Opinion

After thirty years on the drawing board, a true pan-European company is now possible

The concept of a European company was first mooted by the European Commission in 1970. Policy-makers felt that a corporate vehicle governed by Commission law would help to promote free movement and develop the single market.

Member states wrangled over employee participation and it was another 30 years before the Council of Ministers adopted the European Company Statute Regulation (the Regulation), setting out the core company law framework, and a supplementary directive (the Directive), concerning employee involvement. Both were implemented in the UK last month, enabling businesses operating in more than one member state to incorporate a pan-European company, called a Societas Europaea (SE).

There are four ways to set up an SE: by merging two or more public companies from at least two different member states; by forming an SE as a holding company for public or private companies from at least two different member states; by forming an SE as a subsidiary of companies from at least two different member states; and by transforming a public company that has had a subsidiary in another member state for at least two years.

An SE registered under the Regulation will be a European public company with a share capital of at least e120,000 (£83,500). It must be registered in the member state where it has its administrative head office, but will (in principle at least) be able to operate throughout the EU with one set

of rules and a unified management and reporting system.

Falling short of its original ambition, the Regulation does not provide a comprehensive code of rules for the SE. It regulates the SE’s formation, board structure, the transfer of its registered office and employee involvement, but many other matters (eg taxation, insolvency, accounting, directors’ duties, pensions) are to be governed by the laws applicable to public companies in the member state in which the SE is registered. A UK-registered SE, then, will look rather different from SEs registered in other member states.

UK and European businesses will need to carefully weigh up the potential advantages and disadvantages of the SE. Potential advantages include the fact that there is currently no EU-wide legal framework for cross-border mergers. The SE may facilitate cross-border mergers of plcs or prove to be a suitable joint venture vehicle for pan-European projects (eg road/rail networks). In addition, the SE may transfer its registered office to another member state. A UK plc cannot do this; to migrate would mean winding up its operations in the UK and reregistering in the other member state.

The SE is also a single company operating with one set of rules across the EU. Multinationals adopting the SE could expand and restructure their businesses without the trouble and expense of setting up subsidiaries.

There may also be presentational advantages in using the ‘SE’ designation when a business wishes to project a ‘European’ image.

The SE’s critics highlight the following disadvantages: the SE is subject to a mixed legal regime, so companies and their legal advisers will have difficulty

in knowing whether the Regulation or member state law governs a particular

issue; negotiating employee involvement arrangements (information, consultation and participation) will be time-consuming and expensive; the Regulation does not provide for any preferential tax treatment of SEs; and although a network of subsidiaries entails an administrative cost, it does enable liabilities to be ringfenced.

The legal regime applicable to the SE is a complex amalgam of Commission and member state law, there are no tax incentives under the Regulation and negotiating with employee representatives will be a long and expensive process. These factors may deter many companies from establishing an SE.

But the SE’s future may be brighter than its detractors claim. The corporate structure will afford greater flexibility to companies working on a pan-European basis, and it will relieve the administrative and financial burden of running a network of subsidiaries. Perhaps it will be as a vehicle for cross-border joint ventures that the SE will realise its true potential.