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The European Union is on the verge of adopting a Regulation[1] that would for the first time establish a true pan-European company form, the "Societas Europeae" (or "SE" for short), a European public limited liability company.  A company incorporated as an SE seeking to operate across Europe will need to comply with only one set of EU corporate law rules rather than the disparate corporate law rules of fifteen Member States.  The Regulation is to be accompanied by a Directive[2] harmonizing Member State rules on worker involvement in SEs.[3]  The Council of Ministers, the executive body of the EU, is expected to adopt the Regulation and the Directive in May of this year (2001).  The Regulation is scheduled to enter into force on the same day three years after its formal adoption.  Accordingly, the Directive is expected to provide for a three-year implementation period within which Member States must adopt national rules complying with the Directive.  Thus, the first SEs are likely to be registered in the course of the year 2004. 

Corporate Rules Currently Applicable To Companies Operating Across Europe
Advantages of the SE form
Characteristics of an SE
Formation of an SE
Basic Structure of an SE
Annual Accounts and Consolidated Accounts
Winding Up, Liquidation and Insolvency of an SE
Worker Participation in an SE
Conclusion

Corporate Rules Currently Applicable To Companies Operating Across Europe

Under the current rules, multinational companies operating in the EU must comply, in each Member State where they are located (by way of their head office, subsidiary or branch), with the national rules of corporate law on company formation and dissolution, management and reporting.  As such, they may be subject to very disparate rules, which may lead to restrictions or disadvantages.  For example, different rules may be applied by a particular Member State to domestic companies and to branches or agencies of foreign companies.  There are also disparate national rules on how a transfer of head office from one Member State to another Member State may be effected.  As a result, companies may "leave" their Member State only if they comply with certain restrictions.[4]

Advantages of the SE form

With the entry into force of the new SE Regulation in 2004, existing public or private companies operating in different Member States meeting the requirements of the Regulation will have the option of transforming themselves into SEs.[5]  The most important advantages of establishing a company as an SE are expected to be: 

the ability to operate under a single legal structure and unified management and reporting system; 

the ability to restructure quickly; and

the ability to transfer corporate headquarters from one Member State to another with greater ease:  it will no longer be necessary to wind up the company in the Member State where the headquarters were established and re-register the company in the Member State where the headquarters are newly to be established.

These advantages promise significant savings to companies doing business in more than one Member State in terms of time and money.

Characteristics of an SE

An SE will be governed for purposes of company law exclusively by the proposed SE Regulation, the Directive on worker involvement in SEs, and the company statutes.[6]  An SE may be set up in the form of a European public limited-liability company.  Its capital will be divided into shares and no shareholder will be liable for more than the amount to which he has subscribed.[7]  The registered office of an SE must be located within the Community.  Moreover, the registered office of an SE must be located in the same Member State as its head office.[8]  There is no separate register for SEs, each SE being registered in a Member State on the same register as companies established under national law, but the registration of each SE will be published in the European Community's Official Journal.  Subject to the rules contained in the Regulation, an SE will be treated in every Member State as if it were a public limited liability company formed in accordance with the law of the Member State in which it has its registered office.[9]  An SE does not need to be publicly quoted; however, if an SE's shares are quoted, it must be treated in the same way as public companies established under national law.  The minimum subscribed capital of an SE is EURO 120,000.  SEs will be required to use the acronym "SE" in their company name.[10]  An SE that has been in existence for two years may be converted into a public limited liability company under the law of the Member State where it is registered.[11]

Formation of an SE

Only pre-existing companies can establish an SE; it is not an option for a company seeking to establish itself in Europe for the first time.  The formation of an SE is characterized by the presence of a transborder element and can take place in any of the following four ways:

A public limited liability company formed under the law of a Member State which has its registered office and head office within the Community may be transformed into an SE if for at least two years it has had a subsidiary company governed by the law of another Member State.  

Certain public limited liability companies of types listed in Annex 1 to the Regulation and incorporated as such under national law can also form an SE by way of a merger, provided that at least two of the merging parties are governed by the law of different Member States.[12] 

Certain public and private limited liability companies incorporated in one of the national company forms provided in Annex 2 to the Regulation can also seek to establish a holding SE, provided that each of at least two of them is governed by the law of a different Member State or has for at least two years had a subsidiary company governed by the law of another Member State or an establishment in another Member State. 

Companies and firms formed under the law of a Member State, with registered offices and head offices within the Community, may form a subsidiary SE by subscribing for its shares, provided that each of at least two of them is governed by the law of a different Member State, or has for at least two years had a subsidiary company governed by the law of another Member State or an establishment situated in another Member State.[13]

A Member State may provide that a company, the head office of which is not in the EU, may participate in the formation of an SE provided that company is formed under the law of a Member State, has its registered office in that Member State and has a real and continuous link with a Member State's economy. 

It should be noted the Regulation does not cover areas of law such as taxation,[14] competition, intellectual property or insolvency.  In these areas and in other areas not covered by the Regulation the relevant provisions of Member State law and of Community law will be applicable. 

Basic Structure of an SE

The SE Regulation provides for two types of management structures that can be adopted in the statutes of an SE:

a management organ and a supervisory organ (the "two-tier" system); or,
an administrative organ only (the "one-tier" system)

Under the two-tier system, the management organ is responsible for managing the SE.  The supervisory organ oversees the work of the management organ.  Members of the management organ are appointed and removed by the supervisory organ, the members of which are in turn appointed by the general meeting of shareholders.  A chairman elected from among the members of the supervisory organ presides over the supervisory organ.  No person may at the same time be a member of both the management organ and the supervisory organ of the SE.  The draft Regulation does not fix a minimum number of members of the management or supervisory organ but allows Member States to do so in their national legislation.  The management organ has a duty to report to the supervisory organ at least once every three months.

Under the one-tier system, an administrative organ manages the SE.  Its members are appointed by the general meeting of shareholders.  The members elect a chairman who presides over the administrative organ. 

In both systems, members of a company organ are appointed for a maximum period laid down in the statutes not exceeding six years, but may be reelected, subject to the terms of the SE's statutes. 

Unless the SE's statutes provide otherwise, decisions by the company organs will be made on the basis of a simple majority of the members present or represented, provided at least half of the members are present or represented to constitute a quorum. 

Members of an SE's management, supervisory and administrative organs shall be liable, in accordance with the provisions applicable to public limited liability companies in the Member State in which the SE's registered office is situated, for loss or damage sustained by the SE following any breach on their part of the legal, statutory or other obligations inherent in their duties.[15] 

The Regulation further provides that an SE will hold a general meeting at least once each calendar year, within six months of the end of its financial year, unless the law of the Member State in which the SE's registered office is situated applicable to public limited liability companies carrying on the same type of activity as the SE provides for more frequent meetings.  General meetings may also be convened at any time by the management organ, the administrative organ, the supervisory organ or any other organ or competent authority in accordance with the national law applicable to public limited liability companies in the Member State in which the SE's registered office is situated.  In addition, one or more shareholders who together hold at least 10% of an SE's subscribed capital may request the SE to convene a general meeting and draw up the agenda therefore; the SE's statutes or national legislation may provide for a smaller proportion under the same conditions as those applicable to public limited liability companies.  In principle, the general meeting's decisions shall be taken by a majority of the votes validly cast. 

Annual Accounts and Consolidated Accounts

The Regulation provides that an SE shall be governed by the rules applicable to public limited liability companies under the law of the Member State in which its registered office is situated as regards the preparation of its annual and, where appropriate, consolidated accounts, including the accompanying annual report and the auditing and publication of those accounts.[16]  Special rules apply to the accounting of financial institutions and insurance companies.[17]

Winding Up, Liquidation and Insolvency of an SE

Winding up, liquidation and insolvency of an SE will be regulated by the national rules applicable to a public limited liability company created in accordance with the law of the Member State in which its registered office is situated.[18] 

When an SE no longer has its registered office in the same Member State as its head office, the Member State in which the SE's registered office is situated must require the SE to remedy the situation within a specified period, either by re-establishing its head office in the Member State in which its registered office is situated, or by transferring the registered office to the Member State in which its head office is situated.  If an SE fails to remedy the situation, the Member State authorities will order its liquidation.[19] 

After two years from its registration or after the first two sets of annual accounts have been approved, an SE may be converted into a public limited liability company governed by the law of the Member State in which its registered office is situated.  Such conversion shall not result in the winding up of the company or in the creation of a new legal person.  The terms of conversion are to be drafted by the management or administrative organ of the SE and adopted at the general meeting of the SE in accordance with the Regulation.[20] 

Worker Participation in an SE

The Directive aims to ensure that existing employee involvement in companies participating in the establishment of an SE will not be reduced or disappear due to the creation of SE.  To this end, arrangements for the involvement of employees must be established in every SE in accordance with the negotiation procedure described in the Directive.[21] 

For the purpose of negotiations, a special negotiating body representing the employees of the participating companies must be created.  This body and the competent organs of the participating companies will determine, by written agreement, arrangements for the involvement of employees within the SE.  Negotiations are limited in time; they commence as soon as the special negotiating body is established and may continue for six months thereafter.  The period of six months can be extended, by joint agreement, up to a total of one year from the establishment of the special negotiating body. 

In the event no agreement is reached, the Directive provides a set of standard rules on employee involvement in an SE.[22]  Essentially these rules oblige SE managers to provide regular reports on the basis of which there must be regular consultation with and information to a body representing employees.  Such reports should contain a company's current and future business plans, production and sales levels, management changes, mergers, divestments, potential closures and layoffs. 

The standard rules also concern employee participation in the administrative or supervisory bodies, in particular election, appointment, recommendation of members of the administrative or supervisory bodies and allocation of seats in such bodies.  In the case of an SE established by setting up a holding company or establishing a subsidiary, these rules would apply if at least 50% of the total number of employees in all the participating companies had the right to participate in company decision-making prior to the creation of the SE.  In the case of an SE created by a merger, the standard rule on participation of its workers would apply when at least 25% of the total number of employees in all the participating companies had the right to participate before the merger.  In the case of an SE established by transformation from a national company, the national rules on worker participation applied before the transformation will continue to apply to the SE.

It should be noted that the Directive does not set up a uniform European model of employee involvement applicable to SEs, as there is still a great diversity of national rules regarding the manner in which employees' representatives are involved in decision-making within companies.  Apart from employees' involvement, other social and labor legislation questions, in particular employment contracts or pensions, still will be governed by the national provisions applicable, under the same conditions, to public limited-liability companies. 

Conclusion

By adopting the Regulation and the Directive, EU Member States will agree on aspects of company law that have been subject to widely varying rules of national law for a long time.  This will create a better environment for doing business throughout the European Union by providing the possibility of creating a group of companies from different Member States which will be governed by the law of only one Member State, i.e., the Member State in which the SE has its registered office (the head office of an SE must be situated in the same Member State as its registered office).  Thus, the newly-created SE will be free from the obstacles arising from the disparity and the limited territorial application of national corporate laws.  However, the new company format will only be available to existing corporations. 

With regard to the social dimension of the functioning of SEs, the Directive will ensure that employees' right of involvement in issues and decisions affecting the life of their company is not limited by the creation of an SE.  The employees of an SE will have the right to be informed and consulted about its functioning and the right to participate in its management or supervisory bodies.