The Government interrupts the legislative procedure for draft laws no.256 and no.257 creating two new types of commercial company:: Société Unipersonnelle à Responsabilité Limitée (SURL) and Société d'Innovation Monégasque par Actions (SIMA)

On 15 June 2023, parliamentary draft laws No. 256 and No. 257 (tabled on 9 May 2023)) were adopted, creating two new types of commercial companies, respectively the Société Unipersonnelle à Responsabilité Limitée (SURL) and the Société d'Innovation Monégasque par Actions (SIMA), which would be added to the Société à Responsabilité Limitée (SARL), Société Anonyme Monégasque (SAM), Société en Commandite Simple (SCS), Société en Nom Collectif (SNC).

Once adopted, the parliamentary draft laws is forwarded to the Government, which has the choice of either transforming it into a Government bill or not acting on it.

On 22 June 2023, the National Council forwarded the two draft laws to the Government, which decided on 19 December 2023 to interrupt the legislative procedure.

The Government also considers it "necessary [...] to enshrine in Monegasque law a form of company with a single shareholder. However, these provisions will be incorporated into a broader text relating to the modernisation of company law, which is currently being drafted by government departments".

The bill on the modernisation of company law should include "provisions aimed at facilitating the operation of the various types of company, particularly the Monegasque public limited company, and which could in part respond to concerns regarding the attractiveness of the Monegasque company to investors and entrepreneurs".

As for the "creation of a new legal structure with shares, whose shareholders would not necessarily be required to obtain an administrative authorisation", the Government considered that it "does not seem appropriate, in the current situation, with regard to the report of the MONEYVAL Committee published on 23 January 2023, and the procedure underway before the "International Co-operation Review Group" of the Financial Action Task Force (FATF), particularly with regard to beneficial owners and their activities". He added that "discussions could be initiated in the longer term in a more favourable context, depending in particular on how Monaco's position evolves in relation to these international bodies".

Source: Legimonaco "Legal News", 26 December 2023 > https://legimonaco.mc/news/202...

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Reasons for the reform envisaged by the Parliament

The creation of the SURL ("Single-member company with limited liability") with a single partner (natural or legal person) would offer the individual entrepreneur the possibility of starting up on his own with his liability limited to the amount of his contributions (as is the case with the SARL - and the French EURL - whereas in the case of a Personal Name Company, the personal assets of the entrepreneur are not protected from the risks inherent in his activity), while allowing foreign companies to set up in Monaco without having to add partners.

The creation of the SIMA ("Company for Innovation by Shares") with one or more partners (natural or legal persons) is intended to meet the needs of start-ups and holders of innovative projects, to raise funds from investors and to enable them to settle in the Principality on a long-term basis, as an extension of the MonacoTech incubator and the "PASS Startup Programme". This legal form could also benefit foreign companies wishing to set up in Monaco to develop Innovative Projects.

In the vein of Bill No. 1039 on the use of a digital recording device on a shared register by public limited companies and limited liability companies (resulting from Bill 246), draft laws No. 256 and No. 257 are in line with the objective of dematerialising company law and making company management more flexible and rapid, by providing for the use of a register kept in digital form, either on the Monegasque sovereign cloud or by making use of "distributed registers technology".**

** The definition of "distributed ledger technology" was incorporated into Article 1 of Law No. 1.383 for a Digital Principality by Law No. 1.528 of 7 July 2022 amending various provisions on digital matters and regulating the activities of service providers on digital assets or crypto-assets ("a technology for the distributed recording of encrypted data, which makes it possible to guarantee the availability, authentication, traceability, integrity, confidentiality and preservation of the operations carried out").

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The reform proposed by the Parliament

¤ Société Unipersonnelle à Responsabilité Limitée (SURL) [Draft Law No. 256]

Objectives

• The creation of a commercial company with a single partner would offer individual entrepreneurs an alternative to the "Entreprise en Nom Personnel" (Personal Name Company) which does not allow the protection of the entrepreneur's personal assets in the event of failure.
• This new type of company would "enrich the range of corporate vehicles that foreign companies can use to set up in the Principality, but also serve as a contact point for European regulations by offering a type of company that can meet the criteria of these regulations while preserving the specificity of Monaco".
• The opening of the SURL to "professions which do not fall within the framework of the '"professions réglementées" ("regulated professions")' but which, by their nature, deserve more attention than that provided for by the system of prior authorisation (...) would not only make it possible to offer them a secure framework for their economic development - which would also contribute to the attractiveness of the Principality - but above all would make it possible to ensure the regulation, transparency, social and ethical control of regulated economic activities".

Features

It is proposed to create new Articles 35 bis to 35 bis-8 of the Commercial Code.

In addition, the rules governing SARL would apply to the SURL, insofar as they are compatible with the specific provisions of Articles 35 bis et seq.

Moreover, it would be easy to switch to the legal status of the SARL at a later date (would not be subject to the issue of a new declaration or administrative authorisation to practise, but subject to compliance with articles 35 bis-1 to 35 bis-6, and without prejudice to the declaration or issue of the authorisation required for future partners).

The same for to the conversion of a personal name company into a SURL.

• The SURL would be constituted by a single partner, a legal person or a natural person, who would bear losses only up to the amount of his contributions in cash and/or in kind. The personal assets of the single partner would therefore be protected (as for SARLs).
• The SURL could have a commercial purpose or the exercise of an framed profession. The legislator suggests developing the concept of "professions framed by sovereign ordinance" (as distinct from "regulated professions") which could pursue a commercial or civil object for example: artists' and players' agents, private security agents, private concierges, personal assistants, sports coaches, private chauffeurs).
• The partner and the manager would not be "commerçants" (traders). The sole partner could act as manager.
• The minimum share capital would be €5,000 where the sole member is a natural person and €15,000 where the sole member is a legal person. Contributions in kind must be fully paid up when the SURL is created, as must cash contributions up to an amount at least equal to the minimum capital, by means of payments into an account opened for this purpose with a credit institution established in the Principality. Originally, the bill provided for a minimum share capital of €20,000 where the sole shareholder is a legal entity. The consolidated version lowered this to €15,000 to bring it into line with the minimum share capital for SARLs set out in Article 1 of Sovereign Order no. 993 of 16 February 2007).
• Option of providing in the articles of association of the SURL that the share capital shall be variable (liable to increase by successive payments and to decrease by the total or partial recovery of the contributions made), within a range from the amount of the initial capital up to 10 times that sum.
• The management of the SURL, for valuable consideration or free of charge, could be carried out directly by the partner, or through "mandataires" (natural persons). Originally, the bill provided for the possibility of the mandataire being a legal entity, but this has been removed in the consolidated version in order to avoid a dichotomy with the SARL, and to make it easier to switch to the SARL.
• The acts of the SURL would be recorded in a register kept in digital form, either on the Monegasque sovereign cloud or using distributed registers technology.

A Sovereign Order would specify:

• the procedures for publicising and informing the Trade and Industry Register (RCI) for contributions and takeovers made by the sole partner;
• the procedures for transforming the SURL into a SARL, the formalities and related publicity measures with the RCI.

¤ Société d'Innovation Monégasque par Actions (SIMA) [Draft Law No. 257]

Objectives

• To bring Monegasque company law into line with the constraints specific to startups once the incubation period within MonacoTech has elapsed (during which they benefit from the "PASS Startup Programme" derogation allowing them to have an administrative existence), by offering an alternative to the Limited Liability Company (SARL) or the Public Limited Company (SAM) which are currently the only ones that allow them to "take up the challenge of raising funds".
• To avoid "seeing startups incubated within Monacotech, which have therefore benefited from the administrative or financial support of the State, being forced to leave the Principality or to create holding companies outside [its] borders, in order to benefit more easily from the support of international investors and in particular from what are known as "Business Angels", public financing structures, well-informed investors, foreign family offices, funds or investments."
• Open up this alternative to (foreign) companies that have not been incubated within MonacoTech.
• To meet the needs of investors and "to envisage the digitalisation, automation and standardisation not only of the creation but also of the management of this type of company while respecting the specific characteristics of Monaco".

Features

It is proposed to create new Articles 44 bis to 44 bis-7 of the Commercial Code.

The rules concerning Sociétés Anonymes Monégasques (Monegasque Public Limited Companies) would be applicable to SIMA insofar as they are compatible with the specific provisions of articles 44 bis 1 et seq governing SIMA and the related regulatory provisions.

• The SIMA could be set up by one or more legal or natural persons who would bear losses only up to the amount of their contributions. This regime would thus be open to holders of innovative projects in Monaco and to foreign companies wishing to set up in Monaco to develop such projects.
• The SIMA should have a corporate purpose that relates it to the innovation or research sectors, or benefit from an "Innovation" label awarded by a special Commission in accordance with the provisions laid down by Sovereign Ordinance. The Finance and National Economy Committee "considered that a company is innovative when it produces, markets and continues to improve its product", but "did not wish to strictly and legally frame this definition so that it could benefit from its full effect by allowing it to adapt to possible changes in our society. In addition, such a dynamic would allow these companies to develop, in parallel with this first activity, other innovations relating to their corporate purpose."
  
• The minimum share capital would be €20,000 (in line with the "thresholds required in practice to be eligible for investment by public investment structures in Europe). With the option of providing in SIMA's articles of association that the share capital will be variable (liable to increase through successive payments by shareholders or the admission of new shareholders, and to decrease through the total or partial recovery of contributions made), within a range of up to 1000 times the value of the original capital.
• SIMA's shares would be registered and dematerialised, their ownership resulting from registration in a register kept in digital form, either on the Monegasque sovereign cloud or by making use of distributed registers technology.
• The articles of association would freely determine the conditions under which the SIMA is managed and represented, as well as the relations between shareholders.
• he founder could benefit from a system of digitised and automated creation of the SIMA by using standard articles of association available on the Government's website, offering the choice of whether or not to incorporate the statutory clauses provided for in Articles 44 bis 5-1 to 44 bis 5-4, adapted to start-ups and innovative companies, such as "sweat for equity" clauses to help with start-ups by compensating for the lack of cash flow and the absence of financial means to remunerate teams by means of a salary: remuneration of the industrial contribution of collaborators, advisors and other team members in the form of shares that may be inalienable for up to 10 year.
• With regard to the evaluation of the value of the contributions in kind or in industry, recourse to a "commissaire aux apports" (contribution auditor) would be obligatory, or not, depending on the amount.
• The SIMA could issue preference shares, i.e. shares with multiple voting rights and priority dividend shares, which would be useful in fund-raising operations. The articles of association could provide that the shares held may be converted into multiple voting shares or priority dividend shares.This would allow the founders to retain control of their project while ensuring that the investors' economic interests are protected.
• The articles of association could make any transfer of shares subject to prior approval by the company. The approval mechanism "favours the information of shareholders on the evolution of the distribution of capital and can serve as a trigger for pre-emption clauses, joint exits according to the provisions of the articles of association or agreements between shareholders".
• The articles of association could provide for the forced transfer of shares and the withdrawal of non-pecuniary rights as long as the shareholder has not made such a transfer. In order to be able to "unblock situations between shareholders".
• The SIMA would be authorised to appoint a "commissaire aux comptes" (auditor) only when two of the following three thresholds are exceeded at the close of a financial year: - balance sheet total exceeding € 1,500,000; - turnover excluding tax exceeding € 2,500,000; - average number of employees during the financial year exceeding 20.

A Sovereign Order would specify:

• the innovation or research sectors or sectors with an "Innovation" label;
• the procedures for informing the Trade and Industry Register (RCI) of contributions and takeovers of contributions;
• the threshold amount of contributions in kind or in industry, below which the use of a contributions auditor is not compulsory;
• the conditions for the issue of preference shares.