Corporate Governance of an international group of companies in Europe

Mainstream

Corporate Governance of an international group of companies is not a set of charters or the appointment of nominee directors. It is a decision-making system that protects assets and ensures operational activities.

The main question is not how to register a holding company. The main question is whether the structure will be stable during tax audit, during bank request, during change of ownership and in case of corporate conflict.

Effective corporate governance begins with three audits:

1. Where the key decisions are actually made.
2. Does this correspond to the stated ownership structure?
3. Will this design pass the Substance Test?

If these three issues are not resolved in advance, the owner risks not just a fine but personal liability, the arrest of accounts, loss of confidentiality, denial of tax relief under EU directives or cancellation of banking services.

When the Restructuring of Corporate Governance Is Related

The corporate governance system of an international group requires review if:

• The European company is used only as a transit account.
• The director does not know about the real operations of the company;
• minutes of meetings are signed “backdated”;
• The bank requests details of the decision-making process.
• The holding company is applying the EU Parent-Subsidiary Directive or the Interest and Royalties Directive.
• The structure has trusts, funds or several levels of ownership;
• Beneficiaries live in one country, the board of directors in another, and the accounts in a third;
• transfer of assets to heirs;
• One of the partners is going out of business.
• Regulated business (financial, investment, crypto-licenses) appears in the group;
• The tax authority of the beneficiary country disputes the tax residency of the foreign company.

The mistake most owners make

Many people start with the question:

In which country to register a company?

That's the wrong first question.

The right question is:

How can we build a governance system that protects assets, provides access to the banking system, reduces tax risks, and is convenient for real operational management?

Sometimes the best result is given by a classic Cyprus or Luxembourg holding company with independent directors. Sometimes, the center of management is moved to the Netherlands. Sometimes, a complete restructuring of the board of directors in an existing company without changing jurisdiction. Sometimes, a complex system of corporate contracts is introduced.

International corporate governance requires not static registration, but the design of a living decision-making system.

Step 1. Identify the real goals of the management system

The first document to be developed is not a charter. The first document is the owner’s goal map.

Key questions:

• protection from claims of third parties;
• Reducing the tax burden by legal methods;
• Confidentiality of beneficial ownership;
• inheritance planning;
• attraction of external financing;
• Entering new markets;
• Protection of intellectual property;
• Separation of operational and investment risks;
• fulfilling the requirements of the bank or payment system;
• Preparing for Due Diligence when selling a business.

If the objectives are not defined, the management system will be a set of formal documents, not a working mechanism. It leads to risks: from tax claims to the personal liability of directors.

Step 2. Reconfigure the legal structure under the management system

Structure should follow function, not vice versa.

We need to analyze:

• jurisdiction of each group company;
• legal form (AG, GmbH, Ltd, NV, SARL, etc.);
• composition of management bodies (management board, supervisory board);
• Distribution of powers between directors;
• Signature rights (A, B, joint signature)
• the mechanism for the appointment and removal of directors;
• the presence of a corporate secretary;
• jurisdiction of meetings;
• the place of storage of corporate documents;
• applicable law to the corporate contract;
• Shareholders’ Agreement (Shareholders’ Agreement)

Even a perfectly chosen jurisdiction will not protect if the group is “manually managed” without the protocols, and directors are appointed by proxy without real control.

Step 3. Provide a real presence (substance)

This is a critical stage.

European tax and banking regulators are testing not registration, but the reality of governance.

It is necessary to ensure and document:

• holding meetings of the Board of Directors in the country of registration;
• Physical presence of directors in key decisions;
• Office (not just registered address)
• local phone, email domain, website;
• availability of qualified personnel or outsourcing with real functions;
• a local bank account managed from the country of registration;
• accounting and reporting in the country of registration;
• Documentation of intra-group transactions (transfer pricing);
• confirmation of competence and independence of directors;
• Protocols that reflect actual discussion of commercial matters, not formal approvals.

Absence of substance is the main reason for loss of tax benefits, blocking of accounts and recognition of the company as a tax resident in the jurisdiction of the beneficiary.

Step 4. Build a system of corporate documents

Corporate Governance is not based on verbal agreements, but on documents.

We need to develop:

• Articles of Association / Articles of Association;
• Board Regulations / Regulations on the Board;
• Rules of Procedure for each management body;
• Shareholders' Agreement / Corporate Agreement
• Conflict of interest policy;
• Dividend payment policy;
• Signing Authority Policy (Signing Authority Policy)
• Procedure for approval of transactions with related parties;
• Policy of storage of corporate information;
• minutes of meetings with a real agenda;
• Written Resolutions (Written Resolutions)
• Power of attorney with a clearly limited scope of authority;
• Employment or service agreements with directors.

Each document should not be a template, but a functional tool. The bank, tax authority or counterparty should see that the governance structure is logical, transparent and realistic.

Step 5. Selecting Directors and Distributing Roles

The choice of directors is not a matter of nominal service. It is a matter of risk sharing and responsibility.

The composition of directors should reflect:

• Place of strategic decision-making;
• place of operational management;
• jurisdiction of business presence;
• tax requirements of the country of registration;
• requirements of the ATAD Directive and national laws on CFC;
• Banking KYC requirements (understanding of business, experience, reputation);
• Independent directors (especially for holding companies applying for EU tax benefits)
• segregation of roles: Managing Director, Financial Director, Non-Executive Director;
• The mechanism for removing the director in case of conflict or incapacity.

Appointing a “comfortable” director without understanding his real responsibilities creates a risk of personal liability, including criminal liability in a number of jurisdictions (tax evasion, bankruptcy, violation of the sanctions regime).

Step 6. Ensure Banking and Compliance Transparency

Banks are the main external auditor of the corporate governance system.

The group should be ready for KYC/KYB requests:

• ownership structure up to the ultimate beneficiary;
• CV and passports of directors;
• confirmation of the registration address;
• description of the business and source of funds;
• Corporate structure with an explanation of the functions of each company;
• Protocol on appointment of the director and opening of the account;
• confirmation of tax residency;
• description of the expected turnover and the nature of the transactions;
• copies of contracts, invoices confirming transactions;
• information about related parties.

If Corporate Governance is not built, the bank will refuse to open an account or freeze operations. Arguing with a bank after blocking is almost useless – it is easier to immediately build a structure that passes due diligence.

Step 7. Protecting the structure from corporate conflict and deadlock

An international group of companies is often managed by several partners. Without rules, disagreements paralyze business.

It is necessary to provide in advance:

• quorum for key decisions;
• List of issues requiring unanimity;
• a deadlock clause (deadlock clause)
• The right of preferential purchase of a share (ROFR);
• tag-along and drag-along are right.
• conditions of the partner’s exit;
• assessment of the value of the share at the exit;
• transfer of the share in inheritance;
• restrictions on the transfer of shares to third parties;
• Confidentiality and non-compete;
• applicable law and arbitration clause for a corporate dispute.

A Shareholders’ Agreement should not be written for the moment of signing, but for the moment of conflict.

Step 8. Set up a compliance system and risk management

European regulation requires not a single audit, but a functioning system.

The system shall include:

• AML/CTF internal policies;
• procedures for checking counterparties;
• monitoring of sanctions lists;
• Data Protection (GDPR);
• whistleblowing policy (EU Directive 2019/1937)
• Policy on insider information;
• Registration and Disclosure of Beneficiaries (UBO Registers)
• Transfer pricing procedures;
• Annual review and update of documents.

Violation of compliance in one group company can lead to the blocking of accounts of the entire structure.

Step 9. Prepare for a change of ownership or inheritance

The international structure must outlive its creator.

The succession plan shall include:

• inheritance of shares/shares under a will or trust;
• Appointment of Reserve Directors (alternate directors);
• Power of attorney in case of incapacity;
• transfer of signature rights;
• storage of corporate documents with an independent provider;
• instructions for heirs on the management procedure;
• communication plan with banks and counterparties;
• tax consequences of inheritance in the beneficiary’s country and country of incorporation.

Without this plan, in the event of the death of the owner, accounts are blocked, the business is stopped, and the heirs enter multi-year lawsuits.

Step 10. Regular audit of the corporate structure

The management system should not be static.

It is necessary to check annually:

• relevance of the objectives and structure;
• compliance of substance with requirements;
• Changes in EU law and national jurisdictions;
• Changes in the tax residency of beneficiaries;
• bank requirements;
• Controlled Foreign Companies (CFC)
• relevance of corporate documents;
• powers of directors and term of their appointment;
• All protocols and resolutions are available;
• New judicial and administrative practice.

Regular governance audits are not costs, but insurance against catastrophic risks.

Director's choice: Nominal service or real management

The choice does not depend on the budget, but on the real goals of the structure. For a holding holding holding holding holding holding substantial assets and applying EU tax directives, nominal service is a deferred default.

How to strengthen your position before registering a company

The best corporate governance system is laid at the stage of designing the structure.

In the plan of the international holding it is desirable to lay:

• a clear map of objectives and risks;
• justification for the choice of jurisdiction;
• structure of the governing bodies;
• director profiles;
• Substance security plan;
• draft corporate agreement;
• financial model and flows;
• tax opinion (opinion);
• compliance procedures;
• Plan of interaction with the bank;
• succession plan;
• The exit scenario from the structure.

The structure should be designed not only for the current situation, but also for the worst-case scenario - vetting, arrest, conflict, death of the beneficiary.

Common Mistakes in Corporate Governance

1. The company is registered in the EU, but is managed from another country without documentation. This leads to tax claims and bank account lockdowns.

2. The formal protocols do not reflect the actual discussions. When tested, this proves the lack of real governance in the jurisdiction.

3. Single Control without Checks One Director with the right of sole signature without a supervisory board. High risk of fraud and loss of assets.

4. Ignoring the requirements for the independence of directors, the independent director is linked to the beneficiary. Tax benefits are nullified.

5. The partners agree orally on the absence of a shareholder agreement. Business is paralyzed in conflict.

6. The EU register of beneficiaries becomes public or accessible to a wide range of persons. Privacy is lost without a plan.

7. General power of attorney without restrictions on the amount and type of transactions. Risk of unauthorized withdrawal of assets.

8. No plan for death or incapacity is frozen, the business is suspended for months.

Checklist of the owner of the international group

Before starting or auditing a structure, 15 questions must be answered:

1. Where are the group’s strategic decisions actually made?
2. Is this process documented in the protocols?
3. Is the composition of the directors appropriate to the place of management?
4. Is there a substance confirmation (office, staff, solutions)?
5. Where are the corporate documents and protocols stored?
6. Who has the right to sign accounts and contracts?
7. Is there a corporate contract and is there a deadlock mechanism?
8. Has the directors been categorized for independence?
9. Will the structure of the bank KYC pass when opening an account?
10. Does the holding apply EU tax directives and are the conditions met?
11. Is the register of beneficiaries complete and who has access to it?
12. Are there internal AML, GDPR and compliance policies?
13. Are there any contracts with directors (service or employment)?
14. Is there a plan of action in case of death or disability of the beneficiary?
15. Has the structure been subjected to a stress test for tax audit?

What a strong corporate governance system looks like

A strong system usually includes five levels:

1. Legal & Structural Design: The right choice of jurisdiction, form, governance and authority.

2. Substance & Management Reality Real meetings, qualified directors, documented solutions.

3. Contractual Framework Charter, shareholder agreement, policies, regulations, employment contracts with directors.

4. Compliance & Transparency Banking KYC, sanctions checks, registers of beneficiaries, AML procedures.

5. Succession & Exit Planning Plan, power of attorney, change of directors, business sale scenario.

Without a fifth level, the first four can collapse within 24 hours of an unforeseen event.

FAQ

Can a Cyprus or Luxembourg company be operated from Russia/UAE/another country?

It is possible, but critically important, that key decisions are documented in the country of incorporation, that board meetings are held in its territory, and that the company has sufficient substance. Otherwise, it will be recognized as a tax resident of the country of real management.

Which is better: Nominee directors or real directors?

For entities that own assets, apply EU tax benefits or have bank accounts, only real directors. Nominee service creates unacceptable tax and sanction risks.

Can the assets of a personal trust be protected through a European holding company?

Yes, it's one of the classic models. But it requires impeccable corporate governance at the holding level (independent directors, substance) to prevent the recognition of the holding as a “conduit” or “shell”.

What if the partners are in conflict and there is no corporate agreement?

Negotiations on a Shareholders’ Agreement with a mechanism to resolve the deadlock and exit from business need to be initiated urgently. In parallel, available remedies in the jurisdiction of company registration are evaluated. Procrastination leads to paralysis of operations and depreciation of business.

Does GDPR affect corporate information?

Yeah. Despite the existence of public registers of beneficiaries in the EU, the processing, storage and transfer of corporate documents containing personal data of directors and shareholders must comply with the GDPR.

Can the director be personally responsible for the company’s debts?

Yeah. In most European jurisdictions, a director may be held personally liable for failure to file for bankruptcy, tax evasion, breach of fiduciary duties, transactions to the detriment of creditors, and sanctions violations.

Do I have to hold meetings if I am the sole shareholder and director?

Yeah. The decisions of the sole shareholder and director must be documented in writing. This is a key proof of the functioning of the management system for the bank and the tax authority.

What comes first: Opening an account or building a governance?

Building governance. The bank will request a management system: Signatories’ powers, protocols, structure, justification of operations. Without a ready-made package of documents, the probability of opening an account for an international holding company is close to zero.

Related services

• International Corporate Structuring & European Holding Companies
• International Tax Planning & Private Wealth Structuring
• Mergers & Acquisitions, Corporate Reorganizations & Restructuring
• International Commercial Contracts & Shareholders' Agreements
• Sanctions, Export Controls & International Compliance
• International Asset Protection, Trusts & Foundations
• Corporate Investigations, Due Diligence & Business Integrity
• Residency & Citizenship by Investment Planning

Related material

• How to choose a jurisdiction for a European holding company
• Substance in Europe: How to Protect Your Company From Tax Claims
• EU Directives for Holdings: Parent-Subsidiary and Interest and Royalties
• ATAD 3 (Unshell): How to Avoid Being an Empty Company
• Corporate contract for international business: criticality
• How to open a bank account for a holding company in Europe
• Asset protection through private trusts and European companies
• Planning the inheritance of international assets
• GDPR and Corporate Information: What the owner needs to know
• Personal responsibility of the director in the Netherlands, Luxembourg and Cyprus

Conclusion

Corporate Governance of an international group of companies does not require a set of formal papers, but the design of a working management system that is resistant to inspections, conflicts and change of ownership.

A strong position is based on the right choice of jurisdiction, real substance, functional corporate documents, competently distributed powers of directors and transparency for banks.

In international structuring, the winner is not the one who chose the cheapest registration. The winner is the one who understands in advance where decisions are made, how they are documented, how the structure passes the KYC banking and what will happen to the business in the event of a sudden inspection, partner conflict or death of the beneficiary.