C. Issues relevant to commencing the work
Limited liability and legal personality
28. Further to the discussion on limited liability in paragraph 25 above, the
Working Group continued to explore the issue of limited liability, particularly as it
related to legal personality. Limited liability was described as an important
risk-reducing system that allowed entrepreneurs to take business risks without fear
of failure, but it was noted that many MSMEs were currently excluded from such a
protective regime and that efforts should be made to include them. There was
general support for the view that limited liability and legal personality offered to
MSMEs important advantages in doing business and that it was important to provide
access to these advantages to such enterprises.
29. However, it was also noted that some legal regimes linked limited liability to
capital requirements, while still providing for partnerships without minimum capital
requirements but with no limited liability. Another legal regime allowed streamlined
limited liability models for micro-business without reference to legal personality.
One example was provided where an entrepreneur possessed no legal personality
but could nevertheless protect certain assets from seizure by creditors. Another
example was provided of a legal regime in which legal personality had become less
relevant and that businesses with no legal personality could still be involved in legal
actions and own property. Some interest was expressed in exploring these options as
possible solutions.
30. Several delegations emphasized the importance of focusing on the nature of
MSMEs and the business environment in which they must operate in order to
appropriately assist them. It was noted that enterprises doing business in many legal
systems were faced with a range of options from limited companies with capital
requirements to limited partnerships to enterprises with no legal personality or
limited liability. It was noted that it may not be possible to find one solution for all
types of enterprises, and it was suggested that the Working Group may wish to focus
on different frameworks for different types of enterprises.
31. It was indicated that exceptions to limited liability varied among jurisdictions.
However, it was further suggested that it was not necessary at this stage of the
discussion to establish a common understanding of the principles of legal
personality or limited liability.
A single model with a great deal of flexibility
32. The question was raised in the Working Group whether it would be desirable
to focus in its work on a single legislative model, ensuring that it was flexible
enough to cover many different types of business.
33. There was some support for the view that a single model with built-in
flexibility could be appropriately adapted to all forms of MSMEs. However, it was
suggested that having a single flexible model could be both complicated for micro
and small businesses and a source of extra cost. Alternatively, it was suggested that
it could be possible to create a continuum of different business forms (sole
proprietor, partnership and limited liability company) that would accommodate
different types of entrepreneurs based on their needs and circumstances. There was
some support for that view.
Model law, legislative guide or another form
34. The Working Group next considered what form its work on the preparation of
legal standards in respect of MSMEs and simplified business incorporation and
registration should take. It was noted that UNCITRAL texts represented a fairly
broad range of types of instruments, but that the forms most suitable for the work at
hand could be a legislative guide or a model law, possibly with a guide to
enactment, or some combination thereof.
35. It was observed that efforts had previously been undertaken in a regional
economic integration organization to create a single private limited liability
company form for the region, but that such efforts had proven difficult. That
experience suggested that achieving consensus on a model law could be difficult
and that the preferred approach could be to prepare a legislative guide to help
policymakers in States prepare regimes suitable for their local needs. An additional
suggestion made reference to the same experience, but instead suggested that the
Working Group should not focus on simplified incorporation, but rather on the
registration of companies and the use of unique identification mechanisms to
provide greater transparency and broader, more efficient sharing of information.
36. A preference was also expressed by some delegations for the preparation of a
legislative guide over a model law for the reason that model laws might not be
widely taken up by States, and since they were said to lack the flexibility that a
legislative guide could offer through its commentary and recommendations. This
flexibility was said to be particularly important in order to allow States using the
legislative guide to adapt the legal approach to the local context and in a manner
appropriate for the needs of MSMEs. In addition, it was noted that legislative guides
were not static texts, but rather they could be organic and be added to with
additional chapters when necessary.
37. A preference was also expressed by other delegations for the preparation of a
model law, particularly in light of the fact that there was already an existing
example (as provided in A/CN.9/WG.I/WP.83) that had proven effective and could
be an appropriate starting point for discussions. It was noted that a model law need
not necessarily be a rigid instrument that presented only one approach to a particular
issue, but that different options could be accommodated within a single model law,
and that this approach would be preferable to preparing a range of model laws from
which it might be difficult to choose. It was also observed that, while legislative
guides were very useful and contained an enormous amount of information,
including best practices, it could be difficult for certain States to effectively use that
information to prepare appropriate legislation. The preferred option in these cases
could be to offer States a model law that contained the main legislative components
and could be easily modified for specific use by States. It was noted that
one drawback of adapting model laws to local circumstances was that it would
reduce the harmonizing effect of the model law, but that at least the starting point
for an adapted model law would have been a single international standard.
38. It was further suggested that the Working Group could prepare both a model
law and a legislative guide in order to maximize the information provided and the
flexibility of the materials, but also to provide relatively simple solutions for States
wishing to consider an existing legislative scheme rather than preparing one on the
basis of information provided in a legislative guide. The Working Group agreed to
take its decision on the form of the text to be prepared after it had further considered
the issues that would be included in the text, as well as what the text should achieve.
However, there was support for the suggestion that the Working Group should
consider preparing model articles of incorporation, particularly if they were to be
paired with a model law, since such texts could be very helpful for MSMEs.
Use of a possible hybrid business form approach
39. The question was raised to what extent the Working Group wished to build
upon hybrid business forms in order to achieve positive results in terms of
simplifying business incorporation and registration to assist MSMEs. It was
observed that it might not be necessary to adopt a hybrid business form in order to
accommodate these needs, and that the experience of some States indicated that
other business forms could be accommodated by adapting existing company law
rather than creating a specific hybrid form. However, there was support for the view
that hybrid business forms could prove useful even in legal systems where less
flexible approaches to business forms were usually taken. It was further stated that
hybrid business forms could offer an opportunity for States to move beyond existing
business forms that may not adequately support MSMEs in order to create different
forms that accomplished that goal.
40. In further explanation of an existing hybrid business form, it was noted that
the legal regime was based upon rules from both the common law and continental
law traditions, incorporating favourable aspects of both partnership and company
law. Freedom of contract in the system described was very broad, and the internal
governance system was very flexible, accommodating simple one-person forms as
well as more complex structures. In response to the view expressed that less flexible
business forms satisfied stakeholders in the market and protected third parties and
creditors, it was noted that hybrid business forms were also able to provide adequate
protection for creditors and third parties dealing with the enterprise.