect to certain services reverse charge procedures are applicable, e.g. certain construction works. House cleaning, sale of discarded metal .

35. Real Estate Transfer Tax

Transfers of real property are taxable. Under law, the vendee and the vendor are joint and several debtors of the tax. Normally, the vendee will be contractually obliged to pay the tax. The tax rate is defined by the individual German Federal States. The tax rate differs from 3,5% – 5% of the purchase price depending on the individual state.

Capital Transfer Tax

Inheritance tax and gift tax are regulated in one law. Taxable is either a transfer by reason of death or a gift amongst livings. Depreciations may be applicable, e.g. for [multi-]family houses, family members as well and for entrepreneurs (up to 100%). The tax rate ranges from 7% up to 50%.

Urs Breitsprecher, Rechtsanwalt & Solicitor, Busekist Winter & Partner

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HUNGARY

Hungary

PART I: CONTRACTUAL

A Direct sale:

A.1 Without written agreement – general terms

What are the formalities a foreign seller must complete in your jurisdiction in order to make sure that its terms and conditions of sale are binding and enforceable towards local purchasers? Are these conditions enforceable towards non commercial parties?

There are no special formalities under Hungarian law that a foreign seller must complete in this respect (i.e. no distinction is made between foreign and Hungarian sellers).

Pursuant to the Hungarian Civil Code, any term or condition that was drafted in advance by one of the parties with the aim of using such a term or condition in several agreements, the content of which could not be influenced by the other party and which has not been individually negotiated between the parties, shall qualify as general terms and conditions.

Hungarian law allows the application of the general terms and conditions of a party in contractual relationships, provided that such general terms and conditions shall only become part of the agreement if they have previously been made available to the other party for perusal and if such terms have been accepted (explicitly or through conduct that implies acceptance) by the other party.

The other party shall be explicitly informed on any general terms and conditions that substantially differ from standard practice, regulations applicable to contracts or any stipulation previously applied by the same parties. Such conditions shall only become part of the agreement if, upon receiving the above mentioned special notification, the other party has explicitly accepted them.

Please note that there are special, rather strict rules that apply to contracts made with consumers. For example, an unfair contractual term that has been drafted in advance by the party entering into a consumer contract with a consumer, and which has not been individually negotiated with the consumer but is incorporated into the contract as a standard contractual condition, shall be null and void.

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A.2 Written agreement:

What are the clauses a foreign seller must integrate in a written sales agreement (or in his general terms and conditions) and the reasons why?

Again, no distinction is made between foreign and Hungarian sellers in this respect; general contract rules apply.

Retention of title: Is this provided for in your jurisdiction? What are the conditions to make it enforceable towards local purchasers and third parties?

Yes, Hungarian law provides for the possibility of the retention of title, but the seller is only entitled to retain title of ownership simultaneously with the conclusion of the agreement, in writing and only until the purchase price is paid in full. During the term of the title retention, the buyer is not allowed to alienate and/or encumber the subject matter of the contract.

Interest and penalty clause: Are these clauses enforceable in your jurisdiction? Can they be reduced or annulled? What are the consequences if this clause is not integrated in the agreement? What is the legal rate in your jurisdiction?

Interest and penalty clauses are, subject to the below caveats/requirements, enforceable under Hungarian law.

(a) Penalty clauses

Penalty clauses shall only be valid if made in writing. Any interest attached to a penalty shall be null and void. A penalty is not enforceable through a court if it has been stipulated for securing a claim that cannot be judicially enforced.

(b) Interest clauses

Contractual relations, unless otherwise provided for by laws and regulations, shall entail interest. Interest shall only be applicable in the case of agreements between private individuals if so stipulated.

The rate of interest can be freely agreed between the parties, but any interest, stipulated between private individuals that is increased above the base interest rate of the Hungarian National Bank by more than 24%, shall be null and void. In the lack of an agreement on the interest rate, the legal rate is - unless otherwise provided for by laws and regulations - equal to the base interest rate of the Hungarian National

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Bank (which is - as of 31 October 2012 - 6.25% p.a.).

Both the excessive penalty and the excessive interest may be reduced by court.

Applicable law and competent jurisdiction: Are these clauses enforceable in your jurisdiction? What are the consequences if this clause is not integrated in the agreement?

The parties are free to stipulate the applicable law and the competent jurisdiction in their agreement, unless special (exclusive or precluded) jurisdictions apply.

As a general rule, Hungarian courts have jurisdiction if a jurisdiction clause is not stipulated by the parties. In agreements where the governing law is not stipulated, Hungarian law is applicable if Hungary is the most closely connected jurisdiction to the circumstances of the case / to the contract.

Special rules apply for consumer and employment contracts (please see Council Regulation (EC) No 44/2001 of 22 December 2000).

As of 2011, in agreements concerning national assets, only Hungarian law and the jurisdiction of Hungarian courts may be stipulated (no arbitration is allowed). The governing language of such contracts has to be Hungarian.

B Commercial Intermediaries What types of distribution agreements do exist in your

jurisdiction?

As a general rule under the Hungarian Civil Code, the parties are free to agree on the form and content of their contract. The most common legal instruments that are used in the context of distribution are agency, franchising and concessionaire.

What are the clauses a foreign seller should integrate in to a distribution agreement and the reasons why?

Pursuant to Hungarian law, there are no special clauses that a foreign seller must integrate in to a distribution agreement (i.e. no distinction is made between foreign and Hungarian sellers).

Is there any specific legislation in your jurisdiction with regard to the above mentioned types of distribution agreements?

Hungarian law is silent on franchising arrangements, thus the parties are free to agree on the contents of their agreement.

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Although the same “free to agree” principle applies to the concessionaire agreements, this legal instrument is regulated in the Hungarian Civil Code.

In the case of commercial agents, special, detailed rules apply.

Specific legislation exists with respect to the IP and competition law aspects of distribution agreements.

PART II: OFFICE IN THE TARGET COUNTRY (BUT NO LEGAL PERSONALITY)

There are different ways how a foreign company can start doing business in Hungary, by establishing:

(a) a local subsidiary (having legal personality);

(b) a branch office (having legal personality); or

(c) a commercial representative office (with no legal personality).

As branch offices and commercial representative offices are regulated by the same act – the Act on Hungarian Branch Offices and Commercial Representative Offices of Foreign-Registered Companies – they will be discussed in this Part II, while the requirements for establishing a local subsidiary will be presented in Part III below.

What are in general terms in your jurisdiction the legal consequences of the absence of legal personality of a branch, as opposed to the setting up of a local company (in terms of applicable legislation, legal representation, publication formalities etc)?

As mentioned above, pursuant to the Act on Hungarian Branch Offices and Commercial Representative Offices of Foreign-Registered Companies, there are two ways of establishing a foreign company in Hungary, with the following main differences:

FORM Branch office Representative office

Legal personality Legal personality (acts under its own name)

No legal personality (acts under the company’s name)

Establishment Both the branch office and the representative office have to be registered in the Company Registry. They are regarded as established upon having been registered and may commence entrepreneurial activities following such registration.

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Functions Concluding contracts, acting in front of courts, acquiring assets - but only in favor of the company.

Helping the company in commercial activities, like preparing and negotiating contracts, informing the clients, but all legal acts have to be done by the company itself.

Main restrictions No representation activities on behalf of the company;the company and the branch office shall be subject to unlimited joint and several liability for the debt of the branch office.

No entrepreneurial activity or providing legal services in its own name.

Please note that special rules apply for companies in the financial sector (e.g. banks, insurance companies).

Why would you rather advise a foreign seller to set up a branch rather then a company in your country, or vice versa?

Unless otherwise provided for by law (e.g. in relation to the acquisition of real estates), a foreign company shall, in respect of the establishment and operation of its branch office, receive the same treatment as a domestic economic organization; however, this business form (i.e. branch office) does not have limited liability.

Establishing a company in Hungary requires the fulfilment of several other conditions (e.g. a minimal amount of capital), but a subsidiary can benefit from tax advantages.

How is a branch legally represented in your jurisdiction (contractual engagements; towards public authorities, in court)?

A person who is an employee or a person with a domestic residence who is under a long-term service contract may represent both the branch office and the commercial representative office.

Is there an automatic liability of the head office or legal representative of the branch for the operations or acts of the branch?

As a general rule, the head office is liable for all obligations of its branch office.

There are no special liability rules for representatives of a branch office; general rules applicable to managing directors shall apply.

Are there imperative linguistic requirements to be respected (in official publications; employment relations)?

Yes, as a general rule, dealing with courts or public authorities requires the use of the Hungarian language (official language).

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PART III: LOCAL COMPANY IN THE TARGET COUNTRY WITH LEGAL PERSONALITY

COMPANY FORM

General partnership (közkereseti) társaság)

Limited partnership (betéti társaság)

Limited liability company (korlátolt felelősségű társaság)

Public or private company limited by shares(részvénytársaság)

Limited liability No For the general partner no, for the limited partner yes.

Yes Yes


Yes, but the members may stipulate restrictions in the deed of foundation.

Yes, but the partners may stipulate restrictions in the deed of foundation.

Yes, but the members may stipulate restrictions in the deed of foundation.

Yes, but the shareholders may stipulate restrictions in the deed of foundation.


Variable Variable Fixed Fixed

Minimum capital

- - HUF 500,000(approx. EUR 1,800)

HUF 5,000,000(approx. EUR 18,000)for private companies;

HUF 20,000000 (approx. EUR 70,000) for public companies.

Number of founders

Minimum of 2

Minimum of 2 (at least 1 general partner and 1 limited partner).

Minimum of 2, but it is also possible to found a single member company.

Minimum of 2,but it is also possible to found a single member company.

Notarial deed The deed of foundation has to be made either in the form of a notarial deed or in the form of a private deed countersigned by a lawyer or legal counsel.

Which of the company forms is used most frequently in your jurisdiction?

Limited liability companies (korlátolt felelősségű társaság).

Which company form is used most frequently in case of small or family business?

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Limited partnership (betéti társaság) or general partnership (közkereseti társaság).


A Real estate

A.1 Purchase of a real estate

Who do you turn to in order to close a valid purchase agreement?

In order to enter into the purchase agreement, on the basis of which the change of ownership may be registered in the land register, the agreement shall be notarised by a notary public or countersigned by a lawyer.

What are the costs related to the purchase agreement?

The overall cost of a real estate purchase includes the fees of the notary public / lawyer, stamp duty and the fees of the registration.

The fee of the notary public is provided for by law and depends on the value of the transaction. The fee of the lawyer is freely negotiable.

The general rate of the stamp duty for the purchase of a real property is 4% of the value of the real property up to HUF 1,000,000,000 (approx. EUR 3,510,000) and an additional 2% for the value above the HUF 1,000,000,000, but it can be no more than HUF 200,000,000 (approx. EUR 702,000) for one real estate. If the purchased real property is a flat or a residential house, then the duty fee is 2% up to HUF 4,000,000 (approx. EUR 14,000) and an additional 4% for the value above the HUF 4,000,000).

The fee for the registration of the change of ownership with the land registry is HUF 6,600 (approx. EUR 23)

Is there in your jurisdiction legislation that can slow down the purchase process (e.g. environmental legislation requiring preliminary soil examinations)?

Foreign entities or individuals may not acquire ownership of arable land.

In the case of real estates that do not qualify as arable land, foreign purchasers shall acquire the authorisation of the administration office.

A.2 Rent a real estate

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Is there imperative law in your jurisdiction with regard to the rent of offices, industrial real estate or commercial real estate? Can you give a summary of the major stipulations of these regulations?

Hungarian tenancy law does not differentiate between the rent of offices, industrial real estates or commercial real estates. However, in the case of the renting of apartments (residential lease) special rules apply. Unless otherwise provided for in legal regulation, the lessor shall guarantee that the real estate is and will be suitable for use as contracted and that no third person has any right to the leased real estate, while the lessee should use it properly and according to the contract. The lessee can sublease the real estate to a third person without the permission of the lessor (unless otherwise provided). The lessee finances minor expenses for the maintenance of the estate, while other expenses (such as public duties, taxes etc) are paid for by the lessor. The lessee should pay the rent in advance of each period and, for any unpaid rent and additional costs, the lessor has lien on the lessee’s assets within the real estate.

Are there any formalities to fulfil in order to enforce the lease agreement towards third parties?

No such formalities apply. Although not mandatory, it is possible to register the rental agreement with the land registry.

A.3 Environmental issues

For what types of activities is an environmental permit required?

Hungarian environmental law is fully harmonized with the regulations and directives of the European Union. Hungarian law provides different procedures (preliminary assessment, preliminary consultation, environmental impact assessment, integrated pollution prevention control and a “mixed one” that comprises of a consolidation of the last two) for the various industrial activities.

A.4 Employment

Hungarian employment law has gone through significant changes this year since a new Labour Code entered into force on July 1, 2012. The main purpose of the introduction of the Labour Code was to create a labour law system which is in line with new market conditions and which has a greater acknowledgement of the needs of the service industry and SMEs.

Are there any specific regulations with regard to outsourcing of employees?

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As of 1 January 2013, an employee may only be ordered to perform work on a temporary basis at another employer for a period of no longer than 44 working days in a year.

Applicable legislation according to the type of employment (differences between employment by local company or by head office for the local branch)

There is no difference if the employee is hired by a branch office or by a subsidiary.

Legal engagement and dismissal requirements and formalities

Unless otherwise provided for by law, an employment relationship shall be established by a written employment contract.

Invalidity on the grounds of a failure to set the contract in writing may only be cited by the employee within a period of 30 days from the first day on which he commences work.

Legal statements regarding an employment relationship may be issued without particular formal requirements, unless otherwise prescribed by any provisions pertaining to labour relations. Upon the employee’s request, the declaration shall be put in writing even if this is otherwise not mandatory.

An employment relationship established for a fixed term may be terminated by mutual consent or by dismissal with immediate effect or, if a trial period applies, with immediate effect and without providing any grounds of dismissal if the termination occurs within the trial period. After the expiry of the trial period, the employer may also terminate the fixed term contract with immediate effect and without providing any grounds for dismissal. However, in such case, the employee shall be paid a 12 months absence fee or his absence fee for the remaining period if it is less than twelve months.

In addition to the above, fixed term contracts can also be terminated by the employer’s notice if one of the following reasons exists: (i) the employer is under liquidation or bankruptcy proceedings; (ii) in case of the incapacity of the employee; or (iii) if the employment relationship cannot be maintained due to reasons out of the parties’ control. Employees may also terminate fixed term employment contracts by notice if the maintenance of the employment becomes impossible or disproportionally difficult with respect to the employee’s circumstances.

Employers must justify their dismissals. The justification shall clearly indicate the cause for the dismissal. In the event of a dispute, the

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employer must prove the authenticity and substantiality of the reason for the dismissal.

An employee may be dismissed only for reasons in connection with his ability, his behaviour in relation to the employment relationship or with the employer’s operations.

The right of dismissal with immediate effect shall be exercised within a period of 15 days from gaining knowledge of the grounds for dismissal, but within no more than 1 year of the occurrence (or within the period of limitation of accountability in the case of crimes).

Social security regulations

In Hungary, an employee must be registered by his employer in the Social Security Institution. Both the employer and the employee must contribute to the social security system. While the Hungarian laws and regulations are strict, they are harmonised with the respective European regulations and directives.

* *

*

Szecskay Attorneys at LawH-1055 Budapest, Kossuth tér 16-17, HungaryT: +36 (1) 472-3000 F: +36 (1) 472-3001

Italy

PART I: CONTRACTUAL - NO OFFICE IN THE TARGET COUNTRY

A Direct sale

A.1. Without written agreement - general terms

1. What are the formalities a foreign seller must complete in your jurisdiction in order to make sure that its terms and conditions of sale are binding and enforceable towards local purchasers? Are these conditions enforceable towards non-commercial parties?

Subject to the considerations set out in 1) below, the following outline sets out the formal requirements that a foreign seller must comply with in order to make sure that its terms and conditions of sale are binding and enforceable towards local purchasers when a sale contract is regulated by Italian law, either on the basis of an agreement between the parties or the applicable rules on conflict of laws (i.e. international private law).

• PRELIMINARY CONSIDERATIONS

Italy has signed a number of international conventions and has implemented certain laws which regulate the formalities a foreign seller must comply with in the Italian jurisdiction in order to make sure that its terms and conditions of sale are binding and enforceable towards local purchasers.

Italy has implemented laws to protect consumers. In case of an international sale from a foreign seller to a consumer, Italian laws provide for a series of minimum protection provisions. Therefore, for the purpose of this report, it is necessary to distinguish between sale contracts made with commercial purchasers and those made with non-commercial purchasers (consumers).

Italy is a signatory of the 1980 United Nations Convention on the International Sale of Goods (CISG), which applies to international sale contracts governed by Italian law. However, the contracting parties are free to choose not to apply the CISG. The rules contained within the CISG differ from those provided by Italian law as to the formalities a foreign seller must complete in order to make sure that its

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terms and conditions of sale are binding and enforceable towards local purchasers.

Therefore, for the purpose of this report, it is important to draw a distinction between terms and conditions of sale that are regulated by Italian law with the express exclusion of the CISG (see ♦.2), and terms and conditions of sale that are regulated by Italian law without exclusion of the CISG (see ♦.1).

Italian law provides for specific rules which apply to:

♦ general conditions of agreement1 drafted by one party and not negotiated with the other party2, and

♦ contracts concluded by the signature of standard forms which one party has drafted to uniformly regulate a series of contractual relationship.

• SALES TO COMMERCIAL PURCHASERS

♦.1 General Conditions of Sale that are regulated by Italian law without exclusion of the CISG

Pursuant3 to article 11 of the CISG “a contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.”

Therefore, the General Conditions of Sale may be validly concluded without the need to meet any formal requirements. However, it would be advisable to have the terms and conditions of sale accepted in writing by the buyer.

♦.2 General Conditions of Sale that are regulated by Italian law with exclusion of the CISG

There are a number of formalities a foreign seller must complete in order to make sure that its General Conditions of Sale are binding and enforceable towards local purchasers. General Conditions of Sale drafted by the seller and not negotiated with the purchaser:

1. If such General Conditions of Sale have not been accepted in writing, then they are binding on the

1 This includes general conditions of sale, hereinafter “General Conditions of Sale”.2 Article 1341 of the Italian Civil Code.3 Article 1342 of the Italian Civil Code.

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purchaser only if the latter is aware of, or has had the

possibility to become aware of, the same4.

By way of example, it may be argued that the purchaser had the possibility to become aware of the general conditions where these were set out in writing:

– in a document delivered to the purchaser at the time of to the conclusion of the contract, at the very latest;

– on clearly visible and readable panels affixed within company premises.

If a dispute arises the seller is obliged to prove that the purchaser was aware of, or had the possibility to become aware, of the General Conditions of Sale.

2. Even if the purchaser has accepted in writing such General Conditions of Sale, terms set out therein are

considered unfair when they provide for5:

– the exemption or limitation of liability of seller;

– the right of the seller to withdraw from the contract;

– the right of the seller to suspend the execution of the contractual obligations;

– deadlines, short periods of time and conditions that the purchaser must comply with under penalty of forfeiting or losing his/her contractual rights;

– restraints on the possibility of raising exceptions/objections;

– restrictions as to contractual freedom with third parties;

– the tacit renewal of the contract;

– an arbitration clause;

– jurisdiction terms / a choice of forum.

Such unfair terms are without effect unless the purchaser declares that s/he has explicitly accepted them in writing6.

4 Article 1341 n° Italian Civil Code.5 Article 1341 n° 2 Italian Civil Code. The formal requirements set out in this point 2.2,

letter b), also apply to contracts concluded by the signature of standard forms which one party has drafted to uniformly regulate a series of contractual relationship (see point 1.3, letter b).

6 Article 1341, § 2, Italian Civil Code.

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Therefore to make such unfair terms valid and binding upon the purchaser, it is necessary that the purchaser places two signatures on the General Conditions of Sale: one signature accepting the sale contract as a whole and one accepting the unfair terms contained in the General Conditions of Sale.

To this end, it is sufficient that all the unfair terms be listed at the bottom of the text of the General Conditions of Sale by making reference to the number (and preferably also to the title) of the article containing the unfair term, with the purchaser signing such list for acceptance7. The formalities outlined in this point ♦.2 must be taken into consideration when Italian law applies to the General Conditions of Sale, however it should be noted that pursuant to article 9 of the Rome Convention 1980:

– a contract concluded between a foreign seller and an Italian purchaser who signs the contract in the same country is formally valid if it satisfies the formal requirements of Italian law or of the law of the country where the contract is concluded; while

– a contract concluded between a foreign seller and an Italian purchaser who sign the contract in different countries is formally valid if it satisfies the formal requirements of Italian law or the law of one of those countries.

Based on the above, article 9 of the Rome Convention of 1980 greatly reduces the chances of the formal requirements of Italian law producing adverse effects towards the seller in terms of the validity or efficacy of the General Conditions of Sale.

7 To this end, the following statement, to be signed by the purchaser, can be inserted at the bottom of a contract:

Purchaser declares that it has read and explicitly accepts, pursuant to articles 1341 and 1342 of the Italian Civil Code, the following clauses:

article 1 - exclusion of liability

article 5 - tacit renewal of the contract

article 12 - jurisdiction

Place and date _____________

The Purchaser

_________________________

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• SALES TO NON-COMMERCIAL PURCHASERS (CONSUMERS)

The rules outlined in ♦.2 above also apply to General Conditions of Sale contracts when the purchaser is a non-commercial purchaser (consumer). In addition, a non-commercial purchaser enjoys the protection granted by the provisions of the Consumer Code (Legislative Decree 206/2005) which contains, amongst others, provisions implementing EU Directive 93/13.

The Consumer Code sets out twenty unfair terms, which are very similar to the unfair terms listed within EU Directive 93/13, providing an indicative and non-exhaustive overview of those conditions which are regarded as unjust, allowing the consumer to prove that a particular clause creates a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.

The seller has the right to prove that such unfair terms are not unfair where they have been individually negotiated.

In addition to the twenty unfair terms defined by law, the consumer has the right to prove that other terms are unfair if she proves that such terms cause a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.

Finally, the following terms are always considered unfair, and, therefore, null and void, even where they have been individually negotiated, where they have the object or effect of:

♦ excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer, or personal injury to the latter, resulting from an act or omission of the seller or supplier;

♦ inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller, supplier or another party in the event of total or partial non-performance, or inadequate performance, by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against it;

♦ irrevocably binding the consumer to terms which s/he had no real opportunity of becoming acquainted with before the conclusion of the contract.

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The terms which are found to be unfair become null and void while the General Conditions of sale themselves remain unaffected.

A.2. With a written agreement

2. What are the clauses a foreign seller should integrate in a written sales agreement (or in its general terms and conditions) and the reasons why?


Yes, in Italy retention of title is admitted, providing that it is inserted in the contract by means of a special clause8.

Given that, according to Italian law, ownership of the goods to which a contract refers passes from the seller to the purchaser at the time when the parties conclude the sale contract, a retention of title clause must be agreed upon, at the very latest, at the time in which the sale contract is concluded.

In order to render a retention of title clause valid between the parties, it is sufficient that such clause be inserted in the contract, while in order to make it objectionable towards a third party, it is necessary that the latter is aware of the same.

For certain types of goods, the fact that a third party is aware of the existence of the clause need not be demonstrated as this is taken as being given where the same results as being recorded in special public registers (article 1524 of the Italian Civil Code). The publishing regime varies according to the type of products.

For example:

• For registered movable and immovable assets the retention of title clause must be transcribed in the special public register;

• For production machinery or equipment, law 1329/1965 demands due marking of the goods and transcription of the retention of title clause in the special public register.

In addition, on the basis of article 11 of legislative decree n° 231 dated 09.10.2002 (which incorporates Directive 2000/35/EC of the European Parliament and Council dated 29th June 2000, on

8 Retention of title is governed by articles 1523-1526 of the Italian Civil Code and by other laws containing specific related provisions.

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combating late payment in commercial transactions), retention of title, as per article 1523 of the Civil Code, is objectionable to creditors of the buyer only if confirmed in individual invoices with a date recognized as preceding that of the seizure and duly

registered in the accounting records9.

The retention of title is not valid, according to Italian law, if it is inserted in the General Conditions of Sale, in so far as this does not allow for the goods to be sufficiently identified. The clause must thus necessarily be agreed upon on each occasion by the parties with reference to each individual sale contract.


• Interest

♦ Sales to commercial purchasers

Italian Decree n° 231/2002 implemented Directive 2000/35/ EC of the European Parliament and Council of 29th June 2000 on combating late payment in commercial transactions. Italian Decree n° 231/2002 substantially reflects Directive 2000/35/EC.

Interest shall become payable from the day following the date or the end of the period for payment fixed within the contract. If the date or period for payment is not fixed in the contract, interest shall become payable automatically without the necessity of a reminder upon

expiration of a 30 day period10. Unless otherwise agreed

9 Article 11 of Legislative Decree 9th October 2002 n° 231 “Attuazione della direttiva 2000/35/CE relativa alla lotta contro i ritardi di pagamento nelle transazioni commerciali”.

10 The commencement date for the 30 day period varies as follows:

(a) 30 days following the date of receipt by the debtor of the invoice or an equivalent request for payment; or

(b) if the date of the receipt of the invoice or the equivalent request for payment is uncertain, 30 days after the date of receipt of the goods or services; or

(c) if the debtor receives the invoice or the equivalent request for payment earlier than the goods or the services, 30 days after the receipt of the goods or services; or

(d) if a procedure of acceptance or verification, by which the conformity of the goods or services with the contract is to be ascertained, is provided for by statute or in the contract and if the debtor receives the invoice or the equivalent request for payment

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between the parties, the interest rate shall be the sum of the interest rate applied by the European Central Bank to its most recent main refinancing operation carried out before the first calendar day of the half-year in question, plus at least 7%. For October 2012 the interest rate was 8.00%.

Except in cases where the debtor is not responsible for the delay, the creditor shall be entitled to claim reasonable compensation from the debtor for all relevant recovery costs incurred through the latter’s late payment.

The agreement on the date for payment or on the consequences of late payment which is materially unfair to the detriment of the creditor shall be null and void.

♦ Sales to non-commercial purchasers (consumers)

Interest shall become payable from the day following the date or the end of the period for payment fixed in the contract (article 1282 of the Italian Civil Code).

Unless otherwise agreed between the parties, the interest rate is fixed by law (article 1284 of the Italian Civil Code). For October 2012 the legal interest rate was 2.50%.

There are no specific provisions as to the right of the creditor to claim reasonable compensation from the debtor for all relevant recovery costs incurred through the latter’s late payment. However, pursuant to article 1224 of the Italian Civil Code, the creditor is entitled to claim any damages suffered as a consequence of debtor’s late payment.

The parties are free to fix the interest rate, however the interest rate must be agreed in writing, otherwise the legal interest rate shall apply.

In addition, the interest rate must not exceed the usurious interest rate. If the agreed interest rate exceeds the usurious interest rate, then the creditor is

not entitled to any interest11.

earlier or on the date on which such acceptance or verification takes place, 30 days after this latter date.

11 Law 108/96.

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• Penalty clause


A penalty clause is admitted and provided for by articles 1382-1386 of the Italian Civil Code.

The purpose of a penalty clause is to limit and liquidate damages to the promised penalty, unless compensation has been agreed upon for additional damages with the creditor not needing to submit to the courts proof of damages.

Under Italian law, a fixed penalty sum may be cumulated with additional damages; however, the right to additional damages must be agreed between the parties (in this case the penalty clause is simply advance liquidation of the damages which remain to be absorbed, in the event of proof of further and additional damages, within the total amount of damages liquidated by the courts).

The courts may reduce a penalty which is grossly excessive.

The existence of a penalty clause may not constitute a means for permitting a debtor to avoid his responsibilities in the sense that notwithstanding the presence of the penalty limiting the reimbursable damages, the debtor will be held responsible, without limitation, if s/he acts

with willful misconduct or gross negligence.12


The rules set out above also apply to non-commercial purchasers (consumers). In addition, the Consumer Code (in compliance with EU Directive 93/13) provides that a penalty clause may be considered an unfair term if the amount of the penalty is overly excessive.

If the penalty clause is considered unfair it becomes null and void while the contract itself remains unaffected.

(c) Applicable law and competent jurisdiction: Are these clauses enforceable in your jurisdiction? What are the consequences if such clauses are not integrated in the agreement?

• Applicable law


12 Court of Cassation n° 6293/1996.

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Clauses by which the contracting parties choose the law applicable to an international sale contract are

enforceable under Italian law13.

Pursuant to article 2 of the Hague Convention of 15th June 1955 on the law applicable to international sales of goods14, a sale shall be governed by the domestic law of the country designated by the contracting parties. Such designation must be contained in an express clause, or unambiguously result from the provisions of the contract.

In case the parties do not choose the law applicable to the sale contract signed between themselves, the contract shall be governed by the domestic law of the country in which the seller has his/her habitual residence at the time when s/he receives the order. If the order is received by an establishment of the seller, the sale shall be governed by the domestic law of the country in which the establishment is situated. Nevertheless, a sale shall be governed by the domestic law of the country in which the purchaser has his/her habitual residence, or in which s/he has the establishment that has placed the order, if the order has been received in such country, whether by the seller or by his/her representative, agent or travelling rep15.

Pursuant to article 4 of the Hague Convention 1955, in the absence of an express clause to the contrary, the domestic law of the country in which inspection of goods delivered pursuant to a sale is to take place shall apply in respect of the form in which, and the periods within which, the inspection should be carried out.


Clauses by which the contracting parties choose the

13 Article 57 Law n° 218/1995.14 With reference to international sale contracts, Italy has signed the Hague Convention

of 15th June 1955 on the law applicable to international sales of goods (Hague Convention 1955). The provisions of the Hague Convention 1955 apply in the Italian jurisdiction pursuant to article 57 of Italian law n° 218/ 1995 on the conflict of laws which provides that contractual obligations are governed by the Rome Convention on the law applicable to contractual obligations (Rome Convention 1980), unless derogated by other applicable and prevailing international conventions. The Hague Convention 1955 is considered to prevail over the Rome Convention 1980.

15 Article 3 of the Hague Convention 1955.

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law applicable to an international sale contract are enforceable under Italian law. However, there are a number of national and international provisions that limit the effect of the choice of a foreign law to the detriment of a consumer domiciled in Italy.

As a matter of fact, pursuant to article 5 of the Rome Convention 198016, a choice of law made by the parties shall not have the result of depriving the consumer of the protection afforded to him/her by the mandatory rules of the law of the country in which s/he has his/her habitual residence:

– if in that country the conclusion of the contract was preceded by a specific invitation addressed to him/her or by advertising, and s/he had taken in that country all the steps necessary on his/her part for the conclusion of the contract, or

– if the other party or his/her agent received the consumer’s order in that country, or

– if the contract is for the sale of goods and the consumer travelled from that country to another country and there gave his/her order, provided that the consumer’s journey was arranged by the seller for the purpose of inducing the consumer to buy.

• Competent jurisdiction


Clauses by which the contracting parties choose the competent jurisdiction to an international sale contract are enforceable under Italian law17.

In case the parties do not choose the court which has jurisdiction over disputes that might arise in connection

16 The provisions of the Rome Convention 1980 apply in the Italian jurisdiction pursuant to article 57 of Italian Law n° 218/1995 on conflict of laws, which provides that contractual obligations are governed by the Rome Convention on the law applicable to contractual obligations (Rome Convention 1980), unless derogated by other applicable and prevailing international conventions. Even though the Hague Convention 1955 is considered to prevail over the Rome Convention 1980, the first does not expressly regulate sales to consumer, therefore it can be argued that the Rome Convention 1980 regulates sales to consumers on the basis of the principle of speciality.

For the sake of clarity, with reference to point 1 above, pursuant to article 5 of The Hague Convention 1955, the same does not regulate the form of the contract.

17 Article 4 Law n° 218/1995.

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with the international sale contract signed between themselves, jurisdiction must be determined pursuant to Council Regulation (EC) N° 44/200118, where the defendant is domiciled within the EU, and by article 3 of Italian Law n° 218/1995 where the defendant is not domiciled within the EU.

Therefore, when the defendant is domiciled within the EU, the defendant can be sued either in the courts where s/he is domiciled19, or in the courts where, under contract, the goods were delivered or should have been delivered20. While, when the defendant is not domiciled within the EU, article 3 of Italian law n° 218/1995 provides that Italian courts have jurisdiction if:

– the defendant has a representative in Italy which holds a special or a general power of attorney if the defendant does not have his/her domicile o residence in Italy21;

– in the cases provided by sections 2, 3 and 4 of title II of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 196822.

18 Council Regulation (EC) N° 44/2001 of 22nd December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

19 Article 2 of the Council Regulation (EC) N° 44/2001.20 Article 5 of the Council Regulation (EC) N° 44/2001.21 Article 77 of the Italian Civil Procedure Code.22 We hereby reproduce an excerpt of articles 2, 3 and 4 of the Brussels Convention on

Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968.

Article 2

Subject to the provisions of this Convention, persons domiciled in a contracting state shall, whatever their nationality, be sued in the courts of that state.

Persons who are not nationals of the state in which they are domiciled shall be governed by the rules of jurisdiction applicable to nationals of that state.

Article 3

Persons domiciled in a contracting state may be sued in the courts of another contracting state only by virtue of the rules set out in sections 2 to 6 of this Title.

Article 4

If the defendant is not domiciled in a contracting state, the jurisdiction of the courts of each contracting state shall, subject to the provisions of Article 16, be determined by the law of that state.

As against such a defendant, any person domiciled in a contracting state may,

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Clauses by which the contracting parties choose the competent jurisdiction to an international sale contract are enforceable under Italian law.

In case the parties do not choose the court which has jurisdiction over disputes that might arise in connection with the international sale contract signed between themselves, jurisdiction must be determined pursuant to Council Regulation (EC) N° 44/200123, when the defendant is domiciled within the EU, and by article 3 of Italian Law n° 218/1995, when the defendant is not domiciled within the EU.

Therefore, when the defendant is domiciled within the EU, the rules are set out in articles 15-17 of Council Regulation (EC) N° 44/200124.

whatever his/her nationality, avail him/herself in that state of the rules of jurisdiction there in force, and in particular those specified in the second paragraph of article 3, in the same way as the nationals of that state.

23 Council Regulation (EC) N° 44/2001 of 22nd December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

24 We hereby reproduce an excerpt of articles 15-17 of Council Regulation (EC) N° 44/2001 of 22nd

December 2000:

Jurisdiction over consumer contracts

Article 15

1. In matters relating to a contract concluded by a person, the consumer, for a purpose which can be regarded as being outside his/her trade or profession, jurisdiction shall be determined by this section, without prejudice to article 4 and point 5 of article 5, if:

(a) it is a contract for the sale of goods on instalment credit terms; or

(b) it is a contract for a loan repayable in instalments, or for any other form of credit, made to finance the sale of goods; or

(c) in all other cases, the contract has been concluded with a person who pursues commercial or professional activities in the member state of the consumers domicile or, by any means, directs such activities to that member state or to several states including that member state, and the contract falls within the scope of such activities.

2. Where a consumer enters into a contract with a party which is not domiciled in the member state but which has a branch, agency or other establishment in one of the member states, that party shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that state.

3. This section shall not apply to a contract of transport other than a contract which, for an inclusive price, provides for a combination of travel and accommodation.

Article 16

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While, when the defendant is not domiciled within the EU, article 3 of Italian law n° 218/1995 provides that Italian courts have jurisdiction if:

– the defendant has a representative in Italy which holds a special or a general power of attorney if the defendant does not have his/her domicile or residence in Italy;

– in the cases provided by sections 2, 3 and 4 of title II of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968.

In addition, the clause containing the choice of a court other than that where the purchaser has his/her residence or domicile is considered an unfair term and, therefore, the rules outlined in point 3 above apply.

B Commercial Intermediaries3. What types of commercial intermediaries exist in your

jurisdiction?

• Franchising: An agreement between two legally and economically independent parties, whereby one party (franchisor) grants to another party (franchisee), against consideration, a set of industrial or intellectual property rights related to trademarks, trade names, shop signs, utility models, industrial designs, copyright, know-how, patents,

1. A consumer may bring proceedings against the other party to a contract either in the courts of the member state in which that party is domiciled or in the courts for the place where the consumer is domiciled.

2. Proceedings may be brought against a consumer by the other party to the contract only in the courts of the member state in which the consumer is domiciled.

3. This article shall not affect the right to bring a counter-claim in the court in which, in accordance with this section, the original claim is pending.

Article 17

The provisions of this section may be departed from only by an agreement:

1. which is entered into after the dispute has arisen; or

2. which allows the consumer to bring proceedings in courts other than those indicated in this section; or

3. which is entered into by the consumer and the other party to the contract, both of whom are, at the time of conclusion of the contract, domiciled or habitually resident in the same Member State, and which confers jurisdiction on the courts of that member state, provided that such an agreement is not contrary to the law of that member state.

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technical and commercial consulting and assistance, under which the franchisee joins a system (network) constituted by a number of franchisees operating in the territory, for the purpose of distributing specific goods and services. In order to set up a franchise network, the franchisor must have already tested its commercial formula on the market.

• Distribution agreement: An agreement between two legally and economically independent parties, whereby one party (supplier) agrees with another (distributor) to supply the latter with products or services for the purpose of resale. The distributor sells the products or services in its own name and on its own account.

• Commercial agent: An agreement between two legally and economically independent parties, whereby one party (principal) appoints another party (agent) to negotiate the sale or purchase of goods on behalf, and in the name, of the Principal.

4. What legislation applies in your jurisdiction with regard to the above-mentioned types of distribution agreements?

• Franchising:

♦ Franchising agreements are governed by Law 129/2004, as well as by Ministerial Decree n° 204, dated 2nd September 2005.

♦ The franchisor must at all times behave towards the prospective franchisee with loyalty, fairness and good faith and must promptly provide the prospective franchisee with any data and information the latter deems necessary or useful for the purposes of signing the franchising agreement, except in the case of objectively confidential information or where such disclosure would violate the rights of a third party.

♦ At least 30 days before the signing of a franchising agreement, the franchisor must provide the prospective franchisee with a complete copy of the agreement to be signed, together with the following annexes:

1. principal information as to the franchisor, including corporate name and corporate assets and, if the prospective franchisee so requests, a copy of the franchisor’s balance sheets for the last three years, or since the beginning of its activity should it have

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been running for less than three years;

2. an indication of the trademarks used within the system, including details relating to their registration or filing, or to the license granted to the franchisor by the third party who owns the trademarks, or any documentation proving the effective use of the trademark in the system;

3. a brief description of the elements characterizing the activity of the franchising;

4. a list of the franchisees currently operating in the network, as well as a list of the franchisor’s direct outlets;

5. an indication of the variation, year by year, of the number of franchisees, including their location during the last three years, or from the date of the setting up the franchisor’s business should it be less than three years old;

6. a short description of any judicial or arbitral proceeding raised in relation to the franchising system against the franchisor and concluded during the last three years, whether initiated by franchisees, private parties or public authorities.

♦ The franchising agreement must be set down in writing; otherwise it is null and void.

♦ The franchising agreement must contain:

1. the amount of investments and other possible entry fees that the franchisee shall bear before beginning its activity;

2. the manner of calculating and paying royalties, as well as the possible indication of the minimum turnover to be achieved by the franchisee;

3. the existence of any exclusive territorial rights granted to the franchisee;

4. details of the know-how provided by the franchisor to the franchisee;

5. details of the services offered by the franchisor in terms of technical and commercial assistance, setting-up and furnishing of the outlet and training;

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6. the conditions for the renewal, termination or assignment of the agreement.

♦ The franchising agreement may be signed for a fixed or for an indefinite term. If the, franchising agreement provides for an indefinite term, the franchisor must guarantee the franchisee a minimum term in order to allow the latter to depreciate/amortize its investments, which in all cases may not be less than three years.

♦ In case of disputes over the franchising agreement, the parties can agree that before taking the case to court, or to arbitration, they must seek conciliation through the Chamber of Commerce & Industry where the franchisee’s registered office is located.

• Distribution agreement:

♦ There is no specific legislation regarding distribution contracts, therefore the parties are free to enter into distribution contracts as they wish. Within the Italian Civil Code an attempt was made to identify distribution contracts as a particular type of supply contract. However, although some authors and jurisprudence consider a distribution contract to be a particular type of supply contract, majority opinion is in favor of classifying a distribution contract (commonly called «contratto di concessione di vendita») as an «atypical» contract, i.e. a contract that does not fall within any contract type expressly regulated by the law.

At present, prevailing opinion considers a distribution contract as a «framework contract» («contratto quadro») whereby a distributor agrees to promote the sale of a supplier’s products which it will purchase through separate contracts of sale.

♦ Exclusivity

According to Italian case law, a distributor’s exclusivity cannot be implied from the contract itself. Therefore, if the parties enter into a distribution agreement without specifying that the distributor has exclusive rights, then the latter will, in principle, have no exclusivity.

If it can be implied from the context that the parties’ intention was to grant exclusivity to the distributor, then the latter may be considered as being exclusive even in

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the absence of a specific clause. Thus, if a distributor has been granted a territory for which it is responsible as well as a de facto exclusivity, it would be dangerous for the supplier to assume that there is no exclusivity, and consequently that it could appoint others for the same territory.

In principle, the fact of granting exclusivity to the distributor should imply that the supplier must not sell to customers within the contractual territory while however remaining free to sell to customers outside the territory, even where it knows, or should know, that they intend to resell the goods within the distributor’s territory.

♦ Obligation not to compete

In principle the obligation not to market competing products cannot be implied from the distribution contract and must be expressly agreed between the parties.

Consequently, the fact of having entered into a distribution agreement is not sufficient to imply that the distributor must avoid selling competing products. However, this does not exclude the possibility of a tacit (or oral) agreement, especially if there are several elements demonstrating that the parties actually wished the distributor not to deal with competing products.

♦ Obligations regarding the supply of information to the other party

Since there are no legal rules governing distribution contracts, no specific obligations of this type exist.

♦ Termination notice (contract for an indefinite period).

The Courts demand reasonable notice to be provided, applying by analogy article 1569 of the Civil Code on supply agreements or article 1725 on the contract of mandate, both of which make reference to an appropriate notice («congruo preavviso»). Thus, if the parties have not fixed the period of notice, the Court will fix an appropriate period: in the past three, four and six months have all been considered as appropriate.

If the parties have fixed the period of notice in the

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contract, Courts tend to respect their choice, even if such period is short. It has happened, for example, that a contractual period of notice of 15 days has been admitted.

♦ Goodwill compensation (indemnity)

No goodwill compensation is foreseen under Italian law. If the contract is lawfully terminated the distributor has no right to indemnity, regardless of the importance of the goodwill created.

Only in case of breach by the supplier (e.g. unjustified earlier termination) the distributor will be entitled to recover damages.

• Commercial Agent:

♦ Rules on commercial agency agreements:

1. ITALIAN CIVIL CODE: The main rules are contained in Articles 1742-1753 of the Italian Civil Code of 1942. These articles were amended in 1991 and 1999 in order to implement EC Directive 653/86. Further amendments were made in the years 1999 and 2000. General rules on contracts (Articles 1321 ss. of the Italian Civil Code) also apply.

2. COLLECTIVE AGREEMENTS: A peculiar characteristic of the Italian system is the presence of collective agreements (Accordi Economici Collettivi, AEC) concluded between the organizations of principals and agents. There are, at present, four different collective agreements that apply on the basis of the category to which the principal belongs (AEC Industria - AEC Commercio - AEC Artigianato - AEC Confapi). In principle, collective agreements apply only where both parties belong to the associations which signed them. They also apply if incorporated by reference into the agreement. This means that collective agreements will not apply to contracts between a foreign principal and an Italian agent (or between a foreign agent and an Italian principal), unless expressly incorporated into such by reference.

♦ Remuneration

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A commercial agent is entitled to remuneration consisting of a fixed fee or commission. In the absence of any agreement, a commercial agent shall be entitled to the remuneration that is customarily allowed in the place where s/he carries out his/her activities.

A commercial agent shall be entitled to commission on transactions concluded during the period covered by the agency contract:

1. Where the transaction has been concluded as a result of his/her actions;

2. Where the transaction is concluded with a third party which s/he has previously acquired as a customer for transactions of the same kind;

3. Where s/he is entrusted with either a specific geographical area or group of customers and where the transaction has been entered into with a customer belonging to that area or group.

A commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated:

1. if the transaction is mainly attributable to the commercial agent’s efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period of time after that contract terminated; the Collective Agreement states that commission shall be due only if the transaction is concluded not later than four months after termination, and provided that the commercial agent has informed the principal in detail as to such pending business at the time of termination of the agency contract.

2. if the order of the third party reached the principal or commercial agent before the agency contract terminated.

In the absence of contractual rules to the contrary, the agent’s right to commission arises when the principal fulfills his/her performance or when s/he would have to perform pursuant to the sale contract signed with the customer (Article 1748 of the Italian Civil Code). Thus, unless the parties make a derogation to this rule (as

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they normally do), the right to commission arises when the principal performs the sales contract, normally by delivering the goods. The parties are free to contractually postpone this term, but only to a point not later than the moment in which the buyer fulfills, or would have to perform, his/ her obligation. It is common practice to make use of this option and to provide within the contract that the right to commission only arises when the customer pays for the goods.

♦ Termination of the agreement

If the agency agreement is concluded for an indefinite term, either party may terminate the same by providing notice.

An agency agreement for a fixed period, which continues to be performed after its expiry, becomes an indefinite term agreement.

The minimum termination notice is one month within the first year of duration of the agreement, two months during the second year, three months during the third year, four months during the fourth year, five months during the fifth year and six months during the sixth year or thereafter. Unless otherwise agreed, termination is effective at the end of the calendar year.

The collective agreements of 2002 provide the following terms for termination by the principal: three months within the first three years of duration of the agreement, four months during the fourth year, five months during the fifth year and six months during the sixth year or thereafter (longer terms are foreseen for commercial agents who work exclusively for only one principal, as single-brand agents, the so-called «agenti monomandatari»).

If it is the agent who terminates the agreement, then the term is three months (5 months for the single brand agent). If a party fails to respect the period of notice, compensation is due. As a general rule, the compensation payable is an amount equal to the monthly average of commission earned by the commercial agent in the previous year multiplied by the months of the period of notice.

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♦ Goodwill compensation

Italy has implemented the EC directive by choosing the «German» indemnity system. Article 1751 of the Italian Civil Code literally incorporates most of article 17.2 of the directive. Indemnity is due when the following conditions are met:

1. the agent has brought new customers or has considerably increased business with existing customers and the principal continues to derive substantial benefits from the business with such customers; and

2. the payment of such indemnity is equitable having regard to all circumstances and in particular the commission lost by the agent on business with such customers.

The indemnity is not due:

1. where the principal terminates the contract for a breach by the agent of such importance that the relationship cannot continue, not even temporarily;

2. where the agent terminates the contract, unless termination is justified by circumstances for which the principal is responsible or by circumstances regarding the agent, such as age or illness, under which s/he cannot be reasonably requested to continue his/her activity;

3. where, by virtue of an agreement with the principal, the agent assigns his/her rights and duties under the agency agreement to a third party.

The amount of the indemnity cannot exceed a sum equal to a yearly indemnity calculated on an average of the commission earned in the last five years.

As to the calculation of the indemnity under Article 1751 of the Italian Civil Code, court-pronounced solutions relating directly to the application of this provision are not at all homogeneous.

In some cases no indemnity at all has been granted considering that the agent had not given evidence of the development of new customers, limiting him/herself to show an increase of commission.

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At the other extreme, there are cases where the maximum amount (one year commission on the average of the last five years) has been granted without an in-depth evaluation of the various circumstances.

Finally, in several cases a reduction of the maximum amount has been made (recognizing an indemnity ranging from 30% to 80% of the yearly average) taking into account a number of elements such as the importance of the new customers, the impact of the principal’s trademark and advertising, the advantages for the principal, etc. Only in one case was an attempt made to use the system of calculation developed by German courts.

♦ Obligation not to compete

According to Article 1743 of the Italian Civil Code, the agent cannot act, in the same area and for the same type of business, for competitors of the principal. This implies that even in the absence of a contractual provision prohibiting the agent to sell competing products, the law prevents him/her from doing so.

However, the above rule is not mandatory. The parties are free to derogate from such provision permitting the agent to act for competitors.

It is possible to make a post-contractual non-competition obligation agreement with the agent.

However, in compliance with the EC Directive, the relevant clause shall be valid only to the extent that it is concluded in writing and relates to the same geographical area, customers and goods as the agency contract.

The duration of the obligation cannot exceed a period of two years after termination of the contract and, for agents who perform their activity individually, or as a partnership, or as corporation with a sole partner, or as corporation of commercial agents, it must be remunerated by the payment of an indemnity.

If the amount of the indemnity, or the method for its calculation, has not been agreed between the parties, the amount will be determined by the courts taking into account:

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1. the average of the commission received during the course of the contract;

2. the reasons for termination of the contract;

3. the extension of the geographical area assigned to the agent;

4. the circumstance of being a single-brand agent.

Since the courts have wide discretionary power for determining the amount, it is highly recommended to expressly state in the contract the criteria for calculating indemnity.

PART II: BRANCH - OFFICE IN THE TARGET COUNTRY BUT NO LEGAL PERSON:

5. What are in your jurisdiction the differences between starting up a branch and starting up a company (subsidiary)?

A branch is not regarded as a separate legal entity from its parent company, whereas a subsidiary is. The obligations incurred through such branch can be therefore enforced on the assets of the foreign company, even if they are located abroad.

Conversely, as the subsidiary is a separate legal entity, its liability is limited to its own assets. The shareholders will therefore not be personally affected by the liabilities of the subsidiary beyond the amount of subscribed capital.

The financing of the branch may be carried out through a specific Ioan agreement with the parent company, whereas the starting up of a subsidiary, whether as a limited liability company (“SRL”) or a joint stock company (“SPA”), requires a minimum capital to be paid in.

It may be advisable to consider opening a branch in Italy when the Italian operations are expected to incur losses during the initial year, which can be offset against profits earned by the foreign parent company from other activities.


• In the jurisdiction of the head office

In order to register a branch in Italy, the following documents must be prepared in the jurisdiction of the head office:

♦ Corporate resolutions: The board of directors of the

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head office must formally adopt resolutions deciding to open the branch office and appoint in Italy a legal representative for the purposes of managing the branch and representing the foreign parent company in dealings with third parties and in legal proceedings in connection with the activities of the branch. The resolution must also include the address in Italy where the branch will physically be located.

♦ a certified copy of the registration certificate of the foreign parent company within the foreign Companies’ Register or at the Chamber of Commerce;

♦ a certified copy of the Article of Incorporation and By-Laws of the foreign parent company;

The above documents must be certified and legalized by means of the “ Apostille” procedure provided for by the Hague Convention of October 5th, 1961. An Italian sworn translation is also required.

• In Italy

In order to register a branch in Italy, the following formalities must be performed.

The documents prepared in the jurisdiction of the head office must be translated into Italian by a certified translator and then deposited within the office of an Italian notary public, who shall in turn file the same documents with the competent Italian Companies Register.

While performing deposition formalities, a certified signature of the branch’s representative must also be acquired.

In addition, a VAT and tax ID number must be requested no later than 30 days from the beginning of operations. At the same time, the representative must present the VAT office with a declaration as to the beginning of the activities, valid for VAT purposes.

7. Why would you advise a foreign seller to set up a branch and not a company in your country, or vice versa?

• Advantages of a branch

♦ A branch has no minimum capital requirements thus the foreign company is not obliged to pay in any start-up capital and the branch does not need to comply with requirements such as a board of directors or

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shareholders’ meetings.

♦ A branch benefits from the reputation of the head office.

♦ The head office can more easily allocate expenses to a branch.

♦ A branch is recommended when no double taxation treaty exists between Italy and the country of origin.

• Disadvantages of a branch

♦ The head office is fully liable for the actions of the branch and any debts it may occur.

♦ A branch’s annual filings will reveal financial information about the foreign entity that the latter may prefer to keep confidential.

♦ Since a branch may have limited assets within the Italian territory, local market players may be reluctant to enter into transactions with such entity.

8. Is a branch authorized to act before the court, to engage people, ...?

Yes. A legal representative must be designated for the purposes of managing the branch and representing the company in dealings with third parties and in legal proceedings in connection with the activities of the branch.


The legal representative of a branch has the same liability towards third parties as the director of an Italian company.


The head office of the foreign company is entirely liable for all undertakings of the branch office in Italy.


Branches are subject to Italian regulations on the use of languages and thus all documents required by law must be drafted in Italian.


A branch has the obligation to keep a separate set of accounts yet it is not required to submit a copy of these. The branch must also keep VAT records in accordance with Italian tax rules with

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any profits it earns being subject to Italian corporate tax. As a permanent establishment, a branch must file its own corporate income tax return together with the annual accounts of the foreign parent company.

PART III: SUBSIDIARY - LEGAL PERSON (SEPARATE LEGAL LOCAL ENTITY) IN THE TARGET COUNTRY


• Because the subsidiary and the parent company are separate legal entities, the parent company is not exposed to any liabilities of the subsidiary. In contrast, a foreign company remains fully liable for all the commitments of its branch. Obligations incurred through a branch can be enforced on the assets of the foreign company, even if they are situated abroad.

• A subsidiary offers a significant degree of flexibility from a structural and governance stand point.

• Although taxation rules are very similar for both, a subsidiary can benefit from several tax advantages:

♦ The ability to repatriate or distribute net profits with little or no dividend withholding tax: in fact, subsidiaries in most cases qualify as “parent companies” under the EU Parent-Subsidiary Directive.

♦ Subsidiaries can benefit from the advantages afforded under the double tax treaties concluded by Italy;

• Annual filing requirements are less stringent for subsidiaries than for branches. A branch’s annual filing will reveal financial information about the foreign entity that it may prefer to keep confidential.

• In addition, it should be borne in mind that, in some cases, the registration of a branch may be compulsory when a foreign company wishes to participate in Italian public contract tenders.


A foreign investor who desires to set up an enterprise in Italy may choose from among several types of business entities. The most popular forms of incorporation for foreign entities and

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individuals entering the Italian market are:

• a Limited Liability Company (S.r.l.);

• a Corporation (SPA).

In theory, foreign investors could also choose to incorporate an Unlimited Partnership25 (Società in Nome Collettivo) or a Limited Partnership26 (Società in Accomandita Semplice) or a Partnership Limited by Shares27 (Società in Accomandita per Azioni). However, in practice, said business entities are rarely used by foreign investors entering the Italian market. Below you will find the characteristics of the business entities mostly often used:

COMPANY FORM

SNC Società in Nome Collettivo (Partnership)

SASSocietà in accomandita semplice (Limited Partnership)

SRLSocietà a Responsibilità Limitata(Limited Liability Company)

SRLSSocietà a Responsibilità Limitata Simplificata(Simplified Limited Liability Company)

SPA Società per Azioni (Joint-Stock Company)

Limited liability

NO NO for general partners / YES for sleeping partners

YES YES YES


No No Yes Yes to individuals under 35 years of age

Yes

Statutory Auditors

No No Yes, upon attainment of certain requirements

No, the shareholders can either opt for an external auditor or for a single auditor not forming a Board of Auditors

Yes

25 An unlimited partnership is a partnership whose partners have unlimited liability for all the acts and transactions entered into by the partnership. AH or any of the partners may be appointed as directors of the partnership. Italian law generally restricts the transfer of a partner’s interest in the unlimited partnership.

26 A limited partnership has a combination of limited and unlimited liability. There are two categories of partners: general partners who have unlimited liability and special partners who are liable only to the extent of their capital contributions to the partnership. Only general partners may be appointed as directors of the partnership.

27 The structure and characteristics of a partnership limited by shares are similar to those of a limited partnership, except that the capital contribution of the partners is represented by shares and generally, the law relating to joint-stock companies applies.

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Minimum capital

No Minimum

No Minimum 10,000.00EUR(25% to be paid up front:100% in case of a single shareholder)

1.00 EUR to maximum of 10,000.00 EUR(100% to be paid up front)

120,000.00 EUR (25% to be paid up front: 100% in case of a single shareholder)

Number of founders

2 minimum 2 minimum 1 minimum 1 minimum 1 minimum

Notarial deed No No Yes No, however a public deed is necessary

Yes


Investors most frequently use SRL and Spa forms as business vehicles.

16. Which company form is used most frequently in the case of small or family businesses?

Small or family businesses very often select an SRL as the ideal vehicle for doing business in Italy.

In fact, the SRL is equivalent to a private limited company where capital participation is represented by quotas instead of shares.

The provisions applicable to an SRL are simpler in comparison to those applicable to an SPA. Indeed, most of the rules applicable to an SRL are not compulsory and, therefore, can be derogated by the parties, consequently enhancing self-ruling and entrepreneurial skills.

As opposed to an SPA, the participants in an Italian SRL may contribute to the capital of the company by means of their work or services, know-how, good-will and other personal rights, as long as the participants, at the time of the contribution, provide the company with an adequate insurance policy or bank guaranty covering the value of the contributed assets.

The quota-holders have the greatest freedom in choosing the form of corporate governance which best meets their needs (sole director or board of directors). The sole director or the directors may be foreign citizens and do not necessarily need to be resident in Italy.

Thanks to corporate reform, pursuant to article 2468 of the Italian Civil Code, the articles of association of an Italian SRL may validly state that profits and losses of the SRL can be shared and

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distributed to quota-holders in accordance with a ratio that does not correspond to the percentage of ownership rights of each quota-holder. Thus, an Italian SRL owned 50 - 50 by two quota-holders could validly distribute profits and losses according to a 60 - 40 ratio, or indeed any other ratio.

Finally, as of 29 August 2012, it is possible to establish in Italy a Società a responsabilità limitata semplificata (“Simplified SRL”), which is a simplified limited liability company.

The Simplified SRL allows young entrepreneurs under the age of 35, who do not want to sustain costs or who have limited financial resources, to access the benefits of an SRL.

In fact, while an SRL must be established with a share capital of at least € 10,000.00 by either individuals or legal entities through a public deed drawn up by a Notary Public, a Simplified SRL is established:

i. with a share capital equal to at least € 1.00 but less than € 10,000, 100% of which must be paid up front;

ii. through the filing of the so-called “standard” Articles of Association (approved with Ministerial Decree n. 138/2012): as a result, the costs associated with the drafting of the Articles of Association as well as their subsequent registration with the Company Registry are eliminated: a registration duty equal to € 168.00 must however still be paid.

In light of the economic facilitations outlined above, the establishment of a Simplified SRL presents some limitations, namely:

– the rigidity of the “standard” Articles of Association, which must be mandatorily adopted;

– the characteristics of the shareholders, who must necessarily be individuals and must be under the age of 35;

– the impossibility of transferring shareholdings to individuals of 35 years and over.


The legal steps involved in establishing a subsidiary are similar for most types of company structure and usually consist of the following steps:

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1. Name checking and name reservation;

2. Drafting of Company Articles and Memorandum of Association;

The Articles and Memorandum of Association must include:

i. the full personal or company name, date and place of birth or formation, domicile or registered office and citizenship details of each shareholder or quota-holder;

ii. details of the municipality in which the company’s registered office and any secondary offices, are situated;

iii. the company purpose;

iv. the amount of the subscribed and paid-up capital;

v. the value attributed to assigned credits and goods;

vi. company rules on functioning, administration, vii. representation and duration.

3. Pre-payment of 25% of the share capital;

This usually involves the paying in of 25% of the share capital (100% in the case of a single person SRL or single person SPA), with an accumulating bank account opened in the name of the company to be established. In the case of an SRL, the payment may be replaced by an insurance policy or bank guarantee for the corresponding amount. The bank will issue a certificate, which must be delivered to the notary on the date of execution of the incorporation deed, confirming that the paid-up amount of the capital is in the bank account.

4. Appraisal report on contributions of credits or goods in kind;

The shareholders or quota-holders may also make a contribution in kind to the company consisting of assets other than cash, provided that such assets have an economic value (e.g. real estate, shares in another company, a claim for the payment of an amount of money, etc.).

5. Execution of the Memorandum of Association in front of an Italian notary public;

6. Submission of deed of incorporation and of other relevant documents to the Companies’ Register by the appointed notary public;

7. Registration of the company with the Companies’ Register

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and awarding of a company registration number;

8. Application for any government authorizations required for particular activities;

9. Registration with local VAT authority and application for a VAT identification number;

10. Opening of the operating bank accounts;

11. Execution of the cash capital contribution and the contribution in kind.


Legal fees may result as being in the region of 2,000.00 EUR for an SRL and 3,500.00 EUR for an SPA, while notarial fees may amount to around 1,500.00 EUR with other registration fees being in the region of 600.00 EUR - 700.00 EUR.

19. How long does it take to establish a subsidiary in Italy?

A subsidiary can be fully established and operative within approximately one month. Generally speaking, the setting up of formalities takes around 15 days, with registration formalities requiring a further 15 days.


Although the founders of an SRL or SPA constitute a separate legal person, in which the shareholders potential liability is normally limited to their subscription, the founders can be held personally and unlimitedly responsible if the same act on behalf of, and use the name of, the company during negotiations with third parties prior to the legal entity being fully registered within the Company Registry held by the competent local Chamber of Commerce.

The directors of an SRL or SPA can incur liabilities as follows.

• Directors can be held liable in the following circumstances:

♦ Liability for the improper execution of their tasks as directors;

♦ Liability for the violation of Italian corporate laws or the charter of the company.

• In addition, directors can be held liable for wrongful acts and/or for gross negligence.

• A director may also be held liable if s/he had a direct or

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indirect personal interest in a decision and obtained an unjustified advantage to the detriment of the company as a result of that decision.

• Furthermore, Italian corporate laws provide that directors can be held personally and jointly liable if it can be established that a clearly wrongful act committed by them contributes to the bankruptcy of the company.

PART IV - MISCELLANEOUS

A Real estate

A.1. Purchase of real estate


To draft and close a valid purchase agreement, you normally turn to an attorney and a notary public. The attorney is responsible for structuring the transaction from a legal and contractual point of view, while the notary must handle all the formalities connected with the execution of the notarial deed by way of which the property title and rights are transferred from the seller to the purchaser.

In practice, real estate purchase agreements may be executed either by private deed or by public instrument. In the former case, the lawyers of the parties draft the purchase contract and the seller and buyer sign the same before an Italian notary public, while in the latter case the contract of purchase is drafted by an Italian notary public and is signed before the notary himself.

It is customary, although not obligatory, for the seller and buyer to sign a preliminary contract known as a “contratto preliminare di compravendita” or “compromesso” which sets out essential details of the agreement, such as the purchase price, payment terms, financial sources and, most importantly, the purchase completion date.

The only obligatory contract that must in all cases be signed by both the buyer and seller in relation to the purchase of real estate in Italy is the “contratto di compravendita”. Such contract may be signed either by the parties personally or by their duly appointed representatives holding the necessary power of attorney and is usually executed before a notary public.

Upon signature of the final real estate contract, the notary public

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delivers both the seller and the buyer with a certified copy of the real estate contract. Starting from the execution date of the purchase contract, the buyer becomes the lawful owner of the real estate with respect to the seller.

The notary public is then required by law to register the original copy of the purchase contract with the Land Registry (Conservatoria dei Registri Immobiliari) and only from the date of said registration does the buyer become the lawful owner of the real estate with respect to any third parties.

As a final step, once the purchase has been completed, the seller must provide the buyer either with a certificate of habitability, in cases where the real estate in question has been purchased for residential purposes, or with a certificate confirming the purpose for which the property may be used, where the real estate has been purchased as commercial property.


A variety of fees (also called closing or completion costs) are payable when you buy a property in Italy. These vary considerably according to the purchase price, whether the property is new or old, whether the purchaser is buying via an agent or privately, and whether it has employed a lawyer or other professionals. Most property fees are based on the ‘declared’ value of a property, which is usually less than the actual purchase price or its ‘market’ value.

The fees associated with buying property in Italy may include registration tax, land registry tax, value added tax (VAT), notary’s and estate agent’s fees, and mortgage completion costs, and will range from around 9 to 15 percent for a non-resident (the average being around 13 percent), although they can be as high as 20 percent for luxury properties. Before signing a preliminary contract, it is advisable to check exactly what fees are payable and have them confirmed in writing.

However since January 2006, in respect to residential properties only, the buyer (who must not be a company) has the option of choosing to pay the above taxes on the cadastral value rather than on the actual purchase price. This allows him/her to save approximately half the previously payable costs.

• Registration Tax

Registration tax (imposta di registro) is the main tax on property and is levied at between 0 and 10 per cent of the

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declared or official value (rendita catastale). The amount payable depends on whether the property constitutes the first and only, or the second home of the purchaser, whether it is a new home and whether the purchaser is resident, as per below:

♦ Buyers of new properties do not pay registration tax but are liable to pay VAT;

♦ On his/her first home, a purchaser is eligible for a reduced tax of 3 per cent. The property must be his/her principal home for residential use and be located in his/her present or future municipality of residence (or in the municipality where s/he has or plans to have his/her main place of business) and must not be classified as a ‘luxury’ home.

♦ This concession is theoretically available once only, although this is not always the case in practice.

♦ The registration tax for non-residents and those buying second homes is 7 percent, so purchasers planning to become resident in Italy are advised to obtain officially Italian residency before buying a home there. Registration tax is payable on completion.

• Land Registry Tax

Land registry tax (imposta catastale) is payable on all property purchases and, as with registration tax, the amount payable depends on whether the property is a first and only home, whether it is a new home and whether the purchaser is already resident. First home resident buyers of new properties pay a fixed fee of € 168.00 whereas buyers of second homes and non-residents pay 1 percent of the declared price.

• Mortgage Fees

There are fees associated with mortgages (spese istruttoria). All lenders charge an arrangement fee for setting up a loan, usually around 1 percent of the loan amount. There is also a mortgage tax (imposta ipotecaria) of € 168.00 for resident first-home buyers, set at 1 percent for other buyers, and a fee of 0.25 percent (imposta sostitutiva) payable to the notary (notaio) for registering the charge against the property at the registry (catasto).

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Most lenders also impose an ‘administration’ fee of around 1 percent of the loan value with it being compulsory to take out insurance cover with the lender against fire, lightning strikes and gas explosions. The insurance is usually a one-off payment of 0.21 percent of the property value and valid for 20 years.

• Notary

Notary fees will also be due and will vary according to the price of the real estate declared on the purchase contract, amounting to between one and one and a half percent of the price of the real estate declared in the purchase contract, plus VAT, if applicable.

• Real Estate Agent

Furthermore, buyers making use of the services of a real estate agent will also be required to pay commission to the same, the rates of which range from one to three percent of the price of the real estate. As this rate is usually open to negotiation, buyers are recommended to agree on the relevant real estate agency rate at the very start.

23. Is there in your jurisdiction legislation that can slow down the purchase process (e.g. environmental legislation requiring preliminary soil examinations)?

No, apart from some very specific cases of minor significance

A.2. Real estate rental


Italian rental and lease contracts are regulated by Articles 1571 -1614 of the Italian Civil Code, by Law n° 392 of 07/02/1978 and Article 11 of Law 359 of 08/08/1992, as modified by Law Decree 333 of 07/11/1992, with the latter establishing minimum terms and maximum rent charges, as well as rent adjustment limitations.

The current legal provisions cover and regulate two main categories of immovable assets:

• premises used for the purpose of dwelling, and

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• premises used for purposes other than dwelling.

The minimum term for premises used for dwelling purposes is fixed at four (4) years. A landlord may only serve a disdetta - a registered letter of notice to be sent at least six months before contract expiry - to coincide with the end of the standard 4 year period.

Depending on the specific kind of lease contract entered into, the right of the landlord to terminate the contract may be subordinated to the existence of a just cause provided for by proper Italian laws governing lease agreements for dwelling purposes.

A tenant is instead always free to terminate the lease contract, provided that s/he sends the landlord a six month prior notice by registered letter with return receipt.

Failure to do so automatically renews the contract for another 4 years.

The minimum term for premises used for purposes other than dwelling is fixed at six (6) years, while lease contracts concerning hotels shall have a minimum term equal to (9) years. Also in this case, a landlord may only serve a disdetta - a registered letter of notice to be sent at least twelve (12) months before contract expiry - to coincide with the end of the standard 6 or 9 year period.

Failure to do so automatically renews the contract for another 6 or 9 years.

Tenants of properties leased for commercial use in sectors where there is contact with users or the general public, may, according to the nature of their activities, be entitled to goodwill indemnity (amounting to 18 months’ rent) should the contract be terminated by the landlord for reasons other than default, notice of termination or termination by tenant, or due to tenant insolvency.

Tenants have right of first refusal on re-renting the property once the original rental contract terminates by reason of expiration.

Should ownership of the property be transferred, the new landlord will be held to respect the first refusal rights of an existing tenant where the same carries out activities in contact with the public, is not in default with payment and has not sent notice of termination.

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25. Are there any formalities to fulfill in order to enforce lease agreements towards third parties?

All rental contracts of more than 30 days in length must be registered within 30 days of their commencement and are subject to a proportional registration tax of 2% of annual rent, with a minimum of 67.00 EUR.



Among others, activities aimed at handling, processing or disposing of waste and/or managing the water cycle of both fresh water supplies and waste water treatment, need permits and authorization.

Italy generally relies on strict environmental regulations, which are called for in national policies but are defined and implemented mostly by regional and, to an extent, provincial governments. The country has been very aggressive in using police to enforce environmental laws.


A.4. Employment:

28. Are there any specific regulations with regard to the outsourcing of employees?

• Preamble

The field of employment legislation has been the object of wide reform with the approval of Law 276/2003 known as the “Biagi Reform”. This is an extremely wide reform act that was designed to be gradually implemented, meaning that some of the institutions referred to and analyzed below may still be in the process of implementation, or subject to amendments or adjustments.

Employment legislation was further reformed with Law n. 92/2012, which introduced flexible employment contracts, modified dismissal regulations and reformed the social security and unemployment benefit system.

The most common types of employment contracts.

• Employment for an indefinite period.

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The type of relationship considered “normal” by law, and presumed to exist in the absence of a different and valid choice made by the parties, is that of an “employee for an indefinite period”. With a view to protecting the worker, this contract, which is general and residual in nature, does not require any special form, although written forms are generally used for this type of contract.

• Fixed-term employment contract.

In addition to employment for an indefinite period, the parties may opt for a fixed-term employment contract.

For the application of this type of contract, technical, production or replacement reasons must exist. On expiry of the period, the relationship ends automatically, without the need for notice or formal notification.

• Project work.

Finally, the parties may also elect to enter into a project work type of employment contract.

Project work is characterized by:

♦ collaboration: it must relate to one or more specific projects or work programs, or phases thereof;

♦ collaborator’s independence in performing work;

♦ necessary coordination with the client’s organization;

♦ irrelevance of the time taken to provide the service;

♦ the contract period is, or may be, established.

The scope of the regulations exclude in particular, commercial agents and representatives, temporary employment, intellectual professions and members of the company’s administrative and supervisory bodies.

• Aspects of civil law and social security.

On making an appointment, the employer is subject to a series of measures.

On commencing employment, insurance covering business risks must be arranged with the Istituto Nazionale Infortuni sul Lavoro [National Worker’s Compensation Institute] (INAIL) and several compulsory registers must be signed. The employee also has to be registered with the Istituto Nazionale per la Previdenza Sociale [National Social Security

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Institute] (INPS). The employer must open a social security account for the payment of contributions due for its employees and, at the time of appointment, the employer has to provide INAIL and the competent employment office with all the necessary information. In some cases, preventive measures exist.

29. Applicable legislation according to the type of employment (differences between employment by a local company or by a head office for the local branch)

In principle no differences exist with regards to the labor law and social security applicable to employees employed by the head office for a local branch or by a subsidiary.

• Labor Law

The applicable labor law in cases containing cross-border elements (a foreign employer, a foreign employee, a foreign law choice...) is mainly regulated by the Convention on the law applicable to contractual obligations signed in Rome on 19 June1980.

Parties can, under certain conditions, choose the applicable labor law, although this cannot deprive the employee of the protection given by the normally applicable law and does not, in given cases, prevent the application of the compulsory labor law of a certain third and involved country.

When no choice has been made, the law of the country where the employee usually performs the labor is applied regardless of the fact that it concerns employment by a branch (with no separate corporate personality) or by a subsidiary (with a separate corporate personality). The normally applicable law will thus be the Italian labor law.

When the law of the country where the employee usually performs labor cannot be determined, the law of the country of the establishment or branch of the employer is applied.

• Social security

The applicable social security system is in general regulated by the national law of each country.

The Italian social security law is of public order and an employee is subject to Italian social security law when employed in Italy by an employer established/settled in Italy, or when the employer is established/settled abroad

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and the employee is employed under a registered office or a permanent establishment in Italy.

In general international agreements (more specifically regulation 1408/71 - in the future to be replaced by regulation 883/2004), applicable to Italy and concerning social security, it is stipulated that the employee is subject to the law of the country s/he works in, even when the employee lives in a different country or when the employer or the registered office is established in another country.

An important exception however exists in the case of the posting (“detachering”) of an employee who usually works in one country, to another country for a temporary period of a maximum of 12 months. This employee is, under certain conditions, allowed to remain subject to the social security of the original country of labor.


An employer should always have a valid reason for withdrawing from the employment contract, as in the absence of such its withdrawal will be invalid. Free withdrawal may occur in marginal cases. Individual dismissal may take place for subjective reasons connected with the conduct of the employee, or objective situations, irrespective of whether or not s/he is at fault. Collective dismissal may depend solely on causes relating to the company, such as resizing or transformation of the business activities for economic or organizational reasons, and is subject to special trade union procedures. In all cases of termination of employment, the worker is entitled to severance pay (T.F.R.).

* *

*

MEXICO

Mexico

I. Direct salesCompanies intending to carry out direct sales of their product in Mexico must understand and comply with a number of requirements:

A NOMs (Official Mexican Standards)Certain products, processes, services, emblems, and methods, imported, sold, used, or rendered in Mexico, must comply with technical standards, issued by the Ministry involved (depending upon the industry), in coordination by the Ministry of Economy, describing their characteristics or specifications. These standards are known by their Spanish acronym as NOMs.

According to Mexican law, NOMs need to be reviewed, and if necessary, be modified every five years. This procedure of modification makes the NOMs dynamic, and importers and domestic manufacturers shall be aware of constant specifications changes.

In the absence of a standard for a certain imported or domestic product, such product must include, before its commercialization, a label containing the NOM specifications regarding general product labeling.

The meeting of the standards contained in some NOMs must be verified and certified by the corresponding authorities, or by an authorized certifying entity. A product subject to compliance with standards must carry a statement affirming such compliance.

B HealthMexico has many legal provisions prescribing sanitary measures designed to promote and preserve the health of its citizens. Only those that are likely to be of interest to businessmen or their counsel planning to enter the Mexican market are referred to herein.

Sanitary controls include the verification and application of safety measures or sanctions to manufacturers and sellers of certain products. The Health Law regulates sanitary controls of national and imported products, such as food, alcoholic or non-alcoholic beverages, perfumes, cosmetics, tobacco, pesticides, fertilizers, and hazardous or toxic substances used in the manufacture of those products. The Health Law also regulates certain health products such as medical, dental and surgical equipment, prosthesis, and hygiene and healing products. The manner in which the law defines these products is discussed herein.

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The manufacturing process and specifications that must be complied with by some of the products are described in technical standards NOMs. The Health Law and the Mexican Pharmacopoeia Book regulate medicines and their preparation.

First-time imports of food, alcoholic and non-alcoholic beverages, perfumes, cosmetics products, and tobacco, as well as materials used in the manufacture of those products, are subject to sampling and analysis by certified laboratories in order to determine compliance with NOMs standards. Certain products contained in a listing published in the Official Federal Gazette, may require import permits granted by Health Authorities, depending upon the risks they pose to human health.

The import and export of drugs and psychotropic substances is subject to authorization from Health Authorities, which may be granted to pharmacies, or to authorized manufacturers of medicines. Import permits for health products and medicines are needed for certain products as established by the health authorities. Those products are published in the Official Federal Gazette. Importation of fertilizers, pesticides, and toxic substance is also subject to authorization.

C LabelingThe Ministry of Economy has issued several regulations requiring precise commercial information on the packaging or labeling of products to be sold. The information required varies depending on the product, but in most cases, it refers to its content, net weight, ingredients, safety measures and instructions of use from the manufacturer.

Imported products must include a label in Spanish containing the specifications of a particular Official Mexican Standard (NOM) depending on the product.

D General import systemMexico’s import classification system is based in the “Harmonized System for Merchandise Classification and Codification,” making its import classification system compatible with that of most industrialized countries.

Moreover, Mexico has adopted WTO-approved valuation rules that enable the foreign supplier to determine the “normal price levels” for goods shipped to its Mexican importer.

Some importers, such as importers of chemicals, such as precursors or chemical reactors, firearms, among others must register in a Sectorial Importers Registry of the Ministry of Finance.

1. Shipping documentation

An import declaration is always required and must be completed by a customs

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broker or forwarding agent. Other shipping documentation includes the commercial invoice, bill of lading or airway, and when appropriate, a certificate of origin, or documents proving compliance with regulations, restrictions, and official Mexican standards. They may also include a certificate of origin of the goods, if the goods are imported from a country with which Mexico has a trade agreement.

If goods are shipped by sea, the ocean carrier must issue a bill of lading to the shipper.

This bill of lading is a title representing the goods, the contract of carriage and a receipt for the goods on board the vessel. The ocean carrier or operator issuing the bill of lading will be responsible for the merchandise from the moment received until delivered to the consignee. The ocean carrier or operator may limit its responsibility in the event of loss or damage to the goods up to an amount determined by the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading, as amended by the Brussels Protocols of 1968 and 1979 (The Hague-Visby Rules). If the value of the goods was not declared by the carrier or operator and inserted into the bill of lading, his liability would be limited to the equivalent of 666.67 units of account per package or unit, or units of account per kilo of gross weight of the goods lost or damaged, whichever is the higher. The units of account are the Special Drawing Rights (SDRs) of the International Monetary Fund.

If the goods are shipped by air, the carrier must issue an airbill to the shipper upon receipt of the goods. The carrier will be responsible for the goods from the moment received until delivery to the consignee. In the event of loss or damage to the cargo, when the value of the shipment is not declared, the liability of the carrier would be limited to an amount equivalent to ten times the minimum general daily wage in Mexico City, per gross kilogram. The carrier will be liable for the total value of the goods, even in the event of force majeure, when the shipper declares the total value and pays an additional charge to the carrier equivalent to the cost of the insurance premium.

2. Broker requirement

Mexico requires the use of a customs broker to withdraw merchandise from the customs house when the total value of the shipment is more than US$1,000.00.

E Taxation of direct sales

1. Income tax

In most cases, direct sales originating outside Mexico are not taxable in Mexico; especially when orders are accepted outside Mexico, and merchandise is

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delivered and accepted FOB outside Mexico. The activities of an individual or legal entity acting in the name or on behalf of a foreign seller, however, may result in the non-resident incurring tax obligations in a taxable transaction as a “permanent establishment”.

Non-residents that have merchandise in Mexico on a consignment basis for sale are considered to have a “permanent establishment” for tax purposes.

Under the tax depot customs regime, goods can be delivered to one of many bonded warehouses found in most Mexican cities. Under this regime, import duties, taxes, and compensatory duties, are calculated, but not paid until the purchaser actually withdraws the goods from the warehouse. Having goods in such a bonded warehouse is not considered as having a “permanent establishment”.

Delivery from a warehouse within Mexico will mean that the seller may be deemed to have a permanent establishment, and in such case, would be subject to Mexican income tax on profit earned on the sale. However, tax treaties may allow delivery to be made locally without triggering the concept of a permanent establishment.

2. Value added tax

VAT is imposed on most imported goods at a rate of 16 percent payable by the purchaser.

F Transfer pricingMexico introduced a new system for the valuation of goods for customs purposes (consistent with the WTO Code), to simplify the determination of the basis for imposition of import duties. Importers of goods must use this system in order to establish the taxable basis upon which the import duty (ad valorem) will be applied.

The Ministry of Finance is presumptively authorized to determine the price at which taxpayers acquire or sell goods, as well as the amount of consideration for other types of operations, as mentioned in the Income Tax Law. For example, when the price of the corresponding operation is lower than market value, or the acquisition cost is higher than said price, or when the sale of goods in import and export operations is at cost, or less than cost, or whenever a payment abroad is made.

By determining the price, the Ministry of Finance may modify tax profit or loss in operations entered into by and between related individuals, companies, residents in Mexico or abroad, and permanent establishments, in the event that the taxpayer did not comply with the requirements specified in the law.

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G The Vienna conventionThe United Nations Convention for the International Sale of Goods (Vienna Convention) has been in force in Mexico since January 1, 1989. Its objective is to establish a standardized system for international sales agreements, which is applied in lieu of national commercial legislation, thus facilitating commercial operations relating to tangible goods in a world moving towards the globalization of commerce.

Because Mexico is signatory to this Convention, it applies to any international sale of goods, unless the parties expressly waive application of such Convention, or any part thereof. Should the Convention be applicable, Mexican commercial legislation applies only in a supplementary manner.

The Convention itself establishes the application of Mexican legislation with regard to the following issues:

1. Validity of contracts, or any of its provisions;

2. Acquisition of title to merchandise;

3. Extra-contractual liability (e.g. injury) arising from the nature of merchandise;

4. Interest paid over due amounts; and

5. Any other matter not covered in the Convention.

The Convention excludes the following types of purchase and sale operations:

1. Sale to final users or consumers;

2. Bids, judicial sales or auctions;

3. Transfer or sale of money or securities;

4. Ships and aircraft;

5. Electricity;

6. Requirement contracts; and

7. Services.

Although Mexican commercial law in general has not formally adopted the use of the International Chamber of Commerce’s “Incoterms” (International Commercial Terms) which are commonly used in international transactions, the new Navigation and Maritime Commerce Law contains provisions related to customs, inspections and packing obligations that make an express reference to the Incoterms. The Incoterm specified in an order, contract, or invoice (FOB, CIF, etc.) will determine the seller’s obligations in each transaction (the place of delivery, risk of goods in transit), and the costs which must be borne by each party (insurance, freight, import, or export duties).

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H Trade disputesMexico’s entrance to the GATT in 1986 was followed by the adoption of several Codes of Conduct, which formed the basis for the 1994 Foreign Trade Law, which is supplemented by the Regulation to the Foreign Trade Law. As a member of the World Trade Organization (WTO) Mexico is party to the Agreement on the Application of Article VI of the General Agreement on Tariffs and Trade of 1994.

In addition, as a member of NAFTA, the provisions under chapter XIX (Dispute Settlement in Antidumping and Countervailing Duty Matters) of the agreement are also applicable to Mexico.

1. Unfair practices of international trade

Pursuant to the instruments mentioned above, the Mexican legal definition of unfair practices of international trade includes discriminatory pricing, and foreign government subsidies, that cause or threaten injury to national production.

To offset the effects of the importation of goods under unfair practices of international trade, the law establishes the imposition of antidumping or countervailing duties that may only be imposed if there is a price discrimination practice or a subsidy, injury, or threat of injury, and a cause-effect relationship between them.

II. Securing transactionsMany types of security measures are available in Mexico to foreign or local lenders, and may be granted as either rights in-rem or rights in-personam. The following are some of the most prominent types of guarantees:

A Mortgages/LiensThe most widely used security device in Mexico is the mortgage. Mortgages may be established on real estate, vessels, aircraft, or on complete production (industrial) facilities.

1. Real estate mortgages

Real estate mortgages are in-rem guarantees that are created on specifically determined property, and give the creditor, in the event of default, the right to be paid out of the proceeds of a foreclosure proceeding.

Mortgages are regulated by the Civil Code of the State where the mortgaged property is located, and may be created by agreements between the parties, by voluntary unilateral acts, or pursuant to a legal disposition.

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The mortgage lien extends to the natural accessions of the mortgaged property, any improvements and fixtures made by the owner, the movable objects permanently attached to the property which cannot be separated therefrom without damaging the property, new buildings constructed by the owner of the mortgaged land, and to additions to the mortgaged buildings.

For a mortgage to be effective against third parties, it must be registered in the Public Registry of Property of the location of the property. The mortgage lien takes priority over all others except previously registered liens.

In an event of default under a mortgage, the mortgagee may foreclose and enforce, through a judicial proceeding, the sale of the mortgaged property. The mortgagee may bid in the corresponding public auction. Once the sale takes place, the mortgagee may have access to the proceeds. If the proceeds are insufficient to cover the amounts owed a deficiency, judgment will be rendered.

2. Maritime mortgages

The Navigation and Maritime Commerce Law provides that mortgages may be placed on any vessel, whether constructed or in the process of construction, and must be recorded at the Mexican Shipping Registry to be effective against third parties.

Maritime liens on the vessel have priority over a vessel mortgage. The mortgage created on a vessel will have preference over any maritime lien on the vessel, after the following priorities: (i) wages and amounts owed to the crew; (ii) credits derived from indemnities by death or injuries at sea, or on land and in direct relationship with the operation of the vessel; (iii) rewards for the salvage of a vessel; (iv) fees for the use of port infrastructure, navigational aids, and pilotage; (v) compensation due for damages or losses caused by oil pollution or by the toxic, explosive, or radioactive properties of nuclear fuel, or radioactive waste or products; and (vi) credits derived for the indemnities for extra -contractual claims for loss, or material damages caused by the operation of the vessel, excluding loss or damage to the cargo, the containers, or passengers’ effects aboard the vessel.

The priority of a vessel mortgage over other vessel mortgages is determined by the date of registration. Prior mortgages have priority over subsequent mortgages.

3. Mortgages/Liens on aircrafts

Mortgages may be established over aircrafts, real estate, and chattels of an air transport company. Mortgages on aircrafts that are used in public air transportation service have to be recorded in the Mexican Aeronautic Registry.

Aircraft equipment, such as engines, spare parts, and instruments, may be

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given in pledge. Constructive delivery is recognized. Mortgages and pledges must be recorded in the Mexican Aeronautical Registry. Mortgages on aircrafts have preference, except for tax and maintenance credits.

4. Complete production facilities (industrial) mortgages

Industrial mortgages are created in favor of Mexican credit institutions over the complete industrial, agricultural, ranching, or service units of the mortgagor, and include all assets, movable and immovable, that are used for exploitation of said unit. This mortgage includes any concession or permission granted, as well as moneys and credits in favor of the mortgagor.

The mortgagor retains possession of the mortgaged assets and continues to use and exploit the industrial unit. The mortgagee must consent to a sale of any of the mortgaged assets, or to any merger, except when made or replaced within the scope of its normal operations, unless otherwise agreed.

The mortgage must be recorded in the Public Registry of Property to produce effects against third parties.

5. Chattel mortgages

Chattel mortgages are not commonly used as a security measure; more often, a pledge is used for chattels.

B PledgesThere are three kinds of pledges under Mexican legislation: the commercial pledge, the commercial pledge without transmission of possession, and the civil pledge.

The Law of Negotiable Instruments and Credit Transactions defines and regulates commercial pledges with and without possession. A commercial pledge exists when the subject matter of the pledge falls into the definition of commercial, as stated in article 75 of the Commerce Code, or if a party to the pledge is a businessman or engages in commerce, or is a company, as per articles 3 and 4 of the Code. All other pledges are considered civil and therefore, are regulated by the Civil Code.

Although commercial pledges, pledges without transmission of possession, and civil pledges are similar in many aspects, they have different means of creation and perfection.

1. Commercial pledges

A commercial pledge is constituted by any of the following: (i) the delivery to the creditor of the goods or negotiable instruments; (ii) in the case of

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nominative instruments, by endorsement of the negotiable instruments in favor of the creditor, and in the case of instruments subject to registration, by endorsement and the corresponding notation in the registry; (iii) in the case of non-negotiable instruments, by delivery of the instrument or the document representing the credit to the creditor, and by recording the lien in the applicable registry or by notification to the debtor; (iv) the deposit of the goods or bearer instruments at disposal of the creditor, along with a third party designated by the parties; (v) the deposit of the goods at disposal of the creditor in places to which the creditor has keys, even though such places are owned by or located within the establishment of the debtor; (vi) the delivery or endorsement of the instrument representing the goods that are object of the contract, or by the issue or endorsement of a pledge bond relative thereto; (vii) the registration of the contract for the equipment or operating credit in the manner set forth in the Law; and (viii) compliance with the requisites set forth in the Law of Negotiable Instruments and Credit Transactions with respect to account receivables (book credits).

Pledges of fungible goods continue to be effective even when the original goods are substituted by goods of the same type. Although constructive delivery of pledged goods is not recognized for commercial pledges, there are a number of cases where the pledged goods may be placed with a third party or under the joint control of the debtor and the creditor. These pledges produce effects against third parties upon registration of the corresponding pledge in the Public Registry of Commerce of the location where the pledged goods or instruments are to be kept.

If the value of the assets given in the pledge drops below an amount that is not sufficient to cover the original obligation plus 20 percent, and if the debtor does not provide sufficient funds to liquidate the debt represented by the credit instruments, the creditor may petition the court to authorize the sale of the collateral upon maturity of the principal obligation.

The creditor may not become owner of the property given in the pledge without the express written consent of the debtor given after the creation of the pledge.

a) Warehousing

Goods may be granted in the pledge through a deposit of those goods in an authorized general deposit warehouse. After deposit is made, a deposit certificate is issued by the warehouse certifying ownership, along with a pledge bond, evidencing the creation of a pledge on the goods placed in the warehouse. Warehoused goods may only be released by the warehouse to the holder of both the deposit certificate and the pledge bond.

A person holding a deposit certificate retains dominion over the

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goods deposited in the warehouse. However, such goods may not be removed without payment of all amounts due to the warehouse and deposit of the amount covered by the respective pledge. The holder of the warehouse receipt will have rights in the pledged goods superior to those of judgment creditors, and without a court order to the contrary, superior rights in the proceeds of such goods, whether in the form of sale proceeds or insurance proceeds as a result of damage or destruction. A person holding a pledge bond may request that the warehouse sell the goods deposited in order to collect its credit after maturity.

b) Confidential warehouse receipts

This type of security, although not established by the law, provides a simplified method for security arrangements in practice. The confidential warehouse receipt is a personal note from a warehouse that, when issued with a pledge bond, is accepted by many banks as collateral for commercial financing purposes. This receipt allows for the financing of goods kept in warehouses, without the need of a federal warehouse license, thus avoiding the stringent requirements of the law governing warehousing, in which the risks seem to be outweighed by the practical advantages.

c) Equipment-operating and financing credits

Since a commercial pledge requires the pledgor to forfeit possession of the assets given in pledge, alternative methods are available that allow the debtor to retain possession of the collateral. Such methods include the equipment-operating credit agreement (crédito refaccionario) and the financing credit agreement (crédito de habilitación o avío).

The assets underlying these credit agreements are also subject to the summary foreclosure proceedings provided in the Commerce Code. Both liens continue attached to the equipment or raw materials for which the credi ts were granted and/or from which the finished products were produced.

These credits may only be used for the precise acquisitions stipulated in the financing agreement. The creditor should verify the proper use of the credit or risk loss of the lien. Improper use of the credits by the debtor constitutes default and the creditor may rescind the agreement or demand immediate payment, and in either case, can claim damages.

Both credits are generally granted by the opening of a credit line against which the debtor may draw. The agreements must be in

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writing and recorded in the Public Registry of Property when the security is on real property, and in the Public Registry of Commerce when the security is on personal property. The agreement must establish the duration and purpose of the loan, the use of the funds, and a precise description of the collateral. The primary obligation of the borrower in both cases might be evidenced by one or more promissory notes.

i) Equipment-operating loan

The collateral related to this loan (crédito refaccionario) must be used for the acquisition of any of the following: tools, instruments, farming equipment, fertilizer, cattle or breeding stock, the development of farms and raising of crops (whether seasonal or permanent), the preparation or developing of land or farming, the purchase or installation of machinery and equipment, and the construction necessary for the business of the debtor. The proceeds of the loan may also be used to pay for operating expenses, the acquisition cost of real and personal property, and taxes incurred therewith, provided that the debts were incurred in the year preceding the date of the credit agreement.

These operating credits are secured simultaneously or separately with real property, improvements, fixtures, machinery and equipment, and in general, all that is acquired or improved by the use of the proceeds of the credit, even future products.

ii) Financing loans

This type of security agreement (crédito de habilitación o avío) is used for the financing of the direct and immediate production costs of a business. Financing credits are granted for the acquisition of raw materials or for the payment of wages, salaries, and other direct expenses required for the operation of the business. The financing credits are secured by raw materials acquired with the proceeds of the credit, as well as by the products resulting therefrom.

2. Pledge without transmission of possession

The pledge without transmission of possession is an in-rem right concerning movable property or rights that guarantee the fulfillment of an obligation while enabling the debtor to maintain the material possession of the pledged property. This kind of in -rem right allows the debtor to use the assets for

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his commercial activities even if they are pledged in favor of a creditor. The pledged goods may be combined with other property, and even sold by the debtor within the usual course of his predominant commercial activities.

The agreement containing the pledge of any movable asset without transmission of its possession has to be ratified before a Public Notary. The pledge must be recorded in the Public Registry to produce effects against third parties.

The rules of the commercial pledge are additionally applicable to the pledge without transmission of possession.

3. Civil pledges

The Civil Code defines a civil pledge as a property right over chattels for the purpose of guaranteeing the performance of an obligation and its priority in payments. Nearly every chattel may be given in pledge and must be evidenced in a written agreement, and is perfected by actual or constructive delivery. In the 1atter case, the pledge must be recorded in the Public Registry of Property.

In the event of default by the debtor, the creditor may demand, and the judge shall order, the sale of the pledged collateral at a public auction. If the collateral cannot be sold at a public auction, it may be transferred to the creditor for two-thirds of the legally required minimum bid. The debtor may agree after default that the creditor may retain the collateral in satisfaction of all or a portion of the debt, or that the pledged item may be sold extrajudicially.

Priorities among competing mortgages and pledges of constructively-delivered property are determined by the recording date, and by the transaction date for pledges actually delivered.

C GuarantyThe guaranty is the simplest form of security in Mexican Law and takes two forms: the bond (“fianza”) or the unconditional guarantee (“aval”).

1. Bond

A bond is an agreement accessory to a principal contract between the creditor and the debtor whereby the guarantor assumes the debtor’s obligation in the event of default. A bond may not exist without the existence of a valid obligation.

Bonds may be granted by an individual, a legal entity, or a bonding company. However, a company may not guarantee obligations of third parties unless provision is made in its corporate object clause.

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A guarantor under a bond may not be called upon to meet his obligations until the creditor has first exhausted his rights of action against the debtor and his assets; however, this benefit may be expressly waived. Bonds are mainly used both in judicial proceeding and in administrative contracts.

2. Unconditional guarantee endorsement

This endorsement guarantees payment of specific obligations is evidenced by a negotiable instrument and is regulated by the Law of Negotiable Instruments and Credit Transactions. The obligation appears on the face of the instrument it guarantees. The unconditional guarantee is deemed to guarantee the entire amount of the instrument interest included, unless otherwise established therein.

The grantor of the unconditional guarantee endorsement (aval) is jointly and severally liable for the debt, even if the principal debt is cancelled, to tally or partially, due to a defect. The creditor may not institute an action against the debtor or exhaust remedies against him.

The holder of a negotiable instrument is entitled to a summary “executory commercial action” against the issuer or the guarantor, attaching assets simultaneously with initiation of the action of collection. For this unconditional guarantee to be effective, the use of the words “por aval” above the signature is sufficient.

3. Joint and several liability

It is a usual legal practice in agreements that a third party voluntarily and expressly becomes jointly and severally responsible with the debtor for the payment of a debt.

D Conditional sales-reservation of titleSeller may reserve title to the goods sold until complete payment by purchaser of the purchase price. If the goods sold consist of real estate or movable goods which can be identified, the clause containing the reservation of title shall be recorded in the Public Registry of Property in order to produce effects before third parties.

Should movable goods cannot be identified, the parties may also include in their agreement a clause stating that the sale will be rescinded in the event of lack of payment of the purchase price. However, this clause will not produce effects before a third party who purchased the goods in good faith.

When the seller rescinds and repossesses the goods upon judicial order, payments received must be returned to buyer less depreciation and fair rental.

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Provided that recordation in the Public Registry of Property takes place, and in the event of bankruptcy of purchaser, the seller may request the judge to separate the goods sold, which have not been paid for, from the assets of the bankruptcy proceeding.

E TrustsAlthough trusts are widely used for many different purposes and in a wide variety of transactions (such as to manage assets, to transfer properties, to invest in shares and other securities and to create a business concern), trusts may be used as a vehicle to guarantee debts when the security involves a substantial amount of property.

A trust is created through an agreement between the grantor or grantors, and the trustee must be a Mexican Financial institution, such a bank or brokerage. A beneficiary or beneficiaries are also named, and are entitled to the benefits of the trust agreement. Grantors may also be designated as beneficiaries.

The trustee will perform its duties through its agents which may accomplish the purposes of the trust by instructions from a technical committee designated by the grantors. Property and rights of any type may be placed in trust. Those trusts affecting real property must be recorded at the Public Registry of Property of the location in which the real property is located.

F Guarantee trustThis kind of trust especially designed as an instrument to serve as guarantee for any sort of debt.

Only Mexican credit institutions, insurance and bonding companies, brokerage and warehouses, and special purpose financial entities, may act as trustees. Guarantee trusts may be used to guarantee several simultaneous or successive obligations, even if they are in favor of different creditors. The parties to the trust may agree that the grantor may use movable assets affected by the trust, combine them with other goods, or instruct the trustee to sell them within the usual course of the activities of the grantor.

G Letters of creditLetters of credit are instruments used, among other things, to secure payment in the sale of goods. Letters of credit allow the seller of merchandise to be paid by a bank or its agent upon instructions from the purchaser, or upon presentation of certain documents such as invoices or bills of lading by the seller. The bank or its agent will pay the seller with funds from a line of credit extended to the purchaser. Stand-by letters of credit have become a frequent instrument in Mexico.

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H LeasesLease agreements may be structured in certain cases to be, in effect, security arrangements.

1. Lease with purchase option

These are governed by the general rules contained in the civil codes for each State or the Federal District. A lease agreement may grant the lessee an option to purchase the leased merchandise either during the lease term or the expiration thereof. The purchase price and payment conditions may be determined in the lease agreement.

The local civil codes usually require registration at the Property Public Registry of real estate leases of a certain term in order to be effective before third parties.

III. Government procurement

A Awarding contractsAs a general rule, contracts are awarded through a public bidding procedure. Any party that satisfies the solicitation documents may submit a proposal duly signed during the event for the delivery and opening of proposals or submit it by postal service, courier or electronic means.

The bid must include both a technical and economic proposal, incorporating guarantees, depending upon the nature of the project. Bids are first evaluated to ensure that all requirements are met, and any bid not satisfying the legal, technical and economic requirements, including effective guarantees, outlined in the invitation to bid, is subject to disqualification.

After a detailed examination of both technical and economic proposals, the contract will be awarded to that bidder who satisfies the technical, legal and economic conditions required by the procuring entity, and satisfactorily guarantees compliance of the respective obligations. However, when two or more bidders are eligible, the contract will be granted to the cheapest bidder. In public procurement procedures related to acquisitions, leases and services, procuring entities may also award the contract to the best evaluated bidder in terms of points, percentage or cost/benefit criteria, which have to be previously set forth in the solicitation documents.

Contracts must be executed within 20 calendar days after the notice of the award. Otherwise, the contract may be awarded to the second best bidder. Additionally, the winning supplier or contractor shall grant a performance bond to assure compliance with the contractual obligations.

The laws also permit government agencies and entities to conclude restricted

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bidding under certain conditions. In which case, invitations must be extended to at least three prospective suppliers or contractors. Additionally, the laws articulate requirements for the use of restricted bidding. For example, restricted bidding is permitted when the contract can only be executed with a determined individual, since he is the holder of certain patent or trademark rights, or other exclusive rights.

If the entity or agency concludes that restricted bidding is not suitable, it may opt to award the contract directly through a single-source procurement procedure.

B Foreign participationMexican law distinguishes between national and international bids. The bidding procedure is considered to be national when, only Mexican nationals are permitted to participate. Under the Law of Acquisitions, the assets to be acquired through a national procurement procedure must have been produced in the country and contain at least fifty percent of national content.

On the other hand, the bidding procedure, is considered to be international when the contract may be awarded to either Mexican or foreign nationals.

International bidding procedures may be carried out only in the following cases:

1. Where it is obligated pursuant to a treaty;

2. Where the relevant entity or agency determines, after a market investigation, that the quantity or quality of national suppliers is not adequate, or that national contractors do not have the capacity to perform the work contemplated;

3. Where the contract cannot be awarded, because no bids were tendered, or the bids did not meet minimum requirements set forth under the bidding terms; or

4. Where required as a condition for the granting of foreign credits to the federal government, or its guarantor.

However, the applicable laws expressly give government entities and agencies the right to deny the participation of suppliers or contractors in any international tender, if they are nationals of nations with which Mexico has no international treaty, or in the case of nations in which reciprocal treatment is not provided to Mexican suppliers or contractors, or to Mexican products and services. Thus, nations that have entered into trade agreements with Mexico may hold a distinct advantage in obtaining government procurement contracts.

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C Projects for the Provision of Services (PPS)In the last years, the Federal Government has encouraged sche mes of public-private investment inspired by the UK’s Public Private Partnerships (PPP). In Mexico these schemes that allow the financing of public services by the private sector are known as Projects for the Provision of Services (PPS).

A PPS is implemented through a long term service contract, which is awarded after a public bidding procedure in order to ensure best value for money. The services hired under a PPS contract must improve the services that would have otherwise been provided by a public entity and must be delivered to the entity’s budget. The high quality services must be rendered with assets supplied by the private investor under the terms and conditions stipulated in the long term contract.

In the most complex cases, the supplier may be in charge of the design, financing, construction, operation, and maintenance of the assets and related services.

In its initial phase in Mexico, the PPS initiative has focused on highways, health and education. The Federal Government will continue to identify projects and sectors where important benefits can be generated by the utilization of the PPS scheme.

The applicable legislation for PPS is the Rules for the Implementation of Projects for the Provision of Services, published in the Official Federal Gazette on April 9, 2004, which are supplemented by (i) the Law of Public Acquisitions, Leases, Services, Public Works and Related Services, and its regulations; (ii) the Law of Budget, Accountancy and Federal Public Expenses, and its regulations; as well as (iii) other rules that may be applicable in light of the nature and scope of the relevant PPS contract.

IV. Representatives, distributors, franchises

A RepresentativesA foreign vendor can sell goods or services in Mexico directly through its own employees. Additionally, vendors may sell merchandise through representatives or intermediaries (who may be commission agents), through distributors, or through franchisees.

When dealing through a commission agent, the vendor should be careful in ensuring that the agent is classified as an independent contractor, and not as an employee.

Such precaution is necessary because an employee could claim a labor relationship for services in Mexico exists under Mexican law , independent of

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the nationality or residence of the employer, and thereby be entitled to the employee benefits. Furthermore, it is important to keep in mind that the Labor Law states that any person conducting sales, subject to direct supervision, is considered an employee of the person for whom he conducts the sale.

Mexican law does not regulate the amount to be paid as commission.

For tax purposes the agent’s commission will be considered as his normal income. The sale by the non-resident vendor could be subject to Mexican taxes.

B DistributorsDistributors are independent vendors who purchase and resell products for their own account.

Distributors, unlike commission agents, derive their income from the difference between the wholesale price at which they purchase, and the retail price at which they sell. On the other hand, a commission agent’s income is based on the commission received, which is usually a fixed percentage of sales. The risks of loss are suffered by the distributor upon accepting the purchase of products. Commission agents do not suffer risks of loss of products, as they act only as intermediaries.

C FranchiseesMexican law broadly defines franchises as an agreement whereby technical knowledge is transferred, or technical assistance is granted, to produce, sell goods or render services in a uniform manner, and with the same commercial, administrative and operative methods set by the owner of the trademark, with the purpose of maintaining the quality, prestige and image of the products or services therein distinguished. Franchises involve the granting of a license to use a trademark.

Since a franchise agreement implies the licensing of a trademark, a franchise has to be recorded before the Mexican Institute of Industrial Property to gain protection of the trademarks against third parties. Unless otherwise agreed, the franchisee will then be authorized to exercise all legal actions necessary to impede the illegal use of the trademark, as if he were its owner.

The parties to a franchise agreement enjoy full contractual freedom. Their respective obligations include, among others, the granting of a trademark license and technical assistance, protection of confidential information, compliance with quality and operational standards, payment of royalties, and access to the franchisor’s operating system.

Franchise agreements are not subject to government approval. In accordance with the Intellectual Property Law, franchisors must deliver to potential

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franchisees the technical, economic and financial information regarding the franchise and its system, prior to execution of the franchise agreement.

D Relevant considerationsRepresentatives, distributors, and franchisees are subject to Competition Law. It is important to avoid agreements that unfairly eliminate competitors from the market.

Either party, in accordance with the terms of the agreement, may terminate any and all agreements governing the above relationships. Mexican law does not contain specific provisions for the payment of damages or remuneration upon termination of the agreement, except as provided by the agreement

The vendor may prefer other ways to either enter the Mexican market or expand market penetration. For example, the vendor can create a subsidiary or open a branch in Mexico, instead of, or in addition to, having a representative, distributor, or franchisee. Rules are different in each case and offer the foreigner different advantages.

V. Intellectual property, LicensingThe Instituto Mexicano de la Propiedad Industrial (IMPI), is an independent government agency devoted to the registration and enforcing of intellectual property rights. The content of the law may be summarized as follows:

A PatentsA patent is a right granted to an individual or to an assignee to exclusively exploit an invention for a non-renewable twenty-year term, beginning from the date of filing of the related application.

An invention must meet the following requirements to be patentable:

1. It must be novel, and not be comprised in the state of the art, where state of the art is defined as the technical information generally available to the public through a written or oral description, through working, or through any publication in Mexico or abroad. There is no loss of novelty if an invention is exhibited nationally or internationally at a recognized industrial or trade show, of if the inventor or assignee starts using it, provided that the patent application is filed within a twelve months term counted from the date of disclosure, and the applicant provides documents about the disclosure;

2. It must be the result of an inventive activity not readily deduced from the state of the art, nor may it be evident or obvious to an expert;

3. It must be capable of industrial application, that is, it must be useful

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towards the manufacture of a product, or to be used within a process for any type of economic activity; and

4. It must be a human creation that allows the transformation of m atter or energy in a manner which may be used to satisfy a concrete need.

The following inventions are not patentable:

1. Biological processes for production or reproduction of plants or animals,

2 Biological or genetic material as found in nature,

3. Animal breeds,

4. The human body and the parts or organs thereof,

5. Vegetal varieties (These are protected by the Vegetal Variety Law),

6. Software, and

7. Business methods

Patent law incorporates the first-to-file principIe. Mexico is a party of, among others, the Paris Convention, TRIPS, the Patent Cooperation Treaty, and UPOV. Thus, the date of filing a patent application in another member country is treated as the date of filing in Mexico if the applicant claims convention priority.

There is no explicit obligation to work an invention, but the law does provide that anyone may apply to the IMPI for a compulsory license if the patent is not worked for more than three years following issuance of the patent application, or four years following the filing of the application, provided that the applicant or patentee has no valid reason for the failure to work the invention.

The IMPI may also issue emergency licenses on patented pharmaceutical products, provided that the Mexican Council of General Health acknowledges a disease as of priority attention. The IMPI sets the amount of the royalties to be paid to the patentee, and the term of the emergency license.

B Utility modelsUtility models are objects, utensils, apparatus or tools, that as a result of a modification to their arrangement, configuration, structure or form, perform a different function with respect to the parts forming them, or represent advantages with respect to the usefulness of the parts.

Utility models may be registered with the IMPI if they are absolutely new and capable of industrial application. Protection is granted for a non-renewable term of 10 years from the date of filing.

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C Industrial designsIndustrial designs include industrial drawings and industrial models. Industrial drawings are any combination of figures, lines or colors, incorporated to an industrial product as an ornament, giving it a peculiar aspect of its own. Industrial models, provided that they do not imply technical effects, are three-dimensional models that serve as molds to manufacture industrial products, and give a special appearance.

Industrial designs may be registered with the IMPI and are granted protection for a non-renewable term of 15 years if they are new, and are used as a type or mold, to make industrial products.

D Trade secretsTrade secrets, or “secretos industriales,” are defined as any information capable of industrial application, maintained in confidence, which may be useful to obtain or to maintain a competitive advantage in the performance of economic activities; the confidentiality of which, the owner has taken measures to preserve by labeling information as “confidential,” “secret,” or in another similar manner, and has executed confidentiality agreements with all the individuals and entities that have access to the confidential information. An industrial secret must necessarily relate to the nature, characteristics, or purposes of products, to production methods or processes, or to the means or forms of distribution or marketing of products, or to the rendering of services.

Information in the public domain, information which may be obvious to a technician, or information which must be publicly disclosed by law or by court order, is not considered an industrial secret.

Any confidential information shall not be deemed to be in the public domain if such information is disclosed to an authority for the purpose of obtaining permits, registries, authorizations, or similar materials.

The protected information must be set forth in documents, electronic or magnetic media, optical discs, microfilms, films or other similar instruments.

Trade secrets may be transferred or licensed to third parties. Individuals with access to industrial secrets may not reveal them without justified cause or consent from the owner or licensee. Individuals or entities hiring employees, or contracting services from competitors, with the purpose of obtaining industrial secrets, may be liable for damages. Individuals that had access to an industrial secret due their employment or professional activity, are liable for the non-authorized use or disclosure of the industrial secret, provided that they were expressly warned about the confidential nature of the information.

The only manner under which trade secrets can be enforced in Mexico is

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through the filing of criminal charges, as their disclosures is considered a Criminal Offense.

E Integrated circuitsIntegrated Circuits are protected as follows:

1. Integrated circuits are products in final or intermediate form, having at least one active element, and one or more interconnections to form an integral part of the body, the surface, or a piece of semiconductor material, destined to have an electronic function.

2. Topography or layout is the three-dimensional disposition, having at least one active element, with one or all of the interconnections of an integrated circuit for use within it.

3. Original topography or layout is the topography or layout of an integrated circuit that is the result of the creative effort of the inventor, and which is not obvious or common among creators or among manufacturers of integrated circuits at the time of invention.

Protection is afforded to the topography and/or layout of integrated circuits which are original and have not been commercially worked anywhere in the world.

There is a two-year grace period from the date of first use. Any original combination of a previously-known layout may be protected. The term of protection is 10 years from the date of filing.

The owner of a Certificate of the Topography of a n Integrated Circuit has the right to stop others from reproducing the circuit in whole, or in part, and has the right to stop the importation, sale, or distribution, without authorization.

There is no infringement if the protected topography or layout of an integrated circuit is used for:

a) Evaluation, analysis, or academic purposes, not for profit;

b) Creating a different original topography or layout;

c) A third party who, independently and prior to the publication of the registration in the Industrial Property Gazette, created an identical topography.

If a third party in good faith is importing, reproducing, distributing, or selling integrated circuits, incorporating protected topography or layouts, there will be no infringement until after the infringer is notified in writing by the owner of the certificate. The infringer may finish his supplies in stock provided that a reasonable royalty is paid to the owner of the certificate. A protected topography of integrated circuits must bear the legend “(M)” or “(T),” plus the name of the owner.

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F Trademarks and service marksA trademark is defined as a visible sign or symbol that distinguishes products or services from others of the same species or class in the marketplace. Accordingly, trademarks may be:

1. Any name or visible design, including color designs, provided that they are sufficiently distinctive to distinguish products or services from others of the same class;

2. Three dimensional forms;

3. Trade name and corporate names;

4. Individual’s names, unless there is a homonym previously registered, or there is no consent of the individual from whom the name was taken.

Some marks are non-registrable, such as:

1. Words or designs that are not sufficiently distinctive;

2. The proper, technical, or commonly-used names of products or services, as well as words which are the usual or generic designation of the products to be covered;

3. Descriptive names or designs;

4. Geographic designations, if they may mislead the consumers, or any name designating the place of manufacture of products or the rendering of services; as well as names of places known for the manufacturing of certain products;

5. Names, figures or designs that are well-known (as provided by the article 10 bis of the Paris Convention) or famous in Mexico;

6. Any name, form, or design, confusingly similar or identical to a previously registered name, trade, service mark, or design, used to cover the same products or services;

7. The translation to other languages of non-registrable words; and

8. Colors by themselves. Color designs are registrable.

Trademarks and service marks, with the exception of well known and famous marks, must be registered in order to obtain exclusive right of use.

As a general rule, registration is granted to the first applicant; however, an earlier user, in Mexico or abroad, may file a cancellation action against a registration. Trademarks may be registered for 10 renewable years from the date of filing of the application with the IMPI. Use of a trademark may not be discontinued for more than three consecutive years without justification; otherwise, the registration would be vulnerable to a cancellation action.

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Trade or service marks cover only specific goods or services within a single class of products according to the international classification provided in the Nice Arrangement. There are no multiple-class applications

G Collective trademarksLegal entities formed by producers, manufacturers, business -people, or service providers, may register collective trademarks in order to distinguish their products or services from those of non-members. A collective trademark may not be transferred to third parties, and its use is reserved for the members of the applicant entity.

H Commercial slogansCommercial slogans are phrases or legends that have the purpose of announcing businesses or commercial, industrial or service establishments to the public, to easily distinguish them from others of their kind. Commercial slogans must be registered in order to obtain exclusive right of use. Commercial slogans may be registered for up to 10 renewable years from the date of filing of the registration application.

I Trade namesThe visible names of commercial, service or industrial premises, are protected without need for registration, provided that they are used in Mexico. The protection covers the geographic zone of the effective clientele of the business using the trade name, and may be extended throughout the country if there is massive and constant diffusion of the name on a national level.

A user may apply for publication of the trade name in the Gazette of the IMPI to establish a presumption of good faith in the use of the name.

Trade names are not protected for a specific class of goods or services. The publication is valid for 10 years and may be renewed.

Trade names are becoming less common every day, and are being replaced by service marks. Unlike service marks, trade names may not be filed on intent -to-use basis, and might not provide automatic protection throughout the country.

J Appellations of originAppellations of origin are names of geographic regions used to designate a product that originates from said region, and whose qualities or characteristics stem exclusively from the region. Mexico is a party to the Lisbon Convention. The Mexican state is the owner of the appellations of origin. The use of an appellation of origin requires a license issued by the IMPI.

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K Royalty paymentsMexican law does not provide any specific rules governing minimum or maximum royalties. Tax authorities, however, have the right to adjust the taxable profit of the payer if such royalties are excessive and do not reflect “market value.”

L License agreementsTrademark and patent licenses are business agreements and parties may freely stipulate most of the provisions, including governing law, forum, arbitration, and royalties, as well as time, place, and currency of payment.

Licensees may file actions against trademark and patent infringement, unless the license contains an explicit stipulation prohibiting the licensee filing such actions. Licensees are fully valid and enforceable between the parties without recording the agreement with the IMPI

However, recordation with the IMPI is required so that the use of the licensed trademark or patent inures to the benefit of the registrant or patentee.

Only Mexican patents, patent applications, registered trademarks, trademark applications, and trade secrets, may be licensed.

M CopyrightCopyright is protected for original intellectual creations without need for registration. There are two categories of rights related to copyright:

1. Economic rights to use or reproduce the work of the author for profit.

This right is effective during the author’s lifetime and 100 years after his death. The protection of posthumous works lasts 100 years, counted from the day of first publication; and

2. Personal rights, which include recognition of authorship and opposition to any deformation, mutilation or modification made to the copyrighted work, without authorization or opposition to any action, which may decrease the value or prestige of the work, or the reputation of the author. This right is perpetual, non -transferable, non- waivable, and does not expire when an action to enforce it is not exercised.

Copyright protects the following types of works: literary, scientific, technical, legal, pedagogic, didactic, musical, pictorial, design, engraving, lithographic, sculptural, plastic, architectural, photographic, cinematic, audiovisual, radio and television, software, and on any other work which could be considered comprised within the generic types of artistic or intellectual works mentioned above.

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The author or his assignee has the right to the exclusive use of any pro tected work. Only the right to use, reproduce, distribute, broadcast and adapt a protected work may be assigned. The author’s personal rights are not assignable.

As a general rule, the assignment of rights to use or reproduce a work are not perpetual; if the parties do not provide a term in the assignment agreemen t, the law considers the assignment to be only for a period of five years. As an exception, assignments involving literary works and software are permanent.

The author has the non-assignable right to be designated as such, and to oppose any deformation, mutilation, or change of his work. These rights pass to the author’s heirs.

Copyright is protected even if it is not registered, published or disclosed.

Copyright infringement is defined as any of the following actions carried out without the consent of the author or his assignees:

1. To use a protected work;

2. To use the picture of a person;

3. To manufacture, reproduce, store, distribute, market copies of phono grams, videograms, or books protected by copyright;

4. To sell, offer for sale, store, or circulate, protected works that have been modified, adapted or deformed;

5. To import, sell, leas e, or carry on, any action to deactivate electronic protection systems of software;

6. To rebroadcast, fix, reproduce, or publish, radio broadcasts;

7. To use, reproduce, or exploit, a registered work, pseudonym or character.

Copyright infringement is punishable by fine, but if the infringement is done on a commercial scale, there may be criminal penalties as well. The IMPI is in charge of prosecuting most cases of copyright infringement.

Mexico is a party to the Universal Copyright Convention, the Interamerican Copyright Convention and the Berne Convention.

N Mexican law for the protection of new varieties of plantsNew varieties of plants are protected under a separate law, the Vegetal Variety Law. Mexico is also a party of the International Union for the Protection of New Varieties of Plants (“UPOV”):

To be protected, plants must be: (i) new; (ii) different; (iii) stable; and (iv) homogeneous.

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The term of protection is granted for:

– 25 years for perennial, forestry, fruit, ornamental plants, and grafts.

– 20 years for other species.

The owner has the right to the exclusive use of:

1. The breeding material for commercial production;

2. Marketing; and

3. Sales

Applications to register plant varieties are filed with the Ministry of Agriculture. Plant varieties will be identified by a specific name proposed by the breeder. The breeder’s rights are as follow:

1. To be acknowledged as breeder of the plant variety;

2. To prevent the use of a plant variety without authorization;

3. To license others to use the plant variety.

VI Investment frameworkConsistent with NAFTA, Mexico enacted a Foreign Investment Law (FIL), effective as of December 1993, and amended on December 1997, which abolished restrictions on foreign investment in most areas. FIL repealed several statutes that strictly regulated the participation of foreign investors in certain activities. The Foreign Investment Commission is the exclusive authority for the application of FIL.

On September 1998, new Regulations were published for the FIL and the Foreign Investment Registry to further relax requirements and filings. Lately, further amendments were published on July 2006 same that removed several restrictions to foreign investment in Mexico.

A Foreign investment lawFIL establishes, as a general rule, that foreign investors may hold 100 percent of the capital stock of any Mexican corporation or partnership, except in those few areas expressly subject to limitations under the FIL. In certain activities limited by FIL, investors from NAFTA, the European Union and EFTA countries enjoy greater access, as provided in NAFTA, MUEFTA and the Free Trade Agreement with EFTA member states (MEFTA-FTA).

1. Acquisition of existing Mexican companies

Except in certain limited cases foreign investors may acquire up to 100 percent of the shares of any company. However, a resolution from the Foreign

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Investment Commission is required when foreign investors wish to acquire more than 49 percent of the capital stock of existing Mexican companies, when the value of the involved companies’ assets exceeds the threshold fixed by the Foreign Investment Commission. Such threshold is fixed annually.

2. Real estate

The Mexican Constitution establishes a “restricted zone” (100 kilometers wide from the borders and 50 kilometers wide from the coastal shores) in which direct foreign ownership is prohibited.

However, FIL authorizes foreign participation in a Mexican company owning real estate within the restricted zone for non-residential purposes and requires only a notification to the Ministry of Foreign Affairs; if for residential purposes, title of the real estate must be held through a trust by a trustee, which must be a Mexican bank. Approval of the Ministry of Foreign Affairs is required. Long term leases of real estate are no longer prohibited.

3. Neutral investmentNeutral investment is a carryover from the 1989 Regulations to the 1993 Foreign Investment Law. FIL regulates the mechanism to allow foreigners to hold greater percentages of the capital of Mexican companies in restricted areas. Neutral investment may be done either through Mexican companies or in authorized trusts, as follows:

a) The Ministry of Economy may authorize companies to issue special series of shares with limited or no voting rights.

b) Banks acting as trustees may be authorized by the Ministry of Economy to issue instruments of neutral investment that grant holders economic and limited voting rights, with the restriction that no voting rights may be granted for ordinary shareholders or partners meetings.

c) The Foreign Investment Commission may authorize neutral investment in the capital stock of Mexican companies by international development financial companies.

VII. Free Trade Agreement between Mexico and the European Union

1 IntroductionAs a result of previous negotiations with the European Union (EU), Mexico and the EU formalized a free trade agreement known as the Mexico-European Union Free Trade Agreement (MEUFTA), which entered into force on July 1st,

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2001. Specifically, MEUFTA focuses on the trade of goods and services. The main goal of the treaty is to intensify trade and investment, and MEUFTA covers issues such as trade in goods, rules of origin, non -tariff measures, government procurement, trade in services, intellectual property, agriculture, and transportation.

The principal achievement of MEUFTA is the permanent elimination of all tariffs among the partners according to a rapid phase-out schedule. For instance, tariffs on industrial products, which account for more than 90 percent of the total bilateral trade in merchandise, will be liberalized during a seven year period of transition, with all tariffs being eliminated by January, 2007.

This goal of permanent liberalization is visible through the series of actions taken by the partners. For example, upon the enforcement of MEUFTA on July, 2000, the EU eliminated tariffs on 82 percent of the Mexican industrial products, and Mexico liberalized 48 percent of the industrial products of the EU. By January, 2003, the EU liberalized customs duties on all Mexican industrial products, and Mexico eliminated an additional 5 percent of tariffs, bringing the total to 52 percent liberalization. Furthermore, Mexico assured that the remaining 48 percent of EU industrial products would only be subject to a maximum tariff of 5 percent (currently 4 percent), with complete liberalization by January, 2007.

Despite the fact that industrial products constitute more than 90 percent of the bilaterally traded of goods, MEUFTA contemplates liberalization of other sectors as well. For instance, MEUFTA articulates that agricultural products will be liberalized gradually and progressively, so that by the year 2010, 62 percent of bilateral trade will be completely free of duties. However, key products such as sugar, dairy, beef, and grains will be excluded. Furthermore, the service markets of both parties will be progressively liberalized, with complete liberalization occurring by the 2011.

Additionally, this treaty provides EU operators with more rapid preferential treatment than Mexico has ever before granted to any of its preferential partners. It places them in a much better position to compete in the Mexican market, which is strategically important, and has significant growth potential. While preserving EU sensitivities for agriculture and fishery products, the package negotiated for these products grants market access for the EU’s most important export products. For services, EU operators have been granted better access than that previously enjoyed by Mexico’s other preferential partners, including the United States and Canada.

The treaty provides for customs cooperation, mainly by introducing one single administrative document (the “EUR. 1 “) to simplify customs procedures,

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guarantee the coordination of each party’s customs systems, and ensure the correct classification of originating products.

Several technical standards were agreed upon to protect the health of humans, animals, and plants, as well as consumers and the environment. Such technical standards also guarantee the truthfulness of the information provided for a product regarding its ingredients, net weight and volume. Requirements for the manufacture of machinery and equipment were also established. Regarding sanitary and phytosanitary standards, the treaty reserves the right of Mexico and the EU to adopt the aforesaid standards to protect the life and health of humans, animals, and plants, against risks emerging from sicknesses, plagues, pollutants, if these risks are scientifically supported.

Countermeasures may be adopted for a maximum period of three years in order to provide temporary relief to a sector that could be threatened or at serious risk due to substantial increase of the imports between Mexico and the EU.

Mexican service providers are given access to the European service market without restrictions limiting the number of operations or service providers in that territory; they are granted “national treatment,” which guarantees the same conditions as those granted to service providers established in the EU, and receive most favored nation treatment in reference to other countries.

Regarding government procurement, the treaty includes a clear definition of what are considered governmental entities of the parties. Procurement, for purposes of the treaty, includes the purchase of goods, services (such as construction services), and the lease or rental of goods. Pursuant to the treaty, each party must provide the same national treatment to the products, services and suppliers; that is, they must receive the same treatment as that accorded to domestic products, services and suppliers. Discrimination on the basis of foreign nationality or affiliation (or ownership of a locally established supplier) by the purchasing governmental entities is not allowed.

Economic competition is promoted and monopolistic practices will be investigated and punished. Other measures may be adopted in conformity with domestic law against non - competitive commercial practices.

Obligations concerning intellectual property are established in accordance with the laws of each party to the Treaty regarding the acquisition, conservation, and enforcement of intellectual property rights.

A mechanism for commercial consulting and dispute resolution is established, through which the dispute resolution mechanism provided for the WTO can be appealed.

Upon entering into a free trade agreement with the EU, Mexico became

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the only nation with free trade agreements with both the United States and the European Union. This system of liberalized trade with two of the largest economic blocks in the world, places Mexico in a unique situation to act as a location of investment and development. For example, through NAFTA, United States companies can set up Mexican corporations engaged in manufacture in Mexico, and as long as their products comply with MEUFTA’s rules of origin, their final products enjoy access to the European market on a tariff privileged basis. On the other hand, corporations within the EU can undergo a similar process, and enter United States markets through Mexico. Therefore, not only does Mexico’s free trade agreement with the EU stimulate Mexico’s economy by liberalizing trade, but it also establishes Mexico as a gateway between the United States and the European Union, creating investment and growth within Mexico, and providing unparalleled trade and investment opportunities for both European and ad U.S. companies.

2 Principal objectives of MEUFTAThe objective of MEUFTA is to allow preferential access for EU and Mexican exporters of goods and services into their respective markets. To achieve this, MEUFTA provides for the following:

1) Liberalization of trade in goods and services by:

a. The dismantling of customs tariffs, and

b. The elimination of all import and export restrictions, other than customs dutiesand taxes;

2) Removal of barriers to investment;

3) Guaranteeing equal treatment for the investors of the other party, as granted to their own domestic investors;

4) Ensuring that investment will not be coerced by restrictive government policies;

5) Protection of intellectual property;

6) Guaranteed access to government procurement contracts;

7) Co-operation in competition issues;

8) A dispute solving mechanism.

Overall, MEUFTA fosters the confidence required to make long-term investments and partnering commitments by investors of both parties. With the implementation of MEUFTA, Mexico secures access for its industrial products into the EU market, while the EU re - establishes the competitiveness of the EU exports to Mexico, securing access to Mexican market under the same benefits enjoyed by NAFTA originating products.

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3 Trade in goodsThe most basic achievement of MEUFTA is the permanent elimination of all tariffs among the partners according to a rapid phase-out schedule. Only the most sensitive products are subject to a long phase-out.

a) Industrial products

Industrial products account for more than 90 percent of the total bilateral trade in merchandise. In this case, the liberalization covers the entire range of products and is implemented progressively over a transitional period of 7 years. All tariffs were eliminated in January, 2007.

On July 1, 2000 , the EU eliminated tariffs on 82 percent of Mexican industrial products. Similarly, Mexico liberalized tariffs on 48 percent of the EU industrial products, and eliminated the 1999 tariff increases on EU footwear and certain textile products (dismantling from 25 percent-35 percent to 10 percent-15 percent).

On January 2003, the EU liberalized customs duties on all Mexican industrial products, and Mexico eliminated tariffs on an additional 5 percent of EU industrial products, to total 53 percent of the same. Furthermore, Mexico ensured that the remaining 47 percent of the EU industrial products were subject to a maximum tariff of 5 percent, which has since decreased to 4 percent.

b) Automotive sector

EU exporters are not required to have a manufacturing facility in Mexico to be able to sell vehicles in Mexico. The importation of new vehicles from the EU is restricted by import quota limitations.

On January 1, 2007, all restrictions and duties on the importation of new vehicles from the EU were eliminated. Furthermore, the agreement envisages very favorable access for the main EU auto parts and components.

c) Customs co-operation

MEUFTA introduces one single administrative document called EUR.1, in order to simplify the classification of the originating status of the products, as well as the inspections and customs procedures in the carriage of goods. The EUR.1 is similar to the Certificate of Origin implemented by NAFTA.

d) Agricultural products

Agricultural products were progressively liberalized, reaching 62% by 2007. Key products such as sugar, dairy, beef and grains will continue to be excluded.

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In the agricultural sector, both the EU and Mexico obtained favorable market access conditions for several of their key export products. For instance:

1) The EU obtained the progressive and total liberalization of wines, beer, liquors and spirits (vodka, cognac, certain whisky and gin), cut flowers, tomatoes, pectic substances, tobacco, and olive oil;

2) Mexico obtained the elimination of tariffs on coffee, tropical fruit and vegetables, and preferential contingents for concentrated orange juice, avocados, honey, and cut flowers;

3) Since 2003, 37.9 percent of EU agricultural products are free of duties, with two more tariff liberalizations in 2008 and 2010, up to 49.55 percent;

4) For the Mexican agricultural products, in January 2003, 68.2 percent of agricultural products were liberalized, with two additional tariff elimina tions by 2008 and 2010, to total 74.14 percent.

e) Fishing sector

The fishing sector is gradually liberalized with respect to more than 99 percent of the current volume of bilateral trade. From 2003, Mexico liberated 71 percent of the EU fishing products, while the EU eliminated tariffs on 88 percent of Mexican products.

f) Safeguards

Safeguards may be adopted in order to provide temporal relief to a sector that may be facing serious damages because of substantial increases in the imports between Mexico and the EU.

g) Government purchases

EU and Mexican investors have access to public contracts for all products, services, and suppliers, based on the same national treatment as accorded to domestic products, services, and suppliers, provided that the value exceeds certain established thresholds. MEUFTA provides for clear rules guaranteeing the transparency of the process.

EU operators will have guaranteed access to Mexico’s lucrative markets on the best terms substantially similar to NAFTA. Access to markets at federal government level includes most government enterprises and key sectors such as petrochemical (Pemex), dredging, construction, and IT.

Mexican investors receive the same benefits that the EU awards to its partners in the framework of the WTO public contracting agreement.

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h) Intellectual property

The protection of intellectual property, such as patents, trademarks, and copyrights, is adjusted to the strictest international standards. EU investors are guaranteed that the EU competitive advantage in high technology is fully pro tected. A special committee attends to the effective application of such rights.

i) Competition

Various co-operation mechanisms are provided for to permit and facilitate the application of the respective legislations of the EU and Mexico governing competition.

j) Dispute resolution

MEUFTA provides for an effective dispute solving mechanism, which also includes arbitration, without infringing upon the respective rights of the Parties, within the framework of the WTO. The decisions of the arbitration panel are binding on both parties.

Arbitration procedures do not apply to intellectual property, anti-dumping matters, balance of payment problems, issues covered under the WTO, and free trade agreements with third countries. In addition, MEUFTA allows an alternative procedure, under which either party may undertake a dispute settlement under the WTO framework. The only condition is that no action may be disputed simultaneously under both forums.

k) Trade in services

The service markets of both parties will be progressively liberalized within a period of no more than 10 years, that is, by the year 2011. The agreement covers all services, including, among others:

1) Financial, allowing all EU banks and insurance companies to directly operate in Mexico;

2) Telecommunications;

3) Distribution;

4) Energy;

5) Tourism;

6) Environmental

The only exceptions are audiovisual, maritime cabotage and air transportation services. From the date of entry, the parties agreed not to introduce new

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restrictions on EU or Mexican investors. The relevant provisions for services ensure investors that:

1) No restrictions on the number of operations or services provided in the other party’s territory will be introduced;

2) Full enjoyment of national treatment at equivalent conditions;

3) Treatment of “most favored nation” will be granted, surpassing the benefits bestowed on third parties.

l) Investment and related payments

MEUFTA confirms the international commitments of the parties on investment and related payments. It also envisages a revision of the legal framework to evaluate the possibility of a subsequent liberalization.

m) MEUFTA rules of origin

The general structure and provisions of the EU standard protocol were followed. As such, the EU harmonized rules are applied to the vast majority of industrial, agricultural, and fishing products. The exceptions can be classified as follows:

1) A transitional easing of the EU rules regarding certain sectors like textiles, granting an adaptation period for the Mexican industry;

2) A special adjustment of the EU rules for sectors like the chemical and auto motive industry, due to the lack of raw materials or components, such as certain chemical products, complex auto parts and machinery;

3) A strengthening of the EU rules, accompanied by ad-hoc solutions for products like footwear, cotton, and synthetic or artificial fabrics, to guarantee preferential access to the Mexican market for EU products.

* *

*

THE NETHERLANDS

The Netherlands

Dutch answers to:

Expanding your business in Europe Questionnaire

Eurojuris International IBG Meeting

at Racine & Vergels Advocaten, Brussels

21 February 2008

Introductory notelease note, that the answers below are not to be taken as a legal opinion. These answers are merely meant to describe the Dutch legal approach in general.

Part I. Contractual.Q1. What are the formalities a foreign seller must complete in your

jurisdiction in order to make sure that its terms and conditions of sale are binding and enforceable towards local purchasers? Are these conditions enforceable towards non commercial parties?

A1. Sellers must complete the following in order to make sure that his General Terms and Conditions of Sale (hereinafter: GT) are binding and enforceable towards both commercial and non commercial parties:

The other party is bound by the GT even if, at the time of entry into the contract, the seller understood or ought to have understood that the other party did not know their contents. However, if the seller has not given the other party a reasonable opportunity to take note of the GT, then a stipulation in and/or the GT itself may be nullified.

The seller gives the other party a reasonable opportunity to take note of the GT,

1. If he has given the GT to the other party before or at the time of entry into the contract, or

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2. If this is not reasonably possible (e.g. due to the size of the GT or the huge amount of transactions), if he has informed the other party before the formation of the contract that he has the GT available for inspection or that they have been lodged with a chamber of commerce indicated by him or at the court and that they will be sent to the other party upon request.

3. Either, where the contract will be concluded by electronic means, the GT have been made available to the other party before or at the time of the conclusion of the contract in a manner allowing him to store them to have them accessible for later perusal, or, where this is not reasonably possible, if prior to the conclusion of the contract the other party is informed where whose terms may be consulted by electronic means and that, upon request, they will be sent by electronic or other means.

Q2: What are the clauses a foreign seller must integrate in a written sales agreement (or his general terms and conditions) and the reasons why.

Q2a Retention of Title: Is this provided for in your jurisdiction? What are the conditions to make it enforceable towards local third parties?

A2a Retention of title (“eigendomsvoorbehoud”) is a valid clause in GT applicable in sales contracts towards both commercial and non commercial parties. The conditions to make retention of title enforceable in GT do not differ from the conditions mentioned under A1.

Retention of title may be validly stipulated only with respect to claims for the counter-obligation for things deliverd or to be delivered by the seller to the acquirer pursuant to a contract, or for work performed or to be performed pursuant to such a contract for the benefit of the acquirer, as well with respect to claims for failure tp perform such contracts.

Q2b Interest and penalty clause: Are these clauses enforceable in your jurisdiction? Can they be reduced or annulled. What are the consequences if this clause is not integrated in the agreement? What is the legal rate in your jurisdiction?

A2b Interest and penalty clauses are enforceable under Dutch law. Both interest and penalty clauses may be reduced by the court, upon the demand of the obligee if it is evident that fairness so requires; the court, however, may not award the obligee less than the damages due by law for failure in the performance.

If an interest clause has not been a part of the sales agreement (or the

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applicable GT) then the statutory interest may be claimed. Statutory interest is considered to be the damages due on account of delay in the payment of a sum of money. The statutory interest shall be fixed by Regulation.

If a penalty clause is not included in the agreement (or the applicable GT), then a penalty cannot be claimed.

Q2c Applicable law and competent jurisdiction: are these clauses enforceable in your jurisdiction? What are the consequences if this clause is not integrated in the agreement?

A2c Applicable law and competent jurisdiction are clauses enforceable under Dutch law.

With regard to clauses on competent jurisdiction we refer to the compulsory restrictions with regard to insurance related cases (articles 8 - 14 Regulation EG nr 44/2001), consumers (article 15 - 17 Regulation EG nr. 44/2001); employees (articles 18 - 21 Regulation EG nr. 44/2001) as well as real estate, corporate matters and validity of intellectual property rights (article 22 Regulation EG nr. 44/2001)

If the parties have not made an explicit choice of applicable law, the contract will be governed as follows:

- the competent jurisdiction is established on the basis of Regulation EG Nr. 44/2001, if both the claimant and defendant are residing in the EU or EES. If one of the parties is not an EU or EES resident, then Dutch law (and international private law) will be applicable to establish the competency of the Dutch courts

- also the European Treaty concerning the law applicable to contracts, effective as of 1 September 1991, the Vienna Convention and international private law will be applicable to establish the applicability of the law.

Q2d Other clauses?

A2d the right to increase the price stipulated (e.g. if the prices of raw material rise). Please note that certain clauses may be deemed unreasonably onerous when the other party is an individual not acting in the conduct of a business or profession.

Q3a: Distribution agreements. What types of distribution agreements do exist in your jurisdiction: - Agency - Franchising - Concessionaire - other distribution agreements?

A3a In the Dutch Civil Code, only agency contracts exist. However, distribution, franchise and concessionaire are governed by general contract law, jurisprudence and EC law.

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Q3b What are the clauses a foreign seller should integrate in a distribution agreement and the reasons why?

A3b The following clauses are important to integrate:

- exclusivity or non-exclusivity

- territory

- contractual liability between the parties and (if products are involved) on product warranty/liability

- duration, termination (and notice period)

- salvatory clause with regard to eventual conflict with competition law.

- clauses on applicable law and competent jurisdiction.

Apart from the Agency Contract, all other kinds of distribution contracts in the Netherlands are governed by general contract law.

Q3c Is there any specific legislation in your jurisdiction with regard to the above mentioned types of distribution agreements and what are the main obligations for the foreign seller? (e.g. the Belgian law on the liability of parties when negotiating a contract - the Belgian law on the termination of an exclusive contract)

A3c Specific legislation only exists with regard to Agency Contracts. In principle, the agent is entitled to a goodwill compensation.

Under Dutch law, pre contractual liability (breaking of negotiations) is considered to be of a general contractual nature and applicable on all kinds of contracts.

Part II: Branch - office in the target country but no legal personalityQ1 What are in general terms in your jurisdiction the legal consequences

of the absence of legal personality of a branch, as opposed tot the setting up of a local company?

A1 A branch is not a legal person and is not a subject of independents rights and obligations. Therefore the foreign company is liable for the branch’s acts. The branch must be registered in the local Chamber of Commerce.

Q2 Are there specific formalities to be fulfilled for opening a branch?

A2 For opening a branch of a foreign company in the Netherlands, the following formalities must be fulfilled:

Before registering a Dutch branch the head office must appoint a

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representative authenticated through power of attorney to represent and manage the branch. Also a bank account for future transactions must be opened.

In order for the branch to be able to engage in commercial activities, it must register with the Commercial Register at the local Chamber of Commerce. The registration process requires submitting an application which should contain a proof of existence of the foreign parent company, consisting of a certificate of registration from the relevant institution, the articles of association, specimen signatures of the managing directors.

After obtaining the registration certificate the company branch must prepare an application in order to register for tax purposes. The registration form can be filed in one day, but issuance of the required tax numbers may take a few weeks.

Q3 Why would you rather advise a foreign seller to set up a branch rather then a company in your country, or visa versa?

A3 Advantages of a branch:

• there are no costs of setting up a local company, such as the Articles of Association and deed of incorporation of a local company;

• No minimum capital requirements;

• A branch can easily be set up and closed down.

Disadvantages:

The foreign company is liable for the branch’s acts and operations.

Q4/Q5 How is a branch legally represented in your jurisdiction and is there an automatic liability of the head office or legal representative of the branch for the operations or acts of the branch?

A4/A5 The branch is legally represented by either a representative authenticated through power of attorney to represent and manage the branch or by the legal representatives of the head office.

Based on the Dutch Civil Code, the head office / foreign company will be liable for the branch’s operations or acts. The managing directors of the foreign company and the legal representatives are only liable towards third parties for the branch’s operations or acts provided that they acted tortuously towards such third parties.

Q6 Are there imperative linguistic requirements to be respected?

A6 In general there are no imperative linguistic requirements to be

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respected. However, registration of a branch at the Dutch tax authorities and Dutch Chamber of Commerce, filing of tax returns at the Dutch tax authorities and filing of the annual accounts of the branch at the Dutch Chamber of Commerce should be made in Dutch. If the annual accounts of the branch / foreign company are not prepared in Dutch, then they may be filed in French, German or English at the Dutch Chamber of Commerce.

Part III: Branch – local company in the target country with legal personality In the Netherlands the following legal forms with legal personality occur:

• The Private company with limited liability: “Besloten Vennootschap” (BV);

• The company limited by shares: “Naamloze Vennootschap” (NV);

• Foundation “Stichting”;

• Association “Vereniging”;

• Cooperative association “Coöperatie”;.

BVThe private company with limited liability ”Besloten Vennootschap” (BV) is a legal person, which can be incorporated by one or more (legal) persons. The capital is divided into shares which cannot be freely transferred. The shares are registered by name. The shareholders are not personally liable for acts performed in the name of the BV and are not liable to contribute to losses of the BV in excess of the amount which must be paid on their shares. ..

The authorized and issued capital and paid up part thereof must amount to at least € 18.000.

Please note that the legislation on BV’s will be amended within a few years and will hardly contain any minimum requirements.

NVThe company limited by shares “Naamloze Vennootschap” is a legal person, which can be incorporated by one or more (legal) persons. The capital is divided into shares which may be freely transferred depending on the pre-emption clauses included in the articles of association. The shareholders are not personally liable for acts performed in the name of the BV and are not liable to contribute to losses of the BV in excess of the amount which must be paid on their shares. ..

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The authorized and issued capital and paid up part thereof must amount to at least € 45.000. The NV will merely be used by companies listed on the stock exchange.

FoundationA foundation is a legal person created by a legal act which has no members and whose purpose is to realize an object stated in its articles using capital allocated to such purpose.

The object of the foundation may not include the making of distributions to any founder or to those participating in its constituent bodies or to other parties unless, as regards the latter, the distributions have an idealistic or social purpose.

AssociationAn association is a legal person with members, formed by a multilateral legal act. An association may not distribute profits among its members.

When the articles of the association are embodied in a notarial deed, the association can acquire registered property and can inherit under a will. However, the association is not obliged to embody its articles in a notarial deed.

Cooperative AssociationThis is a legal person merely used by banks and insurance companies.

Q1/Q2 Which of the company forms is used most frequently in your jurisdiction and which company form is used most frequently in case of small or family business?

A1/A2 The BV is the legal form which is most frequently used in the Netherlands also in case of small and family business.

Q3 Is there specific legislation with regard tot the liabilities of the founders and directors?

A3 With regard to founders:

Persons who perform a legal act in the name of a company to be incorporated shall, unless the contrary is expressly stipulated in respect of such legal act, be bound jointly and severally thereby until the company has ratified such legal act after its incorporation.

If the company does not perform its obligations arising from such ratified legal act, the persons who acted in the name of the company to be incorporated shall be jointly and severally liable for any loss suffered by a third party as a result thereof, if they were or could be

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reasonably have been aware that the company could not perform its obligations, without prejudice to the liability of the directors in respect thereof on account of such ratification. If the company is declared bankrupt within one year after its incorporation, such knowledge that the company could not perform its obligations shall be presumed.

With regard to managing directors:

There are several clauses in the Dutch Civil Code with regard to director’s liabilities. The most important are:

– the directors shall be jointly and severally liable, together with the company, for each juridical act binding on the company and performed during their management until (amongst others) the paid up part of the capital amounts to at least the minimum capital prescribed on incorporation; until the filing of the initial registration at the commercial registry accompanied by copies of the documents required to be lodged.

– On the bankruptcy of a company, each director shall be jointly and severally liable to the estate for the amount of the liabilities to the extent that these cannot be satisfied of the liquidation of the other assets, if the management has manifestly performed its duties improperly and if it is plausible that this is an important cause of bankruptcy. If the management has not complied with its obligations to timely file the annual accounts at the chamber of commerce or to keep the books of the company in a right manner, it has performed its duties improperly and it shall be presumed that the improper performance of its duties constitutes an important cause of the bankruptcy.

Part IV. Miscellaneous

Purchase of real estateQ1 Who do you turn to in order to close a valid purchase agreement?

A1 Regarding the transfer of ownership of real estate the following is relevant:

1. Preparing of the purchase agreement of real estate;

2. The passing of the transfer deed by a civil law notary;

The purchase agreement with regard to real estate may be drafted by a civil law notary. However, this is not compulsory. to transfer real estate, one requires a notarial deed of transfer which can be done by a civil law notary.

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Q2 What are the costs related to the purchase agreement?

A2 there are no fixed rates. In general, the costs of a civil law notary for the purchase of real estate may depend on the purchase price of the real estate, the matter of specialization of the civil law notary and speedy despatch. Please note that besides the notary’s fee, one must also pay the costs of land registry and other registry costs. Furthermore, the buyer of real estate in the Netherlands must pay transfer tax amounting to 6% of the purchase price.

Q3 Is there in your jurisdiction legislation that can slow down the purchase process?

A3 In the Netherlands, administrative legislation regarding environmental pollution may slow done the purchase process of real estate. A so called interested party or the government may under certain circumstances, commence legal action.

Rent a real estateQ4 Is there imperative law in your jurisdiction with regard to the rent of

offices, industrial real estate or commercial real estate? Can you give a summary of the major stipulations of the regulations?

A4 In the Netherlands the law on lease and hire can be divided in three parts:

• The rent of residential accommodation;

• The rent of commercial premises;

• The rent of non residential and non commercial accommodation.

Legislation regarding “residential accommodation” and “business accommodation” consists mostly of imperative law.

In the Dutch Civil Code, “residential accommodation” means a constructed immovable thing, to the extent that it is let as a self-contained or a non-self-contained dwelling or as a static caravan or a pitch and immovable appurtenances.

“Commercial premises” is in the Dutch Civil Code described as a constructed immovable thing which is intended to be used for the operation of a retail business, restaurant or café, , pick or delivery service or a handcraft company, or for the conduct of trade, provided the leased premises contain an area accessible to the public for direct delivery of movable things or for the performance of services.

The lease agreement shall be entered into for five years or, where a longer fixed term is agreed, for such longer term. The lessee or

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lessor may terminate the lease agreement at the end of the five years period, taken into account a termination period of one year. No termination is needed, when the lessee and lessor agree upon ending the lease agreement. In most lease agreements a fixed yearly increase of the rent is stipulated amounting to the inflation.

A “non residential and non commercial accommodation” is a premises that is not commercial and/or residential. Legislation regarding “non residential accommodation and non commercial accommodation” is mainly non imperative law. E.g. the term of the lease agreement may be one or two years in stead of an imperative period of five years.

The Dutch Civil Code provides to the lessee of “non residential and non commercial accommodation” protection of eviction after the lease agreement has been terminated.

Q5 Are there any formalities to fulfil in order to enforce the lease agreement towards third parties?

A5 In principle only the lessee and the lessor are bound by the lease agreement. However, if the rented premises is being sold to a third party, the lease agreement will stay in place and will not be automatically terminated.

Environmental issuesQ6 For what types of activities is an environmental permit required?

Can you describe briefly this procedure? How much time will this procedure normally take?

A6 In principle, it is prohibited to establish or operate a company or business that will cause damage to the environment, unless one has a permit. The Dutch Environmental Management law (Wet Milieubeheer) states that there is no obligation for obtaining such a permit, unless the law indicates otherwise.

Companies that will not cause a risk to the environment or that will only cause a strict limited risk to the environment, do not require a permit. However, there are general rules to be taken into account, such as certain maximum levels of noise, waste and draining allowed.

Other companies that do require a permit, must obtain such permit before starting or before changing the operation of their business. The local authorities issues the permits and may stipulate certain conditions to be met by the company such as conditions with regard to the levels of noise or smell, the times and routes of arriving and departing of traffic, safety, storage of substances under ground.

If a company applies for a permit, any interested party may raise

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The Netherlands

objections to the application at the local authority within a certain period of time. In some cases during that stage the local authority may demand that “an environmental effects report” is drawn up.

The entire procedure of obtaining a permit may take 6 months or even longer!

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Spain


A Direct sale



There are no special formalities a foreign seller must complete. The general terms are only binding for the local purchaser, being wholesaler, retailer of consumers, if the following two conditions are fulfilled: (1) The purchaser needs to have the chance to examine the general terms and conditions of sale. (2) The purchaser needs to accept the general terms and conditions.




Yes, the retention of title can validly be provided within contractual conditions, but only for costumers, neither for wholesalers nor retailer, and only by fulfilling the following two steps:

• The conditions to make the retention of title enforceable towards local purchasers are the same as the conditions we mentioned with regard to the general terms and conditions.

• To make it enforceable towards third parties, however, the purchase contract must be registered in a special Register depending on the Commerce Registry of each province.

(b) Interest and penalty clause: Are these clauses enforceable in your jurisdiction? Can they be reduced or annulled? What are the consequences if this clause is not integrated in the

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agreement? What is the legal rate in your jurisdiction?

Parties are free to agree on payment, interest and penalty clauses in their agreements, as long as they are not considered unfair or forced by one of them. Those clauses can be questioned by the Court.

Only for wholesalers and retainers, with the law of 29 December 2004, Spain implemented the European Directive 2000/35/EC of 29 June 2000 on combating late payment in commercial transactions. This law is also applicable if parties didn’t agree on payment, interest and/or penalty clauses.

The interest rate is the one agreed between the parties or, failing such agreed rate, the rate fixed by the Central European Bank plus 7%.


• National transaction:

A clause that determines the territorial competent jurisdiction is valid between parties if it has been accepted by both parties.

• International transaction:

○ Applicable law

Spain undersigned the 1980 Rome Convention on the Law applicable to Contractual Obligations (The European Contracts Convention).

So parties can chose the applicable law, or the contract will be ruled by the law of the country with which is most closely connected, meaning the one where the most characteristic part of the contract will take place.

○ Competent jurisdiction

As regards transactions between persons domiciled in a EU member state, the council regulation nr. 44/2001 of 22 December 2000 applies. If it is a consumer who claims, can chose his jurisdiction or the seller’s; if claims a seller, the jurisdiction is that of the consumer; and if the problem is with wholesellers or retainers, the jurisdiction of the place where the goods were or had to be served.

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Spain

For non EU members, the Brussels convention of 27 September 1968 on jurisdiction and enforcement of judgments in civil and commercial matters is the main international convention in Spain regarding the rules of international jurisdiction. As a general rule, this convention provides that persons domiciled in a contracting state shall, whatever their nationality, be sued in the courts of that state. If the defendant is not domiciled in a contracting state, the jurisdiction of the courts of each contracting state shall, subject to the provisions of the Brussels Convention, be determined by the law of that state.


jurisdiction?


Agreement whereby one party (the supplier) agrees with another (the distributor) to supply the latter with products or services for the purpose of resale. The distributor sells the products or services in his own name and on his own account.

• Commercial agent:

An agreement whereby an independent intermediary has the authority to negotiate and conclude agreements in the name and on behalf of the principal. The legal intermediary acts on behalf of his principal in such a manner that the legal relationship is created directly between the principal and the customer.

• Franchising:

An agreement between two parties (Franchisee and Franchisor) whereby the Franchisee has the right, in exchange for a direct or indirect financial consideration, to use the Franchisor’s trade name, and/or trade mark and /or service mark, know-how, business and technical methods, procedural system, and other industrial and /or intellectual property rights, supported by continuing provision of commercial and technical assistance by the Franchisor.



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There is no specific Law, but Spanish Courts usually decide, in some cases, by analogy, on the basis of the Commercial agent Law 12/1992.

• Commercial agent:

Commercial agent Law 12/1992.

A goodwill indemnity is due if the agent has recruited new customers or if the agent has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits.

The amount may not exceed a figure equivalent to an indemnity for one year calculated on the remuneration over the preceding five years.

To finish the contract the employer must tell the agent with a period notice of 6 months, except if there is a fair cause, and then no compensation has to be paid.

• Franchising:

Our specific rules are Law 7/1996 and Real Decreto 2485/1998 modified by RD 419/2006, which introduce and refers to Rule CEE 4087/88, and Rule CEE 2790/1999.

The clauses of the contract are free, within the framework of the general principles of contract law and public policy, but the pre-contractual information to be given to the Franchisee, at least 20 days before signing the contract, is mandatory:

○ All the data registered in the special Spanish Registry, in the foreign Registry if exists and all the official information about the company.

○ The documents proving the property of the mark and all what will be the object of the contract.

○ A description of the planned activity, know-how, net of franchisees in the country, etc…

○ Experience of the company.

○ The main clauses of the contract.



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Spain




Basically, to sign a deed at a Spanish Notary, joining the decision to open the branch and a legalized certificate about the registration and statutes of the parent company, obtain a trade registration number and a N.I.F. (Tax Identification Number).


I would advice to set up a company, basically because any change or formality for a branch must engage the mother company to fulfill documents and then translate them, and all the relation with Spanish authorities is easier for a local company. Besides that, a branch’s annual filing will reveal consolidated financial information about the mother entity and all its branches around the world.


Yes, and a legal representative (named Delegate) must be designated for the purposes of managing the branch and representing the company in dealings with third parties and in legal proceedings in connection with the activities of the branch.


The legal representative of a branch is a person with special faculties for the daily matters, and he has almost the same liability towards third parties as a director of a Spanish Company.


The head office is entirely liable for all undertakings of the branch office in Spain.


In Spanish.

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Branches have the obligation to keep accounting records in accordance with the Spanish accounting rules and are required to publish the annual accounts of the parent company. The consolidated accounts of the head office need also to be published if the legislation of the parent company establishes this obligation. The parent company’s accounts must be audited and certified according to its own national regime.


13 What are the advantages of establishing a subsidiary compared to establishing a branch?

Already answered in 7, adding that, because the subsidiary and the parent company are separate legal entities, the parent company is not exposed to any liabilities of the subsidiary, except in the cases of anti-Trust rules.


There are many more, but these are the most usual:

COMPANY FORM

S.A.Sociedad AnónimaPublic limited liability company

S.L. / S.R.L.Sociedad de Responsabilidad LimitadaLimited liability company

S.C.Sociedad Colectiva

Limited liability YES YES NO


It depends:Bearer Stockholders, YESRegistered shares, NO

NO NO


Fixed Fixed Fixed

Minimum capital 60,000.00 EUR 3,000.00 EUR No

Number of founders

1 1 2

Notarial deed YES YES YES

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Spain

COMPANY FORM S.Com./S.ComASociedad comanditaria simple/por acciones

Limited liability YES, butonly for the limited partners, not for the managing partners

Free transferability of the shares NO

Fixed or variable capital Variable with possibility to make a contribution of labour

Minimum capital 0 EUR/60,000.00 EUR

Number of founders 2

Notarial deed YES


S.L. (Sociedad de Responsabilidad Limitada) and S.A. (Sociedad Anónima)


S.L. (Sociedad de Responsabilidad Limitada)


The most usual legal steps required when establishing a company are similar for all types of companies and consists of the following steps:

• Obtaining a N.I.E. (Identification tax Number for Foreigners) for all the shareholders and future administrator/s, if they are going to be foreign people.

• Deposit of the share capital in a blocked bank account. In the case of a contribution in cash, a bank account must be opened in the name of the company “to be incorporated” with a bank in Spain and each shareholder must deposit the amount to be paid up on its shares in this account, prior to the execution of the incorporation deed. The bank will issue a certificate, which must be delivered to the notary on the date of execution of the incorporation deed, confirming that the paid-up amount of the capital is in the bank account.

• To sign a notarial deed in Spain stating the details of the shareholders who incorporate the company and specify

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the amount of the capital contribution made by each shareholder, joining the company’s articles of association, which determine the rules governing the company. The directors will be appointed on incorporation of the company.

• Pay taxes of 1% of the capital, register the deed in the Commerce Registry of the province, make public the registration through the B.O.R.M.E. (Boletín Oficial del Registro Mercantil) and fulfilling all the further tax obligations, such as obtaining a N.I.F. (Tax Identification Number).


They depend on the amount of the capital (for instance, taxes are 1%), but a minimum of 3.000,- EUR would be normal, including Lawyer, Notary, taxes and registration, for a sharecapital of 6.000,-EUR.

19. How long does it take to establish a subsidiary in Spain?

Bearing in mind that all the shareholders and administrators must previously ask for a N.I.E. (Identification tax Number for Foreigners), it can last a minimum of 1-2 months to have the company duly registered.


No, they are ruled inside the Ley de Sociedades de Capital, RDL 1/2010, with little differences for S.L.


A Real estate



A transfer of real estate does already occur when the parties mutually agree on price and object of the sale, even by means of a privat (verbal or in a written form) contract, but, to be enforceable against third parties it requires a Notarial deed (or judgement) and being registered in the Property Register.


Transfer of real estate is subject to a transfer tax partially transferred to the regions (Comunidades Autónomas). The

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Spain

default rate is of 6% in Spain (or VAT of 10% if it is a first occupancy of real estate destined for housing purposes, or higher in other cases, specially if it is a company who sells a terrain), so if you add notarial fees and registration, the total is from 12 to 18% of the price, approximately.


Yes.



They are all ruled in the Ley de Arrendamientos Urbanos (L.A.U.), nr. 29/1994 of 29 November 1.994, and basically in the Civil Code.

The contents of the contract is mostly free, without any minimum term, and only some obligatory clauses: the priority in purchasing the property, the right to sell the contract to another party (with an increase of the rent to be paid), to inherit the contract and to be compensated when leaving depending on circumstances.


Yes, registering the contract in the Property Register, but it is only a voluntary formality.



For many, such as farms, food industries, mines, energy industries, chemistry and so on, described in the Real Decreto Legislativo 1302/1986 and Law 27/2006.


It will take several months, as the competence may be of the Spanish authorities or the autonomic regions, and the procedure is subjected to public information to recall all possible opinions from the people affected.

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Basically, the documents to deliver to the competent authority are:

• A description of the project and its actions

• An examination of the possible alternatives and reasons to chose one.

• Description of the ecological interactions.

• Identification an evaluation of the impacts.

• Establishment of protective and corrective measures

• Program of security measures


Yes, Ley 45/1999, de 29 de noviembre, “sobre el desplazamiento de trabajadores en el marco de una prestación de servicios transnacional”.


Employment by local company is ruled by Real Decreto Legislativo 1/1995, de 24 de marzo, called “Estatuto de los Trabajadores”.

Employment by head office is ruled by the Law the parties choose when signing, but at the end if the employee remains in Spain Spanish Law will rule the relationship.


A written form is needed, and if a temporary contract lasts more that 24 months in a thirty months period, they are automatically transformed into permanent ones.

Basically, dismissal is free if there is a fair reason based on a guilty behaviour of the worker; if not, the employer must pay compensation/redundancy payment. For dismissals due to objective reasons has a 20 days compensation for each year worked, or fraction of it, with a maximum amount of 12 months. Unjustified dismissals receive a 33 days compensation for each year worked, or fraction of it, with a maximum amount of 24 months.

Also the employee can finish the agreement by granting a notice period.


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Spain

• The Spanish social security law is of public order and an employee is submitted to it when he is employed in Spain by an employer established / settled in Spain, or when the employer is established / settled abroad and the employee is connected with a registered office in Spain.

• The Spanish Social Security implies mainly: the regulation concerning pension, the unemployment, the insurance for work accidents, the insurance for occupational diseases, the family allowance, annual vacation and the health insurance.

For outsourcing employees, Spain follows the CEE Rules 1408/71 and 574/72, and the uniform documents to inform the Social Security nr. E102 and E103.

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239

SWITZERLAND

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Switzerland

Part I: CONTRACTUAL – NO OFFICE IN THE TARGET COUNTRY

A Direct Sale:


1. What are the formalities a foreign seller must complete in your jurisdiction in order to make sure that its terms and conditions of sale are binding and enforceable towards local purchasers? Are these conditions enforceable towards non-commercial parties?

Vienna Convention

If seller and buyer are domiciled in different countries which in turn are contracting states to the United Nation Convention for the International Sale of Goods (“Vienna Convention), the provisions of the Vienna Convention may be applicable on the contemplated sale and purchase transaction. Further, should rules of private international law lead to Swiss law to govern an international sale and purchase transaction, again the provisions of the Vienna Convention might apply, even if none of the parties has its place of business or its domicile in one of the contracting states.

Under the provisions of the Vienna Convention an offer is deemed to be valid, if it is sufficiently specified and if the intention arises from the offer that the offeror will be bound by its offer in case of its acceptance by the offeree. An offer is considered to be sufficiently specified if it clearly indicates the goods to be sold and if the quantity and price of the goods to be sold are either explicitly or implicitly determinable by the offer. The sale and purchase agreement based on the offer made becomes effective on the offeror’s receipt of the offeree’s acceptance.

Switzerland’s Federal Code on Private International Law

The Swiss Code on Private International Law (“PIL”) among others provides for the laws applicable on an international legal issue (always in the absence of any international treaty or convention).

If pursuant to the PIL rules substantive Swiss law is applicable without further reference to the Vienna Convention, a sale and

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purchase agreement is deemed to have been validly concluded if the goods to be sold and the purchase price have been agreed upon; no written form is required, however recommended (which in case of a dispute and a subsequent court proceedings significantly eases the burden of proof of the claiming party being obliged to submit the relevant facts).

The purchase price is considered to be sufficiently specified if the determination of such price may be derived from the circumstances.

Unless otherwise agreed upon or provided by commercial practice, the seller and the buyer are obliged to discharge their obligations simultaneously quid pro quo.

Where the parties have agreed on the essential terms (goods and price), the sale and purchase agreement is binding on both parties, even if the parties have made reservations on secondary terms. In the event of a failure to reach agreement on such secondary terms, the sale and purchase agreement remains binding and the judge is to determine the secondary terms in due consideration of the nature of the contemplated sale and purchase transaction.

The aforementioned principles hold also true for non-commercial parties.


2. What are the clauses a foreign seller should integrate into a written sales agreement (or into its general terms and conditions) and the reasons why?

The following answers only consider Swiss Law, without further reference to international treaties or conventions, if applicable.

a) Retention of title: Is this provided in your jurisdiction? What are the conditions to make it enforceable towards local purchasers and third parties?

Yes, the institution of the retention of title is provided for under Swiss law.

Reservation of ownership in respect of chattel transferred to the acquirer is effective only if entered in the official register kept by the debt collection office at the owner’s current domicile. However, reservation of ownership in livestock trading is not permitted.

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Switzerland

A good sold and transferred under reservation of ownership may be reclaimed by the owner only on condition of reimbursement of any payments made by the acquirer (e.g. certain installment payments) after deduction of an appropriate rental charge and compensation for wear and tear.

b) Interest and penalty clause: Are these clauses enforceable in your jurisdiction? Can they be reduced or annulled? What are the consequences if this clause is not integrated into the agreement? What is the legal rate in your jurisdiction?

Yes, interest and penalty clauses are enforceable in Switzerland.

Penalty clause

Under the principle of the freedom of contract, a penalty clause needs to be explicitly agreed upon by the parties involved; there is no presumption of law in favor of penalties forming part of the parties’ contractual relationship.

No penalties may be claimed if its purpose is to reinforce an unlawful or immoral undertaking or, unless otherwise agreed upon between the parties, if contractual performance has become impossible through circumstances beyond the debtor’s control.

At its discretion, a court may reduce penalties that it considers excessive.

Interest clauses

In the following differentiation is being made between a contractual interest clause and a default interest clause.

Contractual interest clause

Where an obligation involves the payment of interest and the rate is not set by contract, law or commercial practice, interest at a rate of 5% p.a. is payable (art. 73 Code of Obligations, “CO”).

The parties are free to fix any interest rate to the extent not exceeding 15 % p.a.

Default interest clause

A debtor in default of a payment is obliged by law to a default interest rate of 5% p.a. even where a lower rate of interest was stipulated in a contractual interest clause. Where

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an agreement provides for an interest rate higher than 5% p.a. such higher rate will be applicable and enforceable during the whole term of the default period. If there is no agreement on the applicable default interest rate even an interest rate higher than the rate provided for by law may be claimed, if in commercial dealings the normal bank discount rate at the place of payment is higher than 5% p.a.

c) Applicable law and competent jurisdiction: Are these clauses enforceable in your jurisdiction? What are the consequences if this clause is not integrated into the agreement?

Clauses on the law governing a contract and on the place of jurisdiction are enforceable in Switzerland.

Applicable law

Pursuant to art. 116 (1) PIL a sale and purchase contract shall be governed firstly by the law chosen by the parties.

In the absence of a choice of law, the contract shall be governed by the laws of the country with which it is most closely connected. It is presumed that the closest connection exists with the country in which the party who has to perform the characteristic obligation is resident or where such party has its place of business. The characteristic obligation in a sale and purchase transaction is with the seller.

Competent jurisdiction

Notwithstanding any international treaties or conventions which eventually apply, art. 5 PIL provides that the parties may agree on a court for either an existing or a future dispute on pecuniary claims arising from a specific legal relationship. As a rule, the court so agreed upon by the parties shall have exclusive jurisdiction.

The consumer may not waive in advance the venue at his domicile or place of habitual residence.

If the parties have not chosen a competent jurisdiction either the Swiss court at the defendant’s domicile or, in the absence of a domicile, the Swiss court at the place of the habitual residence of the defendant shall have jurisdiction on civil actions deriving from a contractual relationship.

If the characteristic obligation of a contract is to be performed in Switzerland, an action may also be brought before the Swiss court at the place where the obligation is to be performed.

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Switzerland

B Commercial Intermediaries:3. What types of commercial intermediaries do exist in your

jurisdiction?

– The broker

– The agent

– The commission agent

– The agent under a distribution agreement

4. What legislation does apply in your jurisdiction with regard to the above mentioned types of commercial intermediaries?

– Broker

The brokerage contract is an agreement whereby the broker is granted a mandate to provide against compensation an opportunity to conclude a contract or to act as an intermediary thereto. The brokerage contract is governed by the articles 412 et seq.CO.

– Agent

An agent is a person who undertakes to act on a continuous basis as an intermediary for one or more principals in facilitating or concluding transactions on their behalf and for their account without entering into an employment relationship with them. The commercial agency contract is governed by the articles 418a et seq. CO.

– Commission agent

A buying or selling commission agent is a person who, in return for a commission, buys or sells chattel or securities in his own name but for the account of the principal. The commission contract is governed by the articles 425 et seq. CO.

– Agent under a distribution agreement

Under Swiss law the distribution agreement is an innominate contract, hence neither provided for nor ruled in the CO. Doctrine and jurisprudence have however developed some rules applicable on distribution agreements. In view of the practical importance of distribution agreements and the status of an agent under a distribution agreement as well as in view of distribution agreements lacking statutory rules, it is advisable to enter into detailed written agreements on the

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rights and duties of principal and agent. Further, according to Swiss antitrust law non-competition provisions may under certain conditions void the agreement.


5. In your jurisdictions what are the differences between starting up a branch and starting up of a company (subsidiary)?

A branch of a foreign company has no independent legal personality. The branch constitutes however a place of jurisdiction and a place for enforcement measures regarding liabilities that concerns the business of the branch. In general the foreign company is liable for debts and obligations of the branch.

On the contrary, a subsidiary has its own legal personality. It is fully liable for its own obligations.

Both, the branch and the subsidiary have to be registered in the commercial registry.


For opening a branch the foreign company must apply for registration of the branch at the commercial registry.

Mainly, the following documents and information have to be provided: proof of existence of the foreign company (extract from the commercial registry, articles of association etc.), amount of the share capital of the foreign company, certificate of incorporation of the branch (duly legalized with apostille), statement of the purpose of the branch, names and nationality of the representatives of the branch. All documents must be translated into the language of the competent commercial registry (German, French or Italian).


Branches ensure a cost-effective representation of the foreign company. They are easily and less costly to be setup and closed.

The foreign company remains liable for the debts of its branch. Therefore, it may be advantageous to have a separate legal entity in the form of a subsidiary.

As disadvantage of a branch must be noted that customers and

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Switzerland

contract partners may prefer dealing with a subsidiary that is a separate legal entity.

8. Is a branch authorized to act before the court, to engage people?

The foreign company as employer can engage employees for the branch. The party before the court is the foreign company. The establishment of the branch constitutes a place of jurisdiction in Switzerland.


The legal representative of the branch has the liability as a director of the company.


The head office is liable for obligations of its branch.


All documents required by law must be submitted in German (German part of Switzerland), French (French part of Switzerland) or Italian (Italian part of Switzerland).

Documents in other languages must be translated.


The branch will have its own financial statements.



As the subsidiary is an independent legal entity it is liable for its own obligations. The major advantage of a subsidiary consists in the fact that a subsidiary is considered as a local firm which may create more confidence.


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Company form Aktiengesellschaft (Stock Corporation)

GmbH (Limited Liability

Company)

Limited liability Yes Yes


Yes Yes (written agreement is sufficient; the articles of incorporation may provide restrictions)


Fixed capital Fixed capital

Minimum capital CHF 100’000.00 (of which CHF 50’000.00 have to paid in)

CHF 20’000.00

Number of founders 1 1

Notarial deed No No

Representation at least one Swiss resident at least one Swiss resident


Aktiengesellschaft (Stock Corporation)


GmbH (Limited Liability Company)


The formalities to comply with depend on the legal form of the company. Basically, in order to establish a subsidiary the following formalities have to be complied with:

– articles of incorporation (notarial deed for AG and/or GmbH);

– statutes;

– deposit of the minimum capital (AG and GmbH);

– registration with the commercial registry;

– publication in the Swiss Official Gazette (SHAB).


The costs of establishing a subsidiary depend on the capital of the company (AG or GmbH). For companies with the minimum capital

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Switzerland

requirements the accumulated costs will start at approximately CHF 2’000.00 (GmbH) respectively CHF 3’500.00 (AG).

19. How long does it take to establish a subsidiary in Switzerland?

The establishment of a GmbH and/or a AG can be generally managed within some days, once all necessary documents are finalized.


There is specific legislation (in the Swiss Code of Obligation) regarding the liabilities of the founders and the directors of an AG or a GmbH, if they are acting with intent negligently.


A Real estate



A contract for the sale of immovable property is only valid if done as an official act. The cantons regulate the manner how the official act has to be on their territory. Furthermore, the acquisition of land ownership must be recorded in the land register.


The costs related to the purchase of a real estate are notarial fees, land register fees and taxes (depending on the real estate’s value and the competent canton).


Specific cases may slow down the purchase process.

– In general, the purchase of a real estate by persons abroad is restricted. The purchaser needs an authorisation from the competent authority. But citizen of EU member countries which have domicile in Switzerland need no authorisation.

– The purchase of agricultural land or industry is subject to permission also. The permission shall be granted if no reasons of refusal exist. One reason of refusal is, when the purchaser

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does not farm the agricultural land or industry by himself.

A.2. Rent of a real estate:

24. In your jurisdiction is there imperative law with regard to the rent of offices, industrial real estate or commercial real estate? Can you give a summary of the major stipulations of these regulations?

In Switzerland, there are basically no differences between residential and commercial leases. But the following regulations apply only to commercial leases:

– The lessee of a commercial lease may transfer the contract to a third party when the lessor agrees.

– The lessor of a commercial lease has a special right on retention.


In general only the lessee and the lessor are bound to the lease contract. If the rented real estate is being sold to a third party the lease contract stays in effect.

The lease agreement can be registered in the land register. The effect of such registration is that every future owner must allow the property to be used in accordance with the lease contract.



In order to prevent environmental damages, many projects in combination with emission (air pollution, noise, radiation), bodies of water, soil and organism are subject to permission.


The enforcement of the law is primarily the responsibility of the canton in which the project is planned. Therefore varies the procedure in order to obtain the necessary permission from canton to canton.

A.4. Employment:


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Switzerland

Outsourcing of employees is legally permissible.

Where the employer transfers the company or a part thereof to a third party, he must inform the organisation that represents the employees or, where there is none, the employees themselves of the reason for the transfer and its legal, economic and social consequences for the employees.

Where the transferred relationship is governed by a collective employment contract, the acquirer is obliged to abide by it for one year unless it expires or is terminated sooner.


It does not make any difference if an employee is hired by a branch office or by a subsidiary.


In general the individual employment contract is not subject to any specific formal requirement and can be concluded orally. Some specific contracts (e.g. apprenticeship contract) and regulations (e.g. change of notice period, agreement of a prohibition of competition) are valid only if they are done in writing.

If there is no circumstance which renders the continuation of the employment relationship in good faith unconscionable for the employee, the dismissal must take into account a notice-period. The longer the engagement lasts the longer the notice-period becomes. The employer needs no special reasons to terminate the employment relationship, but he must state his reasons in writing if the employee so requests.

If the dismissal is abusive compensation must be paid.


The legal provisions are quite complex and grant a high level of social protection in case of illness, unemployment, etc. Both employer and employee contribute to the social security payments.

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ENGLAND And

WALES

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England and Wales

United Kingdom


A Direct sale



There are no special formalities that a foreign seller must complete. The general terms and conditions are binding for the local purchaser where the purchaser a) has had a chance to examine the general terms and conditions of sale and b) has accepted them.

It must be clear as to whose standards terms apply and the terms must be in a language that the purchaser understands.

There is greater protection for a purchaser who is a consumer (ie business to consumer contracts B2C) and a whole host of legislation to govern this. For example, the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) set out that a term which has not been individually negotiated in a consumer contract is unfair (and therefore not binding on the consumer) if, (against to the requirement of good faith), it results in a significant imbalance in the rights and obligations of the parties to the consumer’s detriment. This should be read in conjunction with the Unfair Contracts Terms Act and the Unfair Commercial Practices Directive. There are numerous other legislative provisions relevant to consumers.



(a) Retention of title: Is this provided for in your jurisdiction?

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What are the conditions to make it enforceable towards local purchasers and third parties?

Yes, the retention of title (ROT) can be provided for To make it enforceable towards local purchasers and third parties the clause must be agreed by the parties before the agreement is entered and clear that the owner reserves ‘title’ or ‘legal’ title to the goods until one of the two following events occurs

• the buyer has paid all amount owing in respect of the goods (current and previous).

• the buyer sells the goods on in line with the agreement

It is insufficient to only reserve ‘equitable and beneficial ownership.’ A ROT clause cannot be limited (ie over mixed goods) otherwise it could be interpreted as a charge over the buyer’s assets. Such charges are usually void subject to registration.

Depending on the requirements of the seller and buyer, the clause needs to specifically state particular elements i.e. to allow the seller to go onto the buyer’s premises to recover goods, to provide for separate storage, for the buyer to insure the goods and hold proceeds of any insurance claim on trust for the seller, where possible to mark and identify the seller’s goods, that risk of the goods only passes on delivery.

ROT can only be executed on goods that are identifiable at the purchaser’s premises as the goods that are covered by the ROT.

Because the ROT clause prevents goods from ‘passing’ from the seller to the buyer in the first place, it is generally not registrable.


• Interest: Yes this clause is enforceable if reasonable. Interest is payable by default under statute but this can be overridden by contractual clause covering the same.

The rate of default interest payable is usually 1 or 2% above the rate of interest payable in the ordinary course of the agreement, where all amounts are paid on time.

It is possible to include a clause to cover a premium rate of interest at 3 or 4% above a bank’s specified base rate to support an obligation to pay a sum of money by a particular date.

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• Penalties: No, these are unlawful as they are against the public interest. However, a contract can contain a ‘liquidated damages’ clause. This is a determined sum agreed between the parties which is payable on breach by one of the parties. The clause must represent a genuine pre-estimate of the loss that would be caused by the breach or it will be deemed a penalty clause and therefore void.


Generally where both parties are domiciled in Member States, a clause that determines territorial applicable law and competent jurisdiction as chosen and accepted by the parties is valid and prevails.

Failing this, the provisions outlined below apply.

• Applicable Law:

If no choice of applicable law is made, the law of the country most closely connected with contract; the presumption that this is the country of the party who is to effect ‘characteristic performance’ of the contract.

Furthermore, if any part of the chosen applicable law conflicts with local laws relating to the contract, the applicable law cannot be validly used. For example the Unfair Contract Terms Act1977 prevents the exclusion of liability for death or personal injury from negligence despite any agreement to the opposite.

• Competent Jurisdiction:

Council Regulation 44/2001 applies for transactions between the parties who are resident in Member States.

The basic rule is that defendants are sued in the country of their domicile, regardless of their nationality. There are various exceptions to this including for example.

○ Contracts, torts, where the defendant has a local branch office (special jurisdiction can apply)

○ Real property, companies, IP, insurance, consumer contracts and employment contracts (exclusive jurisdiction can apply)

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jurisdiction.

The most common commercial intermediaries are:

• Franchise: Where a franchisor licenses the franchisee to use the franchise trading format, whilst the franchisor remains independent. An agreement between two parties where the franchisee has a right to (in return for a direct or indirect financial consideration) to use; for example, a franchisor’s name, trade mark, know-how, methods and systems and continuing provision of commercial or technical assistance by the franchisor.

• Distribution: An agreement where a manufacturer / supplier supplies a distributor with goods or services for resale. The distributor trades under his own name and on his own account.

• Agency: a person who acts as agent on behalf of a principal in return for commission from the principal. The agent can introduce a third party to the principal, take order or conclude contracts with the third party for the principal. The relationship is created directly between the principal and the third party and generally the agent will not have liability to the third party.


• Franchising:

○ General: There is little regulation to franchising in the UK and self-regulation applies.

○ The British Franchise Association requires compliance of its members with the European Code of Ethics for Franchising where franchisors are required to: operate a pilot scheme before launching the franchise; own all relevant brand names and trade marks and provide initial and continuing training; and both parties to deal fairly with each other - the franchisor in relation to recruitment, advertising, disclosures, and the franchisee in relation to selection and the franchise agreement.

○ The only applicable UK (not EC) legislation concerns pyramid selling, when franchisees are encouraged to

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use sub-franchisees to sell goods or services which are the subject of the franchise. This includes the Trading Schemes Act 1996 and regulations which deal with trading schemes, i.e. the Trading Schemes Regulations 1997; and the Trading Schemes (Exclusion) Regulations 1997.

○ Specific elements: Parties will need to consider specific law in relation to separate elements such as;

– The Competition Act and Articles 81 and 82 of EC Competition law

– Trade Marks Act 1994 in relation to IP

– Control of Misleading Advertising Regulations 1988 and

– Control of Misleading Advertisements (Amendment) Regulations 2000

– Property law including leases

• Distribution Agreement:

○ Competition: Be aware of EC competition rules. Most distributorship arrangements do not present competition concerns, (provided that certain hardcore restrictions are avoided and the supplier’s market share is below 30%) and benefit from an exemption afforded to vertical agreements, i.e. and agreement between businesses at different levels, for example agency, franchise and distribution agreements.

○ UK competition law may apply to distributorship agreements, despite the fact that provisions of EC law may also apply. However the provisions are very similar to the EU provisions.

• Commercial Agent:

The Commercial Agents (Council Directive) Regulations 1993) implement Council Directive 86/653 relating to self-employed commercial agents and apply whether the agent is selling or buying goods.

The regulations govern the relations between commercial agents and their principals in relation to the activities in Great Britain (but not Northern Ireland). They do not apply in several situations, including (amongst others) agents

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whose activities are unpaid, agents who operate on the commodities market, agents whose activities as agents are considered secondary (ie where the primary purpose is generally not individual negotiation or conclusions of a transaction) and agents for the supply of services.

○ Duties: The agent must look after the interests of his principal and act dutifully and in good faith; make proper efforts to negotiate and conclude transaction where appropriate; communicate all necessary information available to him with the principal and comply with reasonable instructions of the principal. The principal must act dutifully and in good faith; provide the agents with necessary documentation and information relating to the goods and his acceptance / refusal of a commercial transaction.

○ Remuneration: The agent is entitled to commission on transactions concluded during the agency contract and concluded after the agency contract has terminated. In the absence of any agreement, an agent is entitled to remuneration that is customarily allowed in the place where he carries on his activities.

○ Termination: If the agency contract is concluded for an indefinite period (or for a definite period with a provision that the contract can be terminated) either party may terminate by notice: 1 month for the first year, 2 months for the second year and 3 months for the third and subsequent years.

The agent is entitled to either indemnity or compensation of termination of the agency. As to which form they receive is either determined in the agency contract or if no, then the provisions on compensation prevail. The agent shall lose such entitlement if he has not notified the principal within 1 year following the termination, that he intend to pursue his entitlement. As a rule of thumb for compensation levels: indemnity is 1 years’ commission and compensation is 2 years’ commission.

○ Competition: Be aware of EC competition rules as set out above.

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• The formalities for setting up a branch (an overseas company trading under its own name) are minimal, although some notification is required to Companies House and notification to HM Revenue and Customs will also be necessary.

• To set up limited company subsidiary, the normal formalities of company formation will have to be fulfilled. As a branch, the overseas company will be directly responsible for all actions in England, whereas with a subsidiary, the parent company will have no liability beyond its investment in the subsidiary.


The formalities are minimal with simple notification to Companies House.


It would really depend upon the size of the operation and its ultimate objectives. If the branch is unlikely to undertake very much business or to incur much in the way of liabilities, then a branch is simpler, easier to manage and requires less formalities. However, where the company is likely to do a substantial amount of business in England, or could potentially incur significant liabilities, then a subsidiary would probably be better.

8. Is a branch authorized to act before the court, to engage people?

The Overseas Company can employ people and has full rights of access to the Courts in England. The branch itself would not be a legal entity and therefore could not do so in its own right.


As already mentioned, the overseas company will have liability for everything that occurs if it is not operating in a separate subsidiary. The representative in England may well be liable to the overseas company for its actions, but will not generally be directly liable to customers.


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An overseas company will generally have full responsibility for everything that is done by a branch.


The documents will generally be in English.


If a foreign company is registered as trading in the England then it does have to file its accounts drawn in accordance with English law with Companies House.


13 What are the advantages of establishing a subsidiary compared to establishing a branch?

The most significant advantage is that where a parent company establishes a subsidiary, the parent company will be insulated against any potential liabilities that the subsidiary might incur and it will generally only risk such money as it actually invests.


COMPANY FORM

Private Limited Liability

Company (limited by

shares) (LTD)

Private Limited Liability

Company (limited by

guarantee) (LTD)

Private Unlimited Company (very rare)

Public Limited Company (PLC)

Limited liability YES YES NO YES


YES subject to Articles but cannot offer to the public – only private transfers



YES subject to articles


Variable Variable Variable Variable

Minimum capital

£0.01 £0.01 £0.01 £50,000 (about EUR 67,500)

Number of founders

1 1 1 2

Notarial deed N/A N/A N/A N/A

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COMPANY FORM

Partnership Limited Liability Partnership

(LLP)

Limited Partnership

European Company (SE) created in GB

Limited liability NO YES as long as 2 Partners

YES but only for limited partners and not managing partners

YES (similar to a PLC )


NO SHARES NO SHARES NO SHARES YES


Variable Variable Variable may denominate share capital in any currency provided at least £50,000 is in Sterling.

Minimum capital None 0 0 equivalent of at least EUR 120,000.

Number of founders

at least 2 at least 2 members

2 At least 2 commercial bodies. There are various ways to form an SE

Notarial deed N/A N/A N/A N/A

• European Economic Interest Grouping (EEIG) – very rare in UK

This type of grouping originates from European Regulation 2137/85 and from the European Economic Interest Grouping Regulations 1989 with the intention to facilitate cross-border alliances where the purpose is not to make profits. Can be used for alliances between accountancy firms, solicitors firm and research and development collaborations.


Private Limited Liability Company (limited by shares)


Private Limited Liability Company (limited by shares) (or Limited Liability Partnership (LLP))

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There are no specific additional requirements imposed on a foreign company.

A subsidiary has its own legal identity (the same as for a private limited liability company). Formation is now very simple and can be completed online and the fee is £15 (around €12). Shares can be issued, additional directors added and the Articles of Association amended after completion of registration of the Company. Companies House generally states that it will take up to 2 days for formation to be completed, but usually, it is completed within hours.

Alternatively, a company can be formed by completing a relatively simple paper form (IN01) and submitting it with the Company’s Articles of Association and a very simple Memorandum of Assocaition to Companies House. The cost of parer formation is £40 (around €32) and it can take up to 10 days for registration to be completed.

There are some restrictions on company names that can be registered, for instance, the name cannot be too similar to an existing company and there are certain words, such as “royal” which cannot be used, without specific permission.

Once registered the company is given a registered company number and certificate of incorporation. The company will hold a first board meeting in which to appoint the director(s) and secretary and deal with other initial company matters, for example:

○ opening a bank account: (although not legally necessary, is essential from a practical point of view)

○ appoint accountant / auditor: there is only the requirement that an auditor is appointed before the first AGM

○ directors service contracts: directors often deal with the terms of their own service contracts (including remuneration, working hours, holiday etc) but a fixed term contract of over 2 years needs shareholder approval

○ fix accounting reference date: if the directors wish to file accounts to a different date than that set by Companies House.

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○ allot shares and issue share certificates: such authority to allot being in the Articles.

○ approve cost of formation to come out of company funds.

• Other formalities:

○ As of 1 October 2008, 1 director needs to be an individual but the other directors can be companies (and foreign companies)

○ no requirement for any of the directors of shareholders to be resident in the UK

○ the registered office address and Statutory Registers must be in the country of incorporation (England Wales, Scotland or Northern Ireland)

○ keep Statutory Registers (which contain details of the shareholders, directors, charges, shares, etc) which must be written up on incorporation and amended from time to time to reflect any changes

○ register for VAT (except those with a small turnover). HM Revenue and Customs will issue a VAT number

○ ensure that company stationery (paper and electronic) bears the company name, number, place of registration and registered office

○ take out appropriate insurance

○ if the company is to have employees working for it (often the directors will also be employees) the directors should contact HM Revenue and Customs to arrange deductions of income tax from PAYE and payment of National Insurance Contributions


Main costs are:

• Companies House Fee (£20 (around EUR 30) or £50 for same day filing (around EUR 67.5)

• Agents / advisers fees in addition. These vary.

19. How long does it take to establish a subsidiary in UK?

By post this is usually around 5 days after the formation documents and fee are sent to Companies House. Online or accelerated service of 24 hours.

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Yes There are numerous provisions, including:

• Companies Act 2006: duties of directors: The Companies Act 2006 (CA 2006) aims to consolidate many areas of existing company legislation (including previous statutory legislation). There are staggered implementations in January, April and October 2007 and April and October 2008 for businesses to take immediate benefit of some of the new provisions. The whole of the CA 2006 will be in force in October 2009.

From 1 October 2007, the CA 2006 sets out 7 general duties that directors owe to their company:

○ to act within their powers

○ to promote the success of the company in a way the director considers, in good faith, for the benefit of its members as a whole considering a list of factors when exercising the duty of good faith

○ exercise independent judgement

○ exercise reasonable care, skill and diligence

○ avoid conflicts of interest (although not in respect of a conflict arising in relation to a proposed transaction or arrangement with the company – not in force until 1 October 2008).

○ not to accept benefits from third parties (not in force until 1 October 2008)

○ to declare to the other directors of the company any interest in a proposed transaction or arrangement with the company (not in force until 1 October 2008)

• Insolvency Act:

○ Fraudulent Trading: If in the course of a winding up it appears that any company business has been carried out with the intent to defraud creditors or for any fraudulent purpose, the court may declare that any person who was knowingly a party to the fraud be liable as the court determines.

This imposes liability on directors and any other officer of the company who was party to a fraudulent activity. In

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the past the courts have suggested that directors would be acting fraudulently if they enter into any transaction knowing that there is no reasonable prospects that the creditors will be paid.

Fraudulent trading is a criminal offence with the maximum sentence being 10 years in prison.

○ Wrongful Trading: If in the course of a winding up it appears that the company is insolvent and before the start of the winding up the directors knew, or ought to have concluded, that there was no reasonable prospect that the company could avoid going into insolvent liquidation, the court may, (on the application of the liquidator) order that the directors contribute to the company’s assets such amount as the court determines.

No order will be made if the court is satisfied that the directors took every steps that they ought to have taken to minimise the loss to the creditors –

When deciding what the director knew or ought to have concluded, the court may assume that he has the general knowledge, skill and experience which may reasonably be expected from a person carrying out his functions. Additionally, the director is expected to use the general knowledge, skill and experience he himself has, i.e. if a director has specialist knowledge and experience he is expected to use such knowledge and experience.

When considering the director’s functions, the court will consider not only those functions he carried out, but also to those entrusted to him. Therefore the director can be made liable for those matters he should have done, but failed to do.

All directors should be aware of the company’s financial position and if the company becomes insolvent they should take legal advice as to what steps they should take to protect their personal position.

• Directors Disqualification: a director may be disqualified for general misconduct in connection with the company. The grounds for disqualification and the Company Directors Disqualification Act 1986 are:

○ conviction of an indictable offence

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○ persistent breaches of companies legislation

○ fraud in a winding up

○ on summary conviction for a filing or notice default

○ unfit director of insolvent companies

○ disqualification after investigation

○ fraudulent or wrongful trading; and

○ a breach of competition law

○ (see competition heading below)

Various factors are taken into account in deciding unfitness to act. The period of disqualification can range from 2 to 15 years – the director’s previous behaviour and gravity of the current offence relevant in determining the length of time.

• Corporate Manslaughter: The Corporate Manslaughter and Corporate Homicide Bill creates an offence of corporate manslaughter against a corporation or limited company.

Focus is on the conduct of senior management, individually and jointly. An organisation is guilty of an offence if the way in which activities are managed or organised;

○ causes a person’s death, and

○ amounts to a gross breach of a relevant duty of care owed by the organisation to the deceased (only if the way in which its activities are managed or organised by its senior management is a substantial element in the breach)

The jury will consider whether there is evidence that the organisation failed to comply with relevant health and safety law and if so, the degree of seriousness.

The penalty is unlimited fine. The Court may also require the organisation to remedy the breaches which led to the death with any failure to comply punishable by further fines.

Therefore, companies and their employees must do everything reasonably practicable to ensure the health, safety and welfare of everyone affected by their activities, that appropriate safety management systems are in place and that employees are compliant with this. Health and safety should be addressed by the board who should consider appointing a director specifically responsible for health and safety. Individuals cannot be prosecuted for corporate manslaughter

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but can be charged with gross negligence manslaughter, where evidence shows a death is caused by gross negligence.

• Competition (Enterprise Act – cartel offences)

Under the Enterprise Act 2002 it is a criminal offence for individuals to dishonestly enter into cartelj agreements (agreements between one or more persons to effect, (or to cause to be effected) arrangements between at least two undertakings to price fix, limit / prevent supply or production, divide markets or customers or fix bids).

Elements include:

○ The offence applies only to horizontal agreements (not vertical agreements).

○ Introduces draconian and invasive powers for the Office of Fair Trading (OFT) and the Serious Fraud Office (SFA)

○ There are “no-action letters” (where whistleblowers can be given immunity from prosecution in return for their assistance).

○ Proceedings may only be started regarding an agreement implemented in the UK.

○ Directors may be disqualified for their involvement in any breach of competition law, not limited to hardcore cartel offences.

○ The penalty is imprisonment for up to five years, fined or both. It is possible for individuals to be extradited to and from the UK.

○ Offences of attempt and conspiracy to commit an offence apply. Therefore, even where an attempt to commit the offence is unsuccessful.


A Real estate



• A solicitor or a conveyancing practitioner will usually carry out the transfer of ownership in land between the seller and the buyer (this process is known as conveyancing);

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• After having agreed a draft contract for sale, the Buyer and the Seller will each sign their own copy of the contract and exchange it for the other copy at an agreed time on an agreed date (this is known as the “exchange of contracts”) and the date for completion of the transfer will be agreed. After this process has taken place, the contract becomes legally binding even though the ownership in land has not passed (ownership will pass on the day of completion);

• Once “exchange of contracts” has taken place, the solicitor or conveyancer acting for the Buyer will then send to the solicitor or conveyancer acting for the Seller an approved copy of the purchase deed. This purchase deed will then need to be signed both by the seller and the buyer. If this document is not signed then the legal title will not pass to the purchaser.

• At the time of “exchange of contracts”, the seller and the buyer will agree a time and a date for “completion” to take place. On that date the buyer will transfer the money owed to the seller and the seller will date the signed purchase deed and send it to the buyer. Once this has occurred the buyers can then take possession of the property they have bought, although they have legal ownership of the property, the formality with the Land Registry must be completed.

• Depending on the value of the property, the buyer’s solicitor/conveyancer will then need to pay a land tax on the property known as Stamp Duty Land Tax. Payment of this tax will apply depending on the value of the property. Following payment the buyer’s solicitor will then be able to register the conveyancing transaction at the land registry and the buyer will complete the formalities following the acquisition of the property.


• Solicitors/Conveyancer’s fees: these are sometimes charged as a fixed fee based on the value of the property;

• Stamp Duty Land Tax (as mentioned above) This is a tax paid by the buyer according to the price of the property being purchased. The threshold is £125,000 for residential property and £150,000 for commercial property. In ‘disadvantaged areas’, commercial property is exempt and the residential threshold is £150,000;

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• Land Registry Fees: These will differ depending on the value of the property (these fees will usually be incorporated to the solicitor/conveyancer’s final bill of costs);

• Search Fees: As part of his due diligence duties the solicitor/conveyancer acting for the buyer will need to check that his client is acquiring good title to the property by carrying out searches on the property such as an environmental search- to determine whether there are any ground contamination issues which will need to be considered and resolved before exchange of contracts, or a water & drainage search- to check whether the property is connected to the public water mains (these fees will also usually be incorporated to the solicitor/conveyancer’s final bill of costs).


Under the Environmental Protection Act 1990 and the Environment Act 1995, the responsibility for polluting substances rests on the owner or occupier for the time being of the land in question.

For this reason, prior to completion of the conveyancing transaction, most solicitors/conveyancers will carry out specific environmental searches to ensure compliance with this legislation. These searches will differ depending on the location and the type of property being purchased. For commercial property, the solicitor may ask for an asbestos report to be carried out in order to ensure compliance with the Asbestos Regulations. In residential property, other environmental matters, such as the property being located near a landfill site, may also prompt the need for an environmental report and might affect the buyer’s decision to proceed with the transaction.

The Environment Agency and the local authorities are the government bodies who are responsible for enforcing this legislation. They may therefore inspect any area in order to ascertain whether or not it is a contaminated site. If such a site is identified as being contaminated then the local authority will serve notice on its legal owner and will specify what steps he will need to take in order for it to be suitable for its intended use. This would therefore considerably slow down the purchase process.

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• The primary legislation affecting commercial real estate is the Landlord and Tenant Act 1954 which, amongst other issues, entitles tenants in commercial leases to an automatic right to renew their tenancies. Provided that the landlord has not inserted provisions in the lease stating that the lease is contracted out of the security of tenure provisions contained in s 21 to s 28 of the Act, the Tenant will have an intrinsic right to renew the lease, unless the landlord can prove one of the ground under section 30, such as the landlord intends to redevelop the site. In that case, the court can consent to the landlord’s application denying a renewal of the tenant’s lease.

However, since the adoption of the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 on the 1st June 2004, it is now possible for the right to renew to be excluded from the lease by agreement. This requires the landlord to serve a prescribed form of notice and for the tenant to make a declaration acknowledging it. In addition to this the legislation states that either the landlord or the tenant may now make an application to the court that the tenancy be renewed.

• The Landlord and Tenants (Covenants) Act 1995 abolished the concept of privity of contract for leases entered into on or after 1 January 1996. The effect of this is that once the original tenant has assigned the lease, he is not liable for any future breaches, eventhough he may be required to guarantee his immediate assignee.

• Section 19 (1) (a) of the Landlord and Tenant Act 1927: Assignment of tenancies- This statute provides that, in a commercial lease, a landlord cannot unreasonably withhold his consent to assignment of the lease by the tenant. This section cannot however be applied to an absolute covenant where the landlord has altogether denied the tenant from assigning the lease. The landlord and Tenant Act 1988 goes further in strengthening s19(1) of the LTA 1927 by providing that, where the tenant has made written application for

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consent, the landlord owes a duty, within a reasonable time to give consent unless it is reasonable not to do so. Furthermore, the landlord must serve notice of his decision whether or not to give consent and specify, if the consent is given subject to conditions, what these conditions are, or if the consent is withheld, what the reasons are for withholding it.


The tenant’s solicitor should ensure that the leasehold title, if for a term exceeding 7 years, is registered at the Land Registry. The fee involved in such registration will vary depending on the value of the lease.



Environmental permits are required for any disposal of waste and for any activities that may be potentially harmful to the environment.


The procedure involves making appropriate applications to the relevant agency and permits will generally be granted within three months.

A.4. Employment:


There are generally no specific regulations.


Employment of any employee in England whether by the local subsidiary or by the overseas company will generally be governed by English law.


All employees must comply with relevant tax legislation and should be notified in writing of terms of employment within three

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months of their employment commencing. Generally, employees will not gain full rights of security in their employment for one year from the date of first employment, but thereafter will be protected against unfair dismissal. There are minimum periods of notice to be given on dismissal which are one week for the first two years and thereafter one week per full year of employment up to a maximum of twelve weeks.

Generally, employees are well-protected by the law against unfair dismissal and in the event of dismissal there are a number of formalities which have to be followed. If employees are made redundant, then they have a certain number of rights and are entitled to compensation, although that compensation is limited.


Employers must pay National Insurance Contributions and such income tax as may be due.

* *

*

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THE PROTECTION AND USE OF

INTELLECTUAL PROPERTY RIGHTS WITHIN THE EU

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THE PROTECTION AND USE OF INTELLECTUAL PROPERTY RIGHTS

WITHIN THE EU

By Marcus PILLA (Glock Liphart Probst & Partner, Rechtsanwälte)

PART I: INTRODUCTION

A Economic impacts of Intellectual Property Rights (IP-Rights):

Since the very beginning of the legal protection of intellectual property rigths (IP-rights) there has always been a debate going on whether IP-rights help or harm the prosperity of a society. However, being a well established matter of fact, today the question is not whether to abolish IP-Protection-Systems but to use it in an effective way – effective for society as a whole, and effective for enterprises conquering a market and defending their success in the market. The EU-Commission definitely trusts in the sense and effectiveness of IP-Protection and promotes and stimulates both, the protection and use of IP-rights as a decisive competitive factor for the European market and its industries.

A.1. What are the functions of IP-Rights?

IP-Rights grant legal monopolies to their owners which allow them to get legal (and economic) control of their achievements in a certain industry – may it be a creative or a technical or a “mere” economic performance. These monopolies are effective in the territories they are granted for – locally, national-wide or even transnationally (here of major interest: EU-wide). The owner of IP-rights can prevent competitors from using his (legally protected) achievements; but even more important: he can allow using them by granting licenses to third parties. In many cases, a clever licensing-system can be of great and effective help to introduce a new product in a market, even more if it is concerning a huge market like the internal market of the EU.

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A.2. When is it worth investing in the Protection of IP-Rights?

Some believe in that the best protection of their creative or inventive work would be to be the first, quickest and/or most attentive actor in the market with their relevant product or service. But experience has shown that apart from very special new technologies, this strategy does not really work, at least if it is not attended and supported by reasonable investments in IP-protection. The more a performance of a competitor is different and “more special” than that of the others, such a performance is worth to be legally protected. Important to know: Not for every IP-right it is necessary to apply for registration, first; however, suing a competitor upon a claim because of IP-rights infringements can be expensive – but reasonable, because in the end the infringer has to bear the costs.

B Harmonisation of IP-Rights within the EU:

Having recognized the importance and positive impacts of an effective – and first of all – Europe-wide IP-Protection-System, the EU-Commission has made many and successful efforts to harmonise national IP-Laws and even more to create new IP-rights, i.e.: EU-wide IP-rights.

B.1. Harmonisation step-by-step

For trade marks, industrial designs and other IP-rights, today it is a matter of fact, that real EU-IP-rights do exist. This means that enterprises can apply for and use IP-rights that – with one only application and registration in a central office within the EU – are valid EU-wide. Nevertheless, the itinerary to a complete harmonisation is a long lasting process that will take many more years. The aim of creating a real internal market within the EU – also with regard of IP-rights protection – is worth all efforts already done and still to be done.

B.2. Open Issues

Two IP-rights categories have revealed to be very critical with regard to harmonisation: the field of copyright law and that of technical inventions (utility models and patents). However, even with regard to these categories the EU-Commission succeeded in doing significant steps towards a harmonisation. Of course, international agreements with effect in EU-member-states are of additional help on this way.

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The Protection and use of Intellectual Property Rights within the EU

PART II: TRADE MARKSAs every day’s life shows, the importance of trade marks, brands and promotion of products and services is steadily increasing. So it does not astonish at all, that the harmonisation of trade mark law has been in the focus of the ambition of the EU-Commission at a very early stage of the harmonisation process.

A Current Status of Harmonisation: Since 1994, the EU provides for a genuine EU-trade mark as well as for

a broadly harmonised system of national trade mark laws. Both, EU-trade mark law and the national trade mark law of the single member-states are in effect simultaneously. Additionally, the international registration of trade marks according to the “Madrid Agreement” and according tothe “Protocol to the Madrid Agreement”, familiar to trade mark owners outside the European Union, too, facilitates an effective protection of trade marks in the EU and also outside the EU.

B Different Systems of Protection:

B.1. EU-Trade Marks

1. Registered EU-Trade Marks

The EU-Regulation on trade marks allows to apply for and get registered an EU-wide trade mark with one application, only. This is a genuine EU-IP-right which offers many advantages to trade mark owners: Less costs, less administration work and much less legal questions as this IP-right is ruled by one only Legislation. However, in so far as the EU-Regulation on trade mark law does not contain provisions to certain issues, national trade mark laws apply subsidiarily.

In comparison with a trade mark registration in all (actual) single 27 member states, the costs of a registration of a EU-trade mark is rather cheap: The basic registration fee is EUR 1.050,00 (by e-filing even EUR 900,00, only) and includes protection for goods and/or services belonging to up to three different (so-called) classes. The protection of a registered EU-trade mark is lasting for ten years starting from the day of application for registration and can be prolonged for further periods of 10 years, respectively (without limitation).

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2. Non-Registered EU-Trade Marks?

In contrast to some national trade mark laws, the EU-Regulation on trade marks does not provide for a protection of trade marks that are used in the market, but not registered in the EU trade mark register.

B.2. National Trade Marks

The protection of trade marks according to the national trade mark laws is governed by the EU-Directive on trade marks. This Directive has led to a far going harmonisation of national trade mark laws in the different member-states of the EU. Nevertheless, that EU-Directive in some ways still allows differences between the single national trade mark laws.

1. Registered Trade Marks

The EU-Directive on trade marks is applicable on national trade marks in so far as registered trade marks are concerned. But even in so far, it does not deal with some important issues as e.g. the term of protection which therefore can vary from member-state to member-state according to their national trade mark laws. Of course the costs for registered national trade marks differ from member-state to member-state, too.

For many reasons, it can be desirable to register one or several national trade marks instead of a EU-trade mark. In some member states it is necessary to have a (legal) representative for filing the application.

2. Non-Registered Trade Marks

National trade mark laws can provide for a trade mark protection for trade marks because of their use, too. Further, international agreements can impose further categories of protection, e.g. the (national) protection of trade marks due to their reputation (so-called “notorious trade mark”) according to the Paris Convention.

B.3. Internationally registered Trade Marks

Since the EU is a contracting party of the “Protocol to the Madrid Agreement”, EU-trade marks can be achieved by international registrations, too.

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C Additional Categories of Protection: As already mentioned, the EU-Directive on trade marks gives a lot of

freedom to the member-states to provide for additional trade mark protection.

C.1. Protection of the corporate name

Trade marks protect goods and services and have to be distinguished from corporate names. Corporate names as such are not governed by EU trade mark law, and thus their protection can differ from member-state to member-state.

C.2. Protection of the title of creative works

Germany provides for a special protection of titles of creative works under trade mark law (but not as trade mark!). In other countries, titles of creative works can be protected as trade marks, under copyright law or under unfair competition law.

PART III: COPYRIGHTS

A Current Status of Harmonisation: The harmonisation of copyright law within the EU started rather late.

The European Commission’s Green Paper from 1988 on “Copyright and the technological challenge” formed the “initial spark” to this process. Paradigmatic for the step-by-step-harmonisation of IP-Law in general, Copyright law has not been completely harmonised within the EU until today, but in a kind of a continuing assimilation-process only of parts of it.

In the meantime the following directives have been enacted –

Directive on (the):

– protection of computer programmes (1991)

– exploitation right of rental and leasing (1992)

– exploitation right of cross-border satellite broadcasting and the cable retransmission (1993)

– term of protection (1993)

– protection of databases (1996)

– resale right (2001)

– copyright and neighbouring rights law in the information society (2001)

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– enforcement of intellectual property rights (2004).

B Open Issues: Since then the European Commission continues on its way of

harmonising copyright law within the European Union. However, further initiatives regarding a proposal to amend the directive on the term of protection as well as its Green Paper on “Copyrights in a knowledge driven economy” have not led to further directives, yet. The aim however will remain to come to a complete harmonisation of Copyright Law within the EU, one day.

PART IV: INDUSTRIAL DESIGNS Often and in many industries, it is not paid much attention to

the protection of industrial designs – what a mistake! Thus, it is a protection very easy and cheaply to achieve.

A Current Status of Harmonisation: According to the harmonisation of trade mark law, since 2002, the EU

provides for a genuine EU-industrial design right as well as (already in 1998) for a broadly harmonised system of national industrial design right laws. Both, EU-industrial design right law and the national industrial design right laws of the single member-states are in effect simultaneously. Additionally, the international deposit of industrial design rights according the “Convention of The Hague”, familiar to industrial design right owners outside the European Union, too, facilitates an effective protection of industrial design rights in the EU and also outside the EU.

B Different Systems of Protection:

B.1. EU-Industrial Designs

1. Registered EU-Industrial Designs

The EU-Regulation on industrial designs allows to apply for and get registered an EU-wide industrial design right with one application, only. This, again, is a genuine EU-IP-right which offers many advantages to industrial design owners: Very few (however: less) costs, less administration work and much less legal questions as this IP-right is ruled by one only Legislation. However, in so far as the EU-Regulation on industrial design right law does not contain provisions to certain issues, national industrial design right laws apply subsidiarily.

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The term of protection lasts five years and can be prolonged for four times for the same term (so the protection can last 25 years at maximum).

2. Non-Registered EU-Industrial Designs

In contrast to national industrial design right laws, the EU-Regulation on industrial designs does not only grant protection to registered industrial designs, but to non-registered industrial designs as well. The additional condition (apart from the general conditions) is that such an industrial design has to be brought to the knowledge of the public (but it is sufficient that the product in question has been put on the market in an usual way, so no special efforts have to be undertaken).

The term of protection lasts three years, only, in this case.

B.2. National industrial Designs

Similar to the registered EU-industrial designs, minimal differences from the forms and shapes (etc.) known at that time of application are sufficient in order to fulfill the criterions of “novelty” and “individual character”.

1. Registered Industrial Designs

For many reasons, it can be desirable to register one or several national industrial designs instead of an EU-industrial design. In some member states it is necessary to have a (legal) representative for filing the application.

Of course the costs for registered national industrial designs differ from member-state to member-state, but they are much lower in general than the fees for trade marks.

2. Non-Registered Industrial Designs?

The EU-Directive on industrial design rights does not provide for a protection of non-registered design rights.

B.3. Internationally registered Industrial Designs

Since the EU is a contracting party of the “Convention of The Hague”, EU-industrial design rights can be achieved by an international deposit, too.

C Special issues on Industrial Design Protection:

According to the Regulation as well as to the Directive on the

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protection of industrial designs, it is an elimination criterion if a part of a complex product is not visible during the intended use of that product – so that the part cannot benefit from an industrial design right protection in that case.

Additionally, - but only under the EU-Regulation on the protection of industrial designs -, there is a so-called repair-clause. This clause is stating that there is no industrial design right protection for a part of a complex product, either, in so far as in order to repair the complex product and to give back to it its original shape and look, that part must have a certain shape or look (etc.).

According to the high extent of harmonisation, European trade marks and European industrial designs are administrated by a special European Office (in Alicante, Spain), called Office of Harmonisation for the Internal Market (OHIM).

PART V: SUPPLEMENTARY PROTECTION OF ACHIEVEMENTS UNDER (UNFAIR) COMPETITION LAWUnder several aspects, commercial achievements can benefit from a supplementary protection under (unfair) competition law. In some cases, however, unfair competition law may not apply in addition or in the place of IP-rights (e.g. after their expiration).

A Current Status of Harmonisation: Up to now, there is to mention first of all the EU-Directive

concerning unfair business-to-consumer commercial practices in the internal market, amending earlier Council’s and European Parliament’s Directives as well as a Regulation of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’). This Directive covers the commercial relationship between business-to-consumer (B2C) in a complete way, but it does not apply to the business-to-business relationship (B2B).

B Aspects of Supplementary Protection: Among the huge group of cases which form examples of unfair

competition there are quite a few that lead to a supplementary protection of achievements which – under more or less different aspects – can be subject of an IP-right.

As important cases of unfair competition in this context have to be mentioned:

– slavish or systematic imitation of competitor’s goods and/or services

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– misleading practices

– sponging on the commercial success of a competitor and its goodwill with regard to individual goods and/or services

– obstruction of competitor’s activities

PART VI: PATENTS and UTILITY MODELSThe harmonisation of the technical IP-rights, i.e. patents and utility models, is in delay for whatever reason – in comparison with other IP-rights.

A Current Status of Harmonisation:

The intentions on harmonising the right on utility models – the IP-right for “small inventions” – did not go further than being discussed in a respective Green Paper of the European Commission.

The (international, i.e. not EU-genuine) Patent Cooperation Treaty has unified the formal conditions of the application for a patent. The European Patent Convention goes further and has unified the proceedings of the (material) examination of the technical invention. These proceedings are dealt with by the officers of the European Patent Office in Munich, Germany, and The Hague, Netherlands.

A genuine European Patent seems to come, soon. But this “fealing” is lasting for many many years already, so it still sounds: “to be expected”. However, the amount of open issues has been reduced in the recent past significantly, and therefore, Europe has never been as near to the new genuine European Patent right than today.

B Patent Attorneys assist in filing applications:

The filing of a patent (and utility model) application falls in the competence of technical experts, i.e. patent attorneys. Though the process of filing takes time and is quite cost-intensive (in contrast to most other IP-rights), the outcome of a registered patent or utility model is much higher than with other IP-rights – generally speaking.

C Cooperation with Patent Attorneys in infringement cases:

In infringement cases lawyers and patent attorneys work together. Due to the fact that in case of an infringement, that infringement mostly happens in a big territory (national- or even EU-wide), the actor often can choose “his” court. German courts in patent matters enjoy a high reputation, last but not least because of the rather short duration of the proceedings, but also for their expertise, first of all the courts of Düsseldorf, Mannheim and Munich.

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PART VII: LICENSE AGREEMENTSAs already mentioned in the introduction, it can be of the essence not to use an IP-right by oneself (or by oneself, only), but to “share” the benefits of the legal monopoly granted by an IP-right, by licensing it to third parties.

A License Agreements as a Category of Contract Law: License agreements, first of all, form normal contracts which have to

respect all laws applicable to contracts: national and EU-laws (etc.). As contract law (and civil law in general) is harmonised in small parts, only, within the EU, this leads to the fact that license agreements are generally governed by the (different) national laws of the member-states. In so far it can be referred to the chapters above regarding the different national laws.

B Limitations in Licensing IP-Rights:

It has to be paid attention to another already mentioned aspect of IP-rights, too, i.e. their character of legal monopolies which in some way can cause a restriction on free competition. In other words, it is inherent to IP-rights that their use can get in conflict with antitrust law. This is evident, for IP-rights e.g. by a licensing system can perfectly be used to install a (re-)partition of the internal market – a negative effect to be strictly avoided, and controlled by the EU-Commission.

In this context, the Commission Regulation of 2004 on the application of EU-antitrust law to certain categories of technology transfer agreements have to be mentioned.

PART VIII: SUMMARYAs a conclusion it has to be stated that EU-IP-law is providing to enterprises many most useful new instruments in order to get a most cost- and time-effective IP-rights protection. However, the process of harmonisation is going on.

A Continuing Harmonisation:

The actual status of harmonisation is strongly varying from IP-right to IP-right, but in general it can be summerised that trade mark law and industrial design law are harmonised to a very far extent; copyright law harmonisation is on its way, while the harmonisation of the technical IP-rights (patents and utility models) does not reach that far, yet.

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B Need of specialists in both – EU- and National IP-Law:

Even with regard to those fields of IP-law that can be regarded being harmonised in most aspects, though, national jurisdictions and national practices in the application of the relevant laws to these rights differ from country to country. The reason for this are differing traditions in the member states with regard to the special IP-right categories on the one hand, and different traditions of civil and civil procedural law in general on the other hand.

That’s why the consultation of an IP-specialist with expertise to his national IP-law remains indispensable and is always highly recommend in order to avoid mistakes and in order to make a best use of IP-rights within the EU.

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EUROJURIS INTERNATIONAL

BUSINESS GROUP:

who we are

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Eurojuris International

Eurojuris was formed in the late 1980s with the objective of providing clients with access to legal advice and representation from local lawyers throughout Europe and worldwide.

Eurojuris is now the leading network of law firms in Europe and worldwide with over 600 member firms and approximately 5000 lawyers. In addition Eurojuris can, through its correspondent firms, provide access to local firms in many other countries throughout the world. Members and correspondents are always well established medium sized independent law firms satisfying the Eurojuris criteria.

Eurojuris aims to provide more than just a reliable directory of legal firms. A permanent headquarters with full time staff to manage the organisation was created in 1993 and its responsibilities include co-ordinating numerous national activities, publishing brochures, newsletters and guides, organizing meetings and congresses, promoting specialist groups and setting up an organisation to provide cohesion among different legal systems and business cultures.

The Eurojuris commitment to quality is paramount and is maintained by ensuring that management procedures and work methods are tailored to match the client needs and are dynamic and open to constant improvement. It is also essential that all Eurojuris International members understand and implement approved work methods and that regular internal and external control procedures are reviewed on a systematic basis.

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Eurojuris International Business Group

The Eurojuris International Business Group (Eurojuris IBG) is one of a number of the Eurojuris practice groups. Eurojuris IBG is a proactive, business generating group that was formed to enable a small group of Eurojuris members to focus on the needs of business clients. Members of the Eurojuris IBG are experienced in their practice areas and leaders in the international legal and business community.

Eurojuris IBG members aim to provide a Partner level service to clients and, through close co-operation with European colleagues, to provide a consistent and seamless service.

Eurojuris IBG aims to offer a uniform presentation and mutual legal education schemes with common practices and to develop common services for the clients of member firms.

As more and more businesses find that improved communication and access opens the way to more international trade, the need for legal representation throughout a number of jurisdictions becomes essential. Eurojuris IBG provides access to expert local knowledge through a lawyer in the jurisdiction of the client’s head office.

The members of Eurojuris IBG maintain close levels of co-operation and knowledge of each other’s firms. This is achieved not only via the usual media of email, fax and telephone, but also through regular meetings, some of which take place in the offices of the member firms to enable members to understand the way in which they can better serve their client’s needs.

The members of Eurojuris IBG fulfill very strict criteria: they are business minded, they work with business clients across Europe and overseas, they all work in the English language and have some knowledge of other European languages. Importantly they are equipped with the most up to date information technology systems and maintain substantial Professional Indemnity Insurance.

EUROJURISINTERNATIONAL

��

How to expand your business across borders

Board Members of IBG

ChairmanMr. Lorenzo Bacciardi

[email protected]

TreasurerMr. Stephen Fuller

[email protected]

MarketingMr. Joan Dubaere

[email protected]

AdminMr. Beat Eisner

[email protected]

Mr. Marcus [email protected]

www.glock-liphart-probst.de

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