The European Company (SE)

is a new legal instrument based on European Community law that gives companies the option of forming a European Company - 'Societas Europeae' (SE). An SE will be able to operate on a European-wide basis and be governed by Community law directly applicable in all Member States. The European Company Statute will be established by two pieces of legislation, namely a Regulation (directly applicable in Member States) establishing the company law rules and a Directive (which will have to be implemented in national law in all Member States) on worker involvement.

It can be set up in one of four ways:

• By the merger of two or more existing public limited companies from at least two different EU Member States;
• By the formation of a holding company promoted by public or private limited companies from at least two different Member States;
• By the formation of a subsidiary of companies from at least two different Member States;
• By the transformation of a public limited company which has, for at least two years, had a subsidiary in another Member State.

The creation of the European Company Statute will mean in practice, that companies established in more than one Member State will be able to merge and operate throughout the EU on the basis of a single set of rules and a unified management and reporting system. They will therefore avoid the need to set up a financially costly and administratively time-consuming complex network of subsidiaries governed by different national laws. In particular, there will be advantages in terms of significant reductions in administrative and legal costs, a single legal structure and unified management and reporting systems.

The European Company must be registered in the Member State where it has its administrative head office.

Under the Directive on worker involvement, the creation of a European Company will require negotiations on the involvement of employees with a body representing all employees of the companies concerned. This directive obliges SE managers to provide regular reports, consult and inform to a body representing the companies' employees. These reports must detail the companies' current and future business plans, production and sales levels, implications of these for the workforce, management changes, mergers, divestments, potential closures and layoffs.

Where employees were previously covered by participation rules, a European Company would be obliged to apply standard principles on participation of its workers, if no other agreement can be reached.

In the case of a European Company created by a merger, the standard principles on participation of its workers has to be applied when at least 25 % of employees had the right to participate before the merger. A Member State (Germany) need not implement the Directive on participation in the case of SEs created by merger, but in that case the SE could be registered in that Member State only if an agreement was concluded or when no employees were covered by participation rules before the SE was created.

In the case of a transformation of a national company into an SE, the arrangements for worker participation applied by this national company prior to its transformation as a European Company would have to continue to apply.

This will make Germany a rather unattractive place for a SE especially for Companies from abroad and for potential partners from outside. As soon as the German partner in a SE-fusion contributes more than 25 % of the employees, then 50 % of the Supervisory board members could be trade union members if no other agreement can be reached.

The minimum capital requirement has been set at 120 000.- EUR so as to enable medium-sized companies from different Member States to create an SE.

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