In many of our projects, it has been essential to decide, how the governance of a data space should be arranged. For example, in TEMS – Trusted European Media data Space, a large project funded by the Digital Europe Programme of the European Union (Grant agreement No 101123423), we have had eye-opening discussions with several highly capable experts in media companies whether their data spaces should be governed by contractual arrangements or should they have a legal entity (a company, an association, a foundation) as a governance authority. In this blog post, we summarise our thoughts on this topic.
In accordance with the Data Space Support Center (DSSC), a Data Space is an “Interoperable framework, based on common governance principles, standards, practices and enabling services, that enables trusted data transactions between participants.” The governance aspect is therefore central to the data spaces. DSSC defines Data Space Governance Authority as an entity governing the data space.
There are two basic options to set up a governance authority and the governance model for a data space. It can either be a contractual arrangement without a separate legal entity, or a separate legal entity (e.g. limited liability company, association, foundation) can be used to govern the data space. The default in the Sitra’s Rulebook model for a fair data economy is a contractual arrangement set up by the Constitutive Agreement, defined in the Governance Model and supervised by a Steering Committee. However, if a separate legal entity is needed, for instance to employ personnel, it is quite possible to adapt the model for that. The legal entity would usually become a member of the data space, and the Governance Model would then define the rules for how the legal entity operates.
Contractual arrangement
The main advantage of a contractual arrangement is the ease and affordability of getting started, as well as the reduced bureaucracy in maintaining the organisation.
The weakness of a contractual organisation is that without legal personality it cannot acquire rights, enter into contracts or assume obligations, but for all of which one of the members must act on behalf of the whole. While a legal entity may be allocated powers to enforce in case of potential conflicts between the contracting parties, it is still subjected to the same agreed proceedings as stipulated in the constitutive agreement, and ultimately the chosen forum of disputes. For example, if a data space needs to buy an external service or hire an employee, one of the members has to do it and agree with the others on the sharing of costs and responsibilities. In many cases, however, this is not a problem because the data space may not have such needs, or it is natural for one of the founders to take over such tasks.
Legal entity
The main benefit of setting up a legal person is that it can acquire rights and obligations and enter into contracts. Thus, the data space can buy the services and objects it needs for the legal entity and the legal entity can hire employees if they are needed. It can also be helpful that the legal framework is more precise for legal persons and that there is a wealth of literature and precedents to guide them through different problem situations.
On the other hand, while a legal entity may be allocated powers to enforce in case of potential conflicts between the contracting parties, it is still subjected to the same agreed proceedings as stipulated in the constitutive agreement, and ultimately the chosen forum of disputes.
The main disadvantages of a legal entity are related to higher formal requirements and costs, both at the time of incorporation and in terms of annual administration. Depending on the applicable national legislation and the legal form chosen, the establishment phase may also require significant capital investment, regulatory fees and extensive documentation. Each year, additional accounting, auditing and reporting requirements may be imposed by legislation. The legal entity is usually taxed separately, which can be advantageous or disadvantageous.
Other considerations and conclusions
One issue to consider is the expected time frame: for a shorter period, say an experimental data sharing test bed, it does not necessarily make sense to establish a legal entity, while for a more permanent data space a legal entity could in itself provide stability.
Sometimes it may also be relevant that the members of the data space may already have a common company or association, which can easily be entrusted with the governance of the data space.
It also seems to be partly a cultural phenomenon: in our experience, in some countries the starting point in such situations is always the establishment of a legal entity, whereas in the Nordic countries, for example, the starting point is often a contractual arrangement.
In practice, the most important thing is to consider whether there is a compelling reason to create a legal person, and if not, to weigh up whether the advantages of having a legal person outweigh the disadvantages.
We summarise the pros and cons of a contractual arrangement and a legal entity in the following:
| Contractual arrangement | Legal entity |
|
+ No extra costs + Less bureaucracy – Cannot acquire rights |
+ Can independently enter into contracts (purchases, employer) – Potentially more formal requirements – Cost of administrative proceedings (audits, accounting, reporting) |
Olli Pitkänen, 
Ada Möller, 
Waltter Roslin, 