Societas Europaea

Executive Summary

German Name: Europäische Gesellschaft

General Information: created to allow companies incorporated in different Member States to merge or form a holding company or joint subsidiary

Incorporation: four ways of forming a European Company: merger, formation of a holding company, formation of a joint subsidiary, or conversion of a public limited company previously formed under national law

Minimum Capital: EUR 120.000

Board Structure: single-tier system or two-tier system

General Information

The reason behind the "European company" was to create a European company with its own legislative framework. This will allow companies incorporated in different Member States to merge or form a holding company or joint subsidiary, while avoiding the legal and practical constraints arising from the existence of fifteen different legal systems. This legislative framework also provides for the involvement of employees in European companies, giving due recognition to their place and role in the business.

The European Company (known by the Latin term "Societas Europaea" or SE) is now a reality some 30 years after the initial proposal. The new legislation entered into force in 2004. Agreement on the SE is one of the priorities identified in the Financial Services Action Plan (FSAP).

Incorporation

There is provision for four ways of forming a European Company:

merger,

formation of a holding company,

formation of a joint subsidiary, or

conversion of a public limited company previously formed under national law.

Formation by merger is available only to public limited companies from different Member States.

Formation of an SE holding company is available to public and private limited companies with their registered offices in different Member States or having subsidiaries or branches in Member States other than that of their registered office. Formation of a joint subsidiary is available under the same circumstances to any legal entities governed by public or private law.

The registered office of the SE designated in the statutes must be the place where it has its central administration, that is to say its true centre of operations. The SE can easily transfer its registered office within the Community without - as is the case at present - dissolving the company in one Member State in order to form a new one in another Member State.

Capitalisation and Financing

The SE must have a minimum capital of EUR 120 000. Where a Member State requires a larger capital for companies exercising certain types of activity, the same requirement will also apply to an SE with its registered office in that Member State.

Registered office

The registration and completion of the liquidation of an SE must be disclosed for information purposes in the Official Journal of the European Communities. Every SE must be registered in the State where it has its registered office, in a register designated by the law of that State.

Board Structure

The Statutes of the SE must provide as governing bodies the general meeting of shareholders and either a management board and a supervisory board (two-tier system) or an administrative board (single-tier system).

Under the two-tier system the SE is managed by a management board. The member or members of the management board have the power to represent the company in dealings with third parties and in legal proceedings. They are appointed and removed by the supervisory board. No person may be a member of both the management board and the supervisory board of the same company at the same time.

However, the supervisory board may appoint one of its members to exercise the functions of a member of the management board if a vacancy arises. During such a period the function of the person concerned as a member of the supervisory board shall be suspended.

Under the single-tier system, the SE is managed by an administrative board. The member or members of the administrative board have the power to represent the company in dealings with third parties and in legal proceedings. The administrative board may delegate only the management to one or more of its members.

The following operations require the authorisation of the supervisory board or the deliberation of the administrative board:

any investment project requiring an amount more than the percentage of subscribed capital;

the setting-up, acquisition, disposal or closing down of undertakings, businesses or parts of businesses where the purchase price or disposal proceeds account for more than the percentage of subscribed capital;

the raising or granting of loans, the issue of debt securities and the assumption of liabilities of a third party or suretyship for a third party where the total money value in each case is more than the percentage of subscribed capital;

the conclusion of supply and performance contracts where the total turnover provided for therein is more than the percentage of turnover for the previous financial year;

the percentage referred to above is to be determined by the Statutes of the SE. It may not be less than 5 % nor more than 25 %.

Annual Costs

Annual Costs will arise in the form of legal, information and control costs especially as regards accountancy, auditing and publicity. Other possible items are legal and tax consultancy as well as costs for various supervisory and managing individuals.

The amount of these costs varies and depends on size, structure and equity requirements of the company. Costs tend to be lower for partnership structures than for corporations.

Corporate Taxation and Financial Reporting

The SE must draw up annual accounts comprising the balance sheet, the profit and loss account and the notes to the accounts, and an annual report giving a fair view of the company's business and of its position; consolidated accounts may also be required.

In tax matters, the SE is treated the same as any other multinational, i.e. it is subject to the tax regime of the national legislation applicable to the company and its subsidiaries. SEs are subject to taxes and charges in all Member States where their administrative centres are situated. Thus their tax status is not totally satisfactory as there is still no adequate harmonisation at European level.

Winding-up, liquidation, insolvency and suspension of payments are in large measure to be governed by national law. An SE which transfers its registered office outside the Community must be wound up on application by any person concerned or any competent authority.

Employee Participation in Corporate Bodies

Several models of participation are possible:

firstly, a model in which the employees form part of the supervisory board or of the administrative board, as the case may be;

secondly, a model in which the employees are represented by a separate body; and finally, other models to be agreed between the management or administrative boards of the founder companies and the employees in those companies, the level of information and consultation being the same as in the case of the second model. The general meeting may not approve the formation of an SE unless one of the models of participation defined in the Directive has been chosen.

The employees' representatives must be provided with such office space, financial and material resources, and other facilities as to enable them to perform their duties properly.

If the two parties do not reach a satisfactory arrangement, a set of standard principles set out in the Annex to the Directive becomes applicable.

With regard to a European company formed through a merger, the standard principles relating to worker participation will apply where at least 25% of the employees had the right to participate in decisions before the merger.

Here a political agreement proved impossible until the Nice summit in December 2000. The compromise adopted by the Heads of State or Government allowed a Member State not to apply the Directive to SEs formed from a merger, in which case the SE could not be registered in the Member State in question unless an agreement had been concluded between the management and employees, or unless none of its employees had the right of participation before its formation.

(information on the SE has been taken from europa.eu)