Cross-border and domestic corporate groups

Corporate groups are characterised by the coordination and centralised management of at least some core areas (Finance, HR, Sales and Purchasing etc.). The legal structure of a group must also be adjusted to this economic fact.

In contrast to many traditional multinational corporate groups, whose subsidiaries are often set up and supported by local legal advisors lacking the specific knowledge of the law applicable to the parent company and its resulting economic and organisational needs, to the extent legally possible LEXPORTATEU is designing all subsidiaries and affiliated companies pursuant to the requirements and needs of the group management. Since the actual structure of corporate groups is varying significantly (from groups showing a decentralised management, and often belonging to different sectors or industries, up to strictly hierarchical vertical group structures), it is important to structure subsidiaries in such a way that they integrate harmoniously in the overall structure of a cross-border corporate group, avoiding legal frictions. 

Regardless of whether your company is taking the step of establishing a foreign subsidiary for the first time or has already had extensive foreign holdings for a long time, LEXPORTATEU will create a group structure tailored to your specific needs.

We review whether the existing structures meet legal requirements, but also whether the current legal options for efficient group management are being fully utilized. If not, we*´ll take care of it! We* also compare the group structure variant with other options, such as the cross-border unitary company.

Nowadays, within the EU and the EEA, there exist far reaching choice of law options, enabling the choice of the preferred law applicable to each company belonging to the group. In this way, even cross-border corporate groups of companies are able to unify the legal form of their subsidiaries in such a way, that the differences and the lack of compatibility between the divergent laws applicable to its subsidiaries can be avoided to a large extent. Thus, at least from a corporate law perspective, the complexity of a multinational corporate group can be reduced to the uniformity of a “mere” domestic one.

As a result of our* long-standing experience in advising multinational groups, LEXPORTATEU has deep knowledge and benefits from its experience regarding the legal orders at choice. If required, external experts from other jurisdictions are consulted in a flexible way pursuant to our Legal Croudworking-concept.

Of course we take for granted that this comparison is realised exclusively following the objective criteria deriving from the Pros and Cons of the respective law at choice, and based on your entrepreneurial and economic interests. By acting so, we prevent prophylactically that inefficient and legally risky group structures come into being because due to the blinkered attitude and out of self-interest, local advisors exclusively fall back on the legal forms which are well-known by them and which they use to sell.

LEXPORTATEU provides for the implementation of new respectively the adjustment of pre-existing corporate group structures. Although it is recommendable to establish a cross-border corporate group right from the beginning with an efficient and competitive group structure, nowadays there exist even ways to adjust and amend at any moment pre-existing, outdated group structures to the modern legal and economic environment.

In addition to the instruments of a cross-border merger and a cross-border conversion, we* have also a long standing experience in the drafting and implementation of cross-border affiliation and other kinds of inter-company agreements, in the event and to the extent this is possible pursuant to the respective law applicable and makes sense from an economic (in particular tax) point of view.

Furthermore, internal organisational structures and decision-making processes must be established and implemented in order to enable a fluid and efficient management and control of the corporate group (Group Corporate Governance).

The groupwide coordination and control of the intragroup financing and cash management forms the core element of each corporate group. Already in a domestic corporate group, besides tax and various company law requirements, in a company´s crisis also insolvency law aspects must be taken into account.

In a cross-border corporate group, due to the incompatibility of the laws respectively applying to the different group companies, these risks can only be controlled if they are already taken into account at the moment a groupwide cash pooling is conceptualised. This not only involves configuring the Cash Pooling in a way that the diverse company law requirements resulting from the respective jurisdictions being applicable to the group companies and often in principle incompatible among each other are observed in full.

Rather, all insolvency law requirements applicable to the respective group companies in a worst case scenario must be also met. They too differ sometimes considerably from one jurisdiction to another and are neither compatible among each other, nor are they with the company law requirements eventually applicable in parallel. As a result thereof, directors of the companies respectively involved may incur into liabilities and in addition, intercompany loans threaten to be lost in insolvency.

In this respect too, LEXPORTATEU´s advisory approach to organise cross-border corporate groups to the extent legally possible in a uniform legal form, has proven to be a valuable tool. Through a prophylactic design of cash management and the fulfilment of certain requirements in the intragroup lending practise, the insolvency risks eventually existing pursuant to the law applicable to the respective group company can also be reduced to a  considerable extent.

In addition, through the unification of the legal form and the law applicable to the group companies, we enable you to a large extent to carry out a standardised management and control of your corporate group.

This results in a substantial potential for savings because local advisors can be avoided to a large extent. Via the unification of the legal forms of the group companies, activities formerly outsourced can be completely insourced again and be handled at less cost and more efficiently by the group’s inhouse legal department.

Each jurisdiction worldwide provides for some set of rules that protects minority shareholders and creditors.

Even though these differ widely from one jurisdiction to the other, a vast majority of this protection is achieved through liability rules and the imposition of sometimes draconian sanctions to the detriment of the parent company, its directors as well as the directors of the respective subsidiary.

To rely on the assumption that the liability rules in other jurisdictions are mor or less comparable to those applicable in the parent company´s jurisdiction, can turn out to be a fatal error, particularly in the event of insolvency or economic crisis of a subsidiary or following its disposal. LEXPORTATEU supports you to minimize these risks by preventively designing a secure corporate group structure. But even though the damage has occurred, we are guiding you safely through the jungle of the international law of the groups of companies, both with respect to extrajudicial or judicial proceedings, whether defending against or asserting such claims.

In the rapidly expanding domain of Environmental, Social, and Corporate Governance (ESG), we advise cross-border corporate groups on the following key areas:

Firstly, we assist with the demanding task of ESG compliance, which entails the proactive and precise application of various legal requirements in the fields of environmental protection and human rights, and their implementation within the specific corporate structure (legal compliance). The objective is to minimise liability and reputational risks.

Secondly, we actively defend corporate groups against so-called climate litigation, where plaintiffs often attempt to construct liability for the parent company based on alleged legal violations committed by one of its foreign subsidiaries. In the worst-case scenario, this could result in global liability for the entire corporate group. Given that climate change damages affect every citizen worldwide—and that every citizen and company is simultaneously a contributor to climate change—LEXPORTATEU, with its specialised expertise in international civil procedure and private international law, ensures that the exponentially increased risk of abusive selection of the most liability-prone legal system (forum shopping) is effectively prevented or at least contained.

Finally, we provide guidance on the implementation of various supply chain laws at both the European and member state levels, and  strive to harmonise the often conflicting requirements of national legislation to the greatest extent possible.

Despite all the numerous advantages of a unified corporate group structure, it leads to some administrative burden to use subsidiaries incorporated under another law than the one applying to the local corporations in the State they are carrying out their business. For example, branches must be registered, and the financial statements as well as eventually the subsidiary’s articles of association must be deposited, depending on the local jurisdiction.

Furthermore, as the need arises we fulfil secretarial tasks or take care of the general corporate housekeeping, such as for example the drafting and passing of shareholders’ and board resolutions and instructions to subsidiaries on a groupwide basis, and support you in the drafting of reporting and disclosure requirements in the area of company and group law, such as for example the dependency report (Abhängigkeitsbericht).

Although SMEs are the backbone of the European economy, many small and medium-sized businesses are currently reluctant to establish a group of companies across their own national borders due to the legal complexity of traditional cross-border corporate structures.

Another reason for this is the lack of in-house legal expertise, as many smaller groups do not have their own legal department sufficiently specialized in this area.

Through our approach of largely organising even cross-border corporate groups under a single legal form, we reduce both liability risks and the need for local external legal advice. We thus pave the way for you, even as a medium-sized company, to expand into other EU and EEA markets without being deterred by prohibitive costs or liability risks.