European Company Statute:
Societas Europaea (European Company)
as a New Corporate Vehicle
May 2001 Dr Maria Chetcuti Cauchi. All Rights Reserved.
The proposed Societas Europaea is a company
organized under a supra-national
European law rather than the law of an individual Member State. Although
the SE is meant to be an optional form of incorporation, its aim is to
offer companies the facility of operating throughout Europe without the
constraints and burdens presented by the present system whereby a number
of domestic company laws can apply to a multinational group of companies.
The proposed European Company is an effort to mould a
supranational company, a creature of Community law which is to a
significant extent autonomous of MS laws. Under the new company law
regime, existing EU companies would be able to combine or reorganize their
business structure and set up a working structure which, in theory, would
be able to take full advantage of the single market, together with the
facility to transfer its seat from one MS to another with greater ease.
The ECS comes in a two pronged package.
The EU is on the threshold of implementing a Regulation
which will establish the first pure European public limited liability
company form: the Societas Europaea. SEs operating throughout
Europe will only need to comply with one set of rules, namely the EU
corporate law rules rather than cope with the dissimilar company law
regimes applicable in fifteen different MSs.
on worker participation constitutes the second limb of the law regulating
The two instruments currently await imminent
adoption, originally expected in May 2001.
The Regulation is scheduled to enter into force three years from
adoption and thus, MSs are given a time limit of three years within which
to enact national laws in compliance with the accompanying Directive. The
first SEs are expected to be registered in the year 2004.
envisaged by the original draftsmen
The completion of the internal market and the improvement
it brings about in the economic and social situation throughout the
Community mean not only that barriers to trade must be removed, but also
that the structures of production must be adapted to the Community
dimension. For that purpose it is essential that companies, the business
of which is not limited to satisfying purely local needs, should be able
to plan and carry out the reorganisation of their business on a community
The original intention behind the inception of the SE
was the creation of a supranational company completely independent of
MS’s laws. This idea was highly regarded by the Commission as the most
feasible way of increasing the quantity of ‘European law’, thus
creating a European perspective for businesses.
Obviously, this would break down the psychological barriers between MSs
and prompt a European outlook.
In this way, the idea that a company is tied to the State in which it is
registered would be circumvented; activities outside that MS would no
longer be regarded as ‘foreign’ activity and companies would be able
to take full advantage of the single market with the facility of
transferring their seat from one MS to another, without having to confront
the complications raised by various national laws in the case of limited
The idea of the SE as a new legal structure has been
envisaged with a view to providing a framework for those enterprises which
are established or which operate on a multinational level.
It is a fact that the present stage of company law harmonisation overcomes
some of the complications in restructuring companies from various MSs.
However, it does not discharge companies regulated by diverse legal needs
from the requisite of deciding on the particular national company law
jurisdiction under which to incorporate.
The aim of the proposal for a European Company is not
to substitute the national company laws already in force within MSs or to
necessitate MSs to put into operation a homogeneous company law code.
Rather, the SE would subsist in conjunction with companies belonging to
and operating in MSs and permit them to come together at a European level
without the related difficulties of seeking to function on the European
plane while coping with fifteen dissimilar sets of company
Its aim is to offer an optional arrangement whereby
companies may opt to be governed by a regime which is separate from
national systems, thus freeing them from the legal and practical
restrictions arising out of diverse legal systems.
In practice, this will mean that companies established in different MSs
will have the opportunity to merge into an SE and operate throughout
Europe under a single set of rules and a unified administration and
By resorting to a European Company form, an
enterprise can restructure expeditiously and without difficulty, thus
taking the best possible benefit of the trading prospects offered by the
Internal Market. In response to the changing
needs of the world of commerce, the SE will give European Companies
with business concerns in more than one MS the opportunity of moving
across borders without problems.
This will highly benefit pan-European projects such as
Trans-European Network projects in the transport or energy sectors.
A single European Company could attract by far more private venture
investment than any succession of national corporations could.
The SE is regarded as the solution to the problem of
conflict of laws in case of cross-border mergers. Corporations set up by
different laws, from different MSs could come together into a new company
or create a joint holding company which is presided over, not by the law
of a specific country but, by a homogeneous Community law. Operating
through a standardized regime surmounts the conflict of laws hurdle.
The Commission has always deemed the SE as a vital
ingredient of the Common Market itself.
The original draftsmen dreamt of a ECS that would, inter alia,
eliminate the disadvantages arising from the choice of different juridical
forms as well as remove differences in the powers of the boards of
administration and in the drawing of accounts and annual reports in a form
which is not homogeneous in all MSs.
It was believed that business in the internal market could be conducted by
supranational companies “of the federal type
[governed by] … a truly community law”, rather than by companies established under
The view that the Common Market should primarily be
carried by common companies has ideologically much to commend it, for a
European Company of this type would surely be an instrument designed to
merge national economies into a single European economy.
Whether this ambition has been reached or otherwise
is a matter which is to be seen in the years following the adoption of the
SE. However, at the outset,
it must be admitted that there exist serious prima facie grounds
for doubting this, especially obstacles entrenched in cultural differences
between different countries embracing different types of corporate law
The SE form is advantageous in that it would have the
possibility of moving its seat from one
Member State to another without the burdensome process of dissolution and
winding up. It will no longer be necessary to wind up the company in the
Member State where the headquarters were originally established and to
re-register the company in the Member State where the headquarters are
newly to be established.
At present, if such a company decides to relocate its seat within the EC
and chooses not to conduct business through branches in other member
states, it would have to be dissolved and wound up in its ‘home state’
and re-incorporated in the State where it chooses to have its new seat. If
a uniform regime is applied by means of
the ECS such problem of conflict of laws would be overcome, thus
maximizing the freedom of movement of such public companies.
The issue of employee involvement is a subject which
has been given high priority under the European Social Charter.
Since the primary inception of the concept of a European Company, employee
participation has been the subject of great controversy and discord.
Agreement on worker-involvement is likely to pave the way to accord on the
ECS, its adoption and its success as a feasible corporate vehicle.
Another advantage brought about by the proposed
European company law regime lies in the fact that this same law will
afford the same protection to shareholders and creditors in all MSs, thus
eliminating insecurity caused by a multitude of different laws which could
potentially be invoked in protection of these groups.
One of the motives behind the creation of the SE
was to encourage the formation of multinational companies with
superior economies of scale, thus enabling European enterprises to compete
more efficiently with their American and Japanese counterparts.
The current economic situation prevailing in Europe
necessitates a reform in the existing legal structures within which trade
is presently carried out; this is founded almost entirely on domestic
legislation and no longer tallies with the economic framework within which
it needs to advance to meet the aims of the EC Treaty. As a result,
considerable hurdles to the formation of groups of companies from
different MSs remain. The single market is moving towards a greater
integration of national markets and thus, legislation is required to
sustain companies whose business transcends the mere need of satisfying
local markets. It can do this only by facilitating the planning and
restructuring of business on a Community scale.
In this way, the term ‘SE’ included in the name
of every such European Company will connote a corporate form different
from that present in the different MSs - a corporate vehicle governed by a
unique, homogeneous legal regime - a free floating entity, which is not
attached to the legislative system of any particular MS but is only tied
to the supranational jurisdiction thus created by the European Community.
Companies operating at Community level are presently
required to sustain superfluous and expensive divisions in their
structures and organisations to meet the conditions imposed under national
Thus, the need to establish a costly and organizationally lengthy, complex
network of subsidiaries governed by different national laws should be done
away with, bringing about a substantial decrease in administrative and
In terms of administrative costs, it is estimated that up to €30 billion
could be saved. This would result in the ECS smoothening and
expediting the restructuring progress of European businesses on a
Evolution of the Societas Europaea
The concept of a European company has been in the
Brussels machinery for many years. The idea was first put forward by Thibiérge
at the Fifty-seventh Congress of French Notaries in 1959.
The concept was most particularly advocated by Professor Sanders in his inaugural speech at the Rotterdam School
of Economics in 1959.
The Commission supported the idea and on 29 April 1966 presented a
Memorandum on the creation of a European Commercial Company.
It also set up a group of experts, chaired by the same Professor Sanders,
to analyse the feasibility of such corporate vehicle and to consider the
potential advantages which a company governed by the same legal regime in
all MSs would have.
The latter group of experts
finalised a proposal in 1967. The proposed Statute faced a number
of obstacles and objections ever since its conception.
As a result, the ECS lay on the backburner until 1970
when finally, the Commission
issued its proposal.
The proposed Regulation was submitted to the Economic and Social Committee
of the Community, which adopted the text in 1972.
In 1974, the European Parliament rendered a favourable opinion thereon
after introducing some amendments in the already frequently-mentioned
field of worker participation. A revised proposal was produced in 1975
which endeavoured to produce a comprehensive scheme of company law; yet
this produced a result too
complex and lengthy.
Discussions were shelved in 1982; it was claimed that
the ECS was dependant on the Commission proposals for harmonisation
of MS’s legislation on groups of companies. In reality, the problem
faced by the ECS was that MSs could not reach consensus on a significant
number of areas. Thus, with little progress made, the idea was put on
impetus for the revival of the ECS proposal arrived in July 1988 when the
Commission circulated a memorandum inviting comments on the proposal.
The following year, the Commission submitted a proposal to the Council.
The Commission owes this revival to the 1992 deadline for the
completion of the Internal Market. According to its memorandum of July
the Commission was embarking on the exploration of a form of company
founded on a legal system independent of national systems.
This memorandum stressed that the obstacles to
cross-frontier co-operation emerge from the lack of a legal structure
regulating cross-frontier mergers, which compels enterprises to resort to
other methods of co-operation such as joint ventures and take-overs. Other
hindrances to cross-border co-operation include the diversity of taxation
systems applicable in the various MSs; the complexities of managing groups
of companies as a single economic component rather than as a collection of
the interests of the individual companies which make it up, as well as the
administrative obscurity surrounding the establishment of companies in
Another problematic matter which was addressed by the
Commission was WP. The Commission rightly pointed out that the WP issue
could not be regarded “just as a matter of social rights, but as an
instrument for promoting the smooth running and success of the
The majority of MSs decided that it was worth
preparing a new draft proposal. This was, however, not backed up by the
United Kingdom mainly due to its stand on WP. Ultimately, a proposal was
submitted by the Commission to the Council on 25 August, 1989.
On reviving the proposal in 1989, the Commission
decided to relocate the question of employee participation from the core
of the proposed Regulation, and to lay down optional systems of WP in a
This proposed Directive describes itself as ‘an indissociable
and ‘an essential supplement’
to the regulation.
The facilitation of cross-border operations again
lies at the very basis of the SE and this is reflected in the words of the
1989 proposal itself:
a regulation will permit the creation and management of
companies with a European dimension, free from the obstacles arising from
the disparity and the limited territorial application of national company
After bearing in mind the opinions and other
contributions of the various parties concerned,
the Commission produced a new text on 16 May 1991.
The outcome was the so-called Revised Proposal circulated in
In 1991 the whole project got stuck somewhere in the
pipeline mainly due to the project for a Directive on Workers’
Involvement in the SE. Unlike the initial proposals, this draft presented
the MSs with two options as to the management structure to be adopted by
the SE. The German style
provides for a two-tier board comprising a supervisory board which in turn
selects the management board. The
second option is a one-tier board in which shareholders directly elect the
management. This freedom in the selection of a board structure was
somewhat tampered by the supremacy conferred on the MS in which the SE has
its place of administration. Basically this means that the choice of a
management structure was limited to that allowed by the State in question.
Nonetheless, this proposal insistently continued to press for some element
of WP to be included on the board and due to the resultant lack of
agreement on the matter, the project seemed to be stuck and there was
little hope that it would ever emerge again.
April 1996 a draft Regulation was produced.
In the light of the persistent disagreement on issues regarding
cross-border mergers, registration and disclosure requirements, taxation,
auditing and accounting treatment and insolvency, the text was
considerably revised, with a large number of areas passed on to the realm
of national law. The drafters of
the ECS tried to circumvent the disagreements on these vital issues by
referring them to the national laws of MSs, hoping that when an adequate
number of SEs are formed, the ECJ will hastily build up a corpus of
legislation which will pave the way to the regular harmonisation of such
Despite this new compromise, agreement on the package could still not be
reached, particularly due to the problematic WP issue. Meanwhile, the need
for the ECS was still being felt, the more so after an exercise conducted
by the Commission revealed that the absence of an
form was costing European businesses thirty billion ECU per year.
Acknowledging that the inclusion of controversial
compulsory WP provisions constituted the main factor preventing the
development of the ECS, the Commission set up a group of experts to
deliberate on a possible solution to this problem.
The group proposed that the management and employees of the companies
taking part in the formation of the SE should seek to reach an agreement
by means of negotiations, failing which, default ‘reference rules’
should be resorted to. The group also proposed that one-fifth of the
supervisory board or the administrative board should be composed of
For a whole year, deliberation in Council continued,
evolving mainly around the issues of the default provisions, the legal
basis for the Regulation, conversion of an existing public limited company
into an SE and the condition that the registered office and the head
office of the SE must be located in the same MS. General agreement was
reached on the special negotiating board which was to be composed of
employee representatives and management; employees had the rights of
information and consultation, which had to reflect those found in the
Works Council Directive.
Building on the Davignon Report, the Luxembourg
Presidency put forward a new compromise to the Council and negotiations
proceeded under the UK, Austrian and German Presidencies. The bulk of the
package was agreed in the period between 1998 and 1999 under the Austrian
and German Presidencies and in fact, fourteen MSs signed an agreement.
Spain refused to join the agreement on the grounds that the draft was
poised in favour of countries with participation traditions.
Agreement on the Directive was considered impossible
until the Nice Summit in December 2000. The agreement reached takes into
account the diverse forms of employment relations existing in the MSs.
It was concluded that it should be up to the MS whether or not to
implement the Directive on WP in the case of SEs created by merger. Should
the MS choose not to implement the Directive, an SE would only be
registerable in that MS if an agreement was concluded which included
provisions for participation of workers, or in the absence of such
agreement, if none of the
companies involved had been governed by participation rules prior to the
registration of the European Company.
On the 20th December 2000, political
agreement on the ECS was reached at the Nice summit
and it has been described as a:
milestone agreement which marries the needs of business
with the needs of workers and reflects the Lisbon Summit approach that
good social policy is good economic policy.
Spain was ready to join in with the fourteen MSs on
the agreement concluded three years before, thus giving the go-ahead for
the adoption of the two instruments.
Presently, the Draft Regulation on the Statute for a
and the Draft Directive supplementing the Statute for a European Company
with regard to the involvement of employees
are pending before the European Parliament, which had to be consulted on
the two amended texts.
Final adoption was due to take place in May 2001 and
the package should enter into
force in 2004. Agreement on the ECS has been recognized as fundamental to
the formation of a fully integrated market in financial services
and it is hoped that the ECS does in fact reach such expectations.
political accord represents a major breakthrough for companies seeking an
efficient structure to operate on a pan-European basis. The European
Company will enable companies to expand and restructure their cross-border
operations without the costly and time-consuming red tape of having to set
up a network of subsidiaries. It is therefore a step forward in our
efforts to make the Internal Market a practical reality for business, to
encourage more companies to exploit cross-border opportunities and so to
boost Europe's competitiveness in accordance with the objectives of the
May 2001 Dr Maria Chetcuti Cauchi. All Rights Reserved.