The Limited Liability Company was established in the year 1955 (: Law 3190/1955). The Private Company fifty, almost, years later (: Law 4872/2012). The latter, as a newer institution, was, in fact, more modern. Nevertheless, the adaptations of the two corporate types to the needs imposed by the economic and business conditions proved to be necessary. The recent law on SAs (: law 4548/18) and the trends for modernization, innovations and improvements that accompanied it, clearly worked in the direction of introducing improvements to the specific, two, corporate types. This proved to be more feasible for the Private Company but less feasible for Limited Liability Companies: the basic “structural” malfunctions of the latter could not be removed by legislative “patches”. What is the latest effort of legislative improvements of the two institutions? Will it affect their existence and course in the future?
The new regulations
With recent legislative regulations, (: Law 4872/2021) further improvements were attempted in Limited Liability Companies and Private Companies. The aim, according to the relevant Press Release of the Ministry of Development and Investment, is the (really necessary) reduction of the administrative burdens. Specifically (: art. 50-55 Law 4872/2021): (a) the duration of both corporate forms can now be fixed or indefinite and (b) for those companies that have chosen a certain duration, the duration will be automatically converted to indefinite time, unless the partners decide to terminate them.
The pre-existing regime
The duration of the Limited Liability Company
The minimum content of the articles of association of the limited liability company is defined in article 6 §2 of law 3190/1955. This includes its duration (f’). In the previous form of the specific provision (as replaced by art. 2 law 4541/2018) it was provided that the duration of the Limited Liability Company is of a certain time and is defined in years – that is, it could not be attributed in another way (e.g. in months). After the expiration of its planned duration, the Limited Liability Company was dissolved automatically. The dissolution would not come if the Partners’ Assembly had decided in time (before its expiration) to extend its duration.
The transitional provision of article 12 of law 4541/2018 provided that the Limited Liability Companies, which have defined, before the entry into force of this law (ie: 31.05.2018) “… the duration of the company as indefinite, have an expiration date of 31st December 2021, unless, by amending their statutes before their expiration, another expiration date is set, in which case their expiration date will be that specified in the statute”. The wording of this transitional provision was incomplete. It determined, in particular, the fate of the Limited Liability Company only in the case of the explicit definition of its duration as indefinite. On the other hand, it was not foreseen what would happen if on the one hand no specific years of duration of the Limited Liability Company were defined and on the other hand if the statute did not explicitly state that the company is of indefinite duration.
In addition, Law 4541/2018 did not provide for one more case: The fate of the Limited Liability Company that would be established after 01.01.2022, which did not specify a specific duration. As we will mention below, in a similar case in the law on Private Companies, the statutory twelve-year long duration was valid. Clearly, for the above Limited Liability Company no issue of invalidity would be raised, given that the restrictively mentioned cases of invalidity of art. 7 §1 case law 3190/1955 does not include the duration of the Limited Liability Company. However, there was a gap, which was filled by the new provisions mentioned above for the duration of the Limited Liability Company.
The duration of the Private Company
Based on the pre-existing regulations (: art. 46 Law 4072/2012), the duration of Private Companies was explicitly provided as a certain time. The duration, in fact, was (and continues to be) a mandatory content of its articles of association (: art. 50 §1 per. Of Law 4072/2012). The duration of the Private Company was usually determined in years, starting from the establishment of the company. However, the law (in contrast to the pre-existing regime for Limited Liability Companies and the current regulation for Private Companies) did not preclude the determination of the duration in a different way (eg in months or up to a specific date).
The law also regulated the cases where the duration of Private Companies was not provided in their statute. According to the explicit relevant preexisting provision, the company lasted twelve years from its incorporation. Therefore, Private Companies of indefinite duration could not exist, in any case.
The duration of Private Companies could, however, be extended by decision of their partners. Such a decision was taken by an increased majority of 2/3 of the total number of the company shares. This decision had to be registered in GEMI before the expiration of the term of the Private Company. Otherwise, the Private Company was automatically dissolved and any decision to extend it was not tolerated. It was argued, of course, that in the event that the extension decision had been taken before the expiry of a certain period but registered with GEMI later, a legal revival of the company could take place.
The positive effects of the new regulations
The recent legislation has had at least two positive consequences, as:
(a) The need-obligation for the Limited Liability Companies, which were established for an indefinite period of time, to amend their articles of association until 31.12.2021 (abolition of article no. 12 of law 4541/2018 with article no. 55 of law 4872/2021) was abolished.
(b) There is no longer (for both Limited Liability Companies and Private Companies) the obligation to amend the articles of association and extend the duration of the company each time it expires. In case the partners want the dissolution of the company, they will have to make the relevant, specific, decision.
Good intentions and the (intractable) problem
It is true that these arrangements do help to reduce bureaucracy, reduce operating costs and the administrative burden on businesses. One could easily argue, therefore, that they are based on good intentions.
But how could such well-intentioned arrangements create serious and possibly insurmountable problems?
It should not escape our attention that in some, specific, cases, the parties (: partners of Limited Liability Companies or Private Companies) looked forward to the dissolution of their company after a certain period of time. This legislation has a catalytic effect on their will and overturns the data under which they made their decisions and planned their business future. At the end of the contractually fixed time for the duration of the Limited Liability Company and the Private Company, their partners should seek the appropriate (statutory or by law-significantly, however, increased) majorities to achieve the desired dissolution (at least: majority of the 2/3 of the shares for Private Companies & 2/3 of the partners and shares for Limited Liability Companies). Alternatively: the assistance of some of the other, legal, conditions.
In case the conditions of the law or the statute are not met, the partners will have to accept a (possibly undesirable and / or intolerable) coexistence …
Limited Liability Company and Private Company in the past decade; their prospects
Very soon a decade will have passed since the law gave the “green light” for the establishment of Private Companies. The market has shown great confidence in this particular type of company from the very beginning.
Private Companies and Limited Liability Companies have been operating competitively ever since. The legislative improvements that took place over the years, tried to (also) keep the Limited Liability Company “alive” & eligible.
In our previous article we attempted a comparative overview of Private Companies versus Limited Liability Companies. Of the advantages of one over the other. The results of the comparison has always been significantly to the detriment of Limited Liability Companies. This is despite the fact that significant improvements were attempted in the institution of Limited Liability Companies with law 4541/18 (indicatively: as regards the composition of the name, the composition, in fact without restriction, of the capital, the permissibility of contributions in kind, the possibility of drawing up the statute in the form of standardized articles of association, the acquisition of legal personality, the publicity of the information of the Limited Liability Company, the possibility of (unilateral) exit of a partner, the transfer of a corporate share due to death, the appointment and dismissal of managers, the General Assembly of the partners and so on).
The market has chosen, over time, the establishment of Private Companies over Limited Liability Companies.
This fact is certified, moreover, by the number of Private Companies, compared to the corresponding Limited Liability Companies, established during the last decade.
GEMI data for the years 2012 (when the Private Company was established) until the end of 2021, confirm the trust on them of those involved. The data is overwhelmingly in favor of Private Companies. During the last seven years, few Limited Liability Companies are established (from a little over 400-the maximum / 2015 to less than 300-the minimum / 2021). On the contrary, the establishment of Private Companies is constantly increasing (from 514 in 2012 to 12,836 in 2021). The chart:
The recent interventions for the improvement of the institution of Private Companies and Limited Liability Companies was, most likely, decided with good intentions. But it is certain that, in some cases, those very interventions will create insurmountable problems.
On the other hand, we have to accept that the repeated “liftings” to the institution of Limited Liability Companies has never succeeded in keeping them alive; the above-mentioned data clearly prove it. It is, therefore, certain that the recent remedial interventions will not in any way contribute to the recovery of an institution that is already not relevant. The effort to keep this type of company alive will not serve the very various interests of the companies – it will possibly only benefit us, the lawyers and the notaries involved …
It is time to accept it: the position of the Limited Liability Company in the business reality has already been taken by the Private Company.-
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (January 16th, 2022).
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.