DEPARTMENT OF LAW, UNIVERSITY OF CYPRUS

SUMMER SCHOOL IN “EUROPEAN COMMERCIAL LAW”

European Company Law

Dr Thomas Papadopoulos,
LLB with Distinction (Thessaloniki), MJur, MPhil, DPhil (Oxford),
Ass. Professor, Department of Law, University of Cyprus,
Editorial Secretary, European Company Law (ECL) Journal (Kluwer)
papadopoulos.thomas@ucy.ac.cy
The Societas Europaea or European
Company (SE)
Council Regulation (EC) No. 2157/2001
on
the European Company

Council Directive 2001/86/EC

supplementing
the Statute for the European Company
 What is the European Company Statute?

It is a legal instrument based on EU law that gives companies the

option of forming a European Company – known formally by its
Latin name of ‘Societas Europeae’ (SE). An SE can operate on a
European-wide basis and be governed by Community law directly
applicable in all Member States. The European Company Statute is
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 implement in
national law in all Member States) on worker involvement.
 The European Company (SE) suffered
a very lengthy thirty year negotiating
period. This was due to the complexities
of the company law issues involved, the
sharp divergence of company law,
corporate governance, and corporate
cultures across the Member States, and
the particular sensitivities raised on
specific questions.
 THE EUROPEAN COMPANY AS A
LEGAL ENTITY

Article 1(1):
A company may be set up within the territory of the
Community in the form of a European public limited-liability
company (Societas Europaea or SE) on the conditions and in
the manner laid down in this Regulation.
 Internal Market Commissioner Frits Bolkestein said:
"Adoption of the European Company Statute will give
companies the option of using this efficient structure
for their pan-European operations. 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. This is a practical step to
encourage more companies to exploit cross-border
opportunities and so to boost Europe's
competitiveness in accordance with the objectives of
the Lisbon Summit.“ [October 2001]
 The adoption of the European
Company represents the first major
attempt by
the EU to support
entrepreneurialism and cross-
border mobility through the
development of a new corporate
form.
Recital 1 of the SE Regulation links the SE to the
wider economic and social benefits of the
internal market. It notes that completion of the
internal market requires not just that barriers to
trade are removed (the traditional concern of
EU rules), but that the structures of production
are adapted ‘to the EU dimension’ and that
‘companies the business of which is not limited
to satisfying purely local needs should be able
to plan and carry out the reorganization of their
business on a EU scale’.
DATA

-Since introduction of the European Company Statute in

October 2004, the number of SEs has increased steadily
year by year (almost at exponential growth rates). In
October 2012 the ETUI European Company Database
(ECDB) provides information on a total of 1426 SEs.
-More than 50% of the normal SEs are active in service
sectors, mainly financial and commercial services. But a
considerable number of SEs are also found in the metal
and chemical sectors.
 For more details, see:
http://www.worker-participation.eu/Eu
ropean-Company
DESIGN
The SE is governed by the SE company regime. The
regime establishes, as a result, a European corporate
form, independent, in theory, of the domestic company
laws of the Member States. In effect, however, the SE
remains strongly linked to domestic law, albeit
incorporating the SE regime, as the company is
incorporated and registered in a particular Member
State. National rules (applicable to public limited
liability companies) in practice govern the SE in most
key areas and are built into the structure of the SE
regime.
renvoi (referral) technique.
Ultimately, however, notwithstanding the
weaknesses in the regime, and the
dilution of the SE regime by reference to
national rules in almost all key areas,
its central advantage remains that
companies now have a mechanism for
avoiding complex and costly networks of
subsidiaries and for rationalizing
reporting and board/management
structures.
Formation is governed by the law
applicable to public limited liability
companies in the Member State in
which the SE establishes its registered
office (Article 15(1)).

The SE acquires legal personality on

the date on which it is registered
(Article 16(1)).
How can a European Company 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.
Basic formalities are set out in Article
11. Under Article 11(1), the name of
the SE is to be preceded or followed by
‘SE’.
Article 9
1.  An SE shall be governed:
(a) by this Regulation,
(b) where expressly authorised by this Regulation, by the provisions of its
statutes
or
(c) in the case of matters not regulated by this Regulation or, where
matters are partly regulated by it, of those aspects not covered by it, by:
(i) the provisions of laws adopted by Member States in implementation of
Community measures relating specifically to SEs;
(ii) the provisions of Member States' laws which would apply to a public
limited-liability company formed in accordance with the law of the
Member State in which the SE has its registered office;
(iii) the provisions of its statutes, in the same way as for a public limited-
liability company formed in accordance with the law of the Member State
in which the SE has its registered office.
Comment on Article 9:
The potential for the SE to become, in effect,
governed by national law is, therefore,
considerable. This criticism is often raised by
those sceptical as to the degree of innovation the
SE regime introduces in practice. The
Commission has, however, justified the
embedding of the SE in national regimes given
that the degree of harmonization achieved in
company law with respect to public limited
companies ‘has made substantial progress’
(Recital 9).
 Article 10
Article 10 confirms the connection of the
SE to national regimes for public limited
liability companies (national company
law). It provides that, subject to the
Regulation, the SE is to be treated in the
Member States ‘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’.
 What are the advantages of setting up a European
Company?
 
 
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.
What are the advantages of setting up a European Company?
 
By setting up as a European Company a business can restructure fast and
easily to take the best possible advantage of the trading opportunities offered
by the Internal Market. European Companies with commercial interests in
more than one Member State will be able to move across borders easily as the
need arises in response to the changing needs of their business.
This is because the Statute will allow an SE registered in Member State A to
move its registered office to Member State B without, as is the case now,
having to wind up the company in Member State A and re-register it in
Member State B.

For pan-European projects, for example Trans-European Network projects in

the transport or energy sectors (the upgrading of railway lines/road networks)
a single European Company could attract private venture capital more easily
than a series of national companies all operating under national rules.
Are companies obliged to become European Companies?
No. But if they wish to operate in a series of different
Member States without establishing themselves as an SE
they will have to respect a series of national laws
governing company start-ups, often at considerable legal
and administrative cost.

Will there be a central register of European Companies?

No. Each SE will be registered in a Member State on the
same register as companies established under national
law. However, the registration of each SE will be published
in the EC’s Official Journal
 Article 7
The registered office of an SE shall be
located within the Community, in the
same Member State as its head office.
A Member State may in addition
impose on SEs registered in its territory
the obligation of locating their head
office and their registered office in the
same place.
 Can a European Company be registered in any
Member State in which it operates (e.g. where it has a
mailbox) or must it be registered where it has its
operational headquarters?
The European Company must be registered in the
Member State where it has its administrative head office.
This is the only system that allows effective supervision
of the whole SE, so as to avoid the SE being used for
doubtful practices such as tax fraud or money laundering.
This approach, in effect, follows the ‘real seat’ doctrine with
respect to the governing law of a company. This point is
expressly acknowledged in Recital 27 which states, however,
that ‘the ‘‘real seat’’ arrangement adopted by this Regulation
in respect of SEs is without prejudice to Member States’ laws
and does not pre-empt any choices to be made for other EU
texts on company law’. Member States may also require that
an SE registered on its territory maintain its head office and
registered office in the same place. The Member State in
which the SE maintains its registered office is used throughout
the Regulation as a key connecting factor and is determinative,
for the most part, of the legal regime which applies.
What happens if an SE does not comply with
Article 7?
Article 64 addresses the situation where an SE no
longer complies with the requirements of Article
7. It establishes a regime whereby the SE is
required to regularize its position by re-
establishing its head office in the Member State
where its registered office is situated or by
transferring its registered office in accordance
with Article 8. If the SE does not comply, the
Member State in which it is registered is to ensure
that the SE is liquidated.
 Transfer of registered office

One considerable advantage of the SE

is the ease with which the SE’s
registered office can be transferred,
without a liquidation of the SE, which
enhances its pan-EU mobility.
The transfer regime is set out in Article
8.
Some of the major features of the regime include: the drawing up of a
transfer proposal (and its publication) by the management or
administrative body of the SE which covers, inter alia, any implications
the transfer may have for employees’ involvement and any rights
provided for the protection of shareholders and/or creditors (Article
8(2)); the drawing up of a report by the management or administrative
body ‘explaining and justifying the legal and economic aspects of the
transfer and explaining the implications of the transfer for shareholders,
creditors and employees’ (Article 8(3)); at least one month’s notice for
the SE’s shareholders and creditors to examine the transfer proposal at
the SE’s registered office in advance of the general meeting called to
decide on the transfer (Article 8(4)); and general meeting approval of the
transfer (Article 8(6)). Article 8(6) also requires that at least two months
must elapse between the presentation of the transfer proposal and the
transfer decision by the general meeting. Member States may, for SEs
registered on their territory, adopt rules to protect minority shareholders
(Article 8(5)).
 DATA
69 SEs (not including 3 transformed and
5 deregistered SEs) have moved their seat
into another country. From NL, LU and
DE relatively many companies moved to
another EEA member state. The real
reason behind the transfer is rarely known
(for example tax optimization). Most of
the companies refer to their international
re-organization processes.
Where will a European Company be
taxed?
Despite Commission proposals to this
effect, the SE statute does not contain
any tax arrangements. An SE will
therefore, for tax purposes, be treated
as any other multinational company
according to the national fiscal
legislation applicable at company level
or branch level.
Must European Companies be publicly quoted?

No – private companies and medium sized

companies may also opt to become European
Companies. If an SE’s shares are quoted, it must be
treated in the same way as public companies
established under national law.
The minimum capital requirement has been set at
120,000 euros so as to enable medium-sized
companies from different Member States to create
an SE.
Capital regime
A minimum capital requirement applies to the SE.
Under Article 4(2), the subscribed capital may not
be less than 120,000 Euros. This requirement is
designed to ensure that the SE is ‘of reasonable
size’ and that SEs have ‘sufficient assets without
making it difficult for small and medium-sized
undertakings to form SEs’ (Recital 13).
Capital maintenance rules are governed by the
relevant national law on public limited liability
companies, connected through the law of the
Member State in which the SE has its registered
office (Article 5).
Board Governance
Choice is at the heart of the SE governance regime
which is designed to ensure that the ‘SE [is] efficiently
managed and properly supervised (Recital 14)’.
Companies may choose to adopt a two-tier board
structure, with a management and supervisory board,
familiar from continental, and particularly German
corporate governance or a single-tier (unitary) board,
reflecting Anglo-American practice. The Regulation
establishes minimum requirements for each system
(subject to the relevant national law and the SE
statutes) which, in essence, delineate the respective
functions of the SE’s governance structures.
Board Governance
Recital 14 refers expressly to the two major
governance options, noting that it must be borne
in mind that there are at present in the EU two
different systems for the administration of public
limited liability companies. Although an SE
should be allowed to choose between the two
systems, the respective responsibilities of those
responsible for management and those
responsible for supervision should be clearly
defined.
 Board Governance

Under Article 38, the SE is comprised of

the general meeting of shareholders and
either a ‘supervisory organ and a
management organ (two-tier system) or an
administrative organ (one-tier system),
depending on the form adopted in the
statutes’.
 Shareholder meetings
The general meeting regime for
the SE is set out in Articles 52–60.
Disclosure and annual accounts
The regime applicable to SEs with respect to annual
accounts (and consolidated accounts) is set out in Articles
61 and 62. The SE is subject to the rules applicable to
public limited liability companies in the Member State of
its registered office ‘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’. Article 62
provides that the particular disclosure requirements
applicable to credit institutions and insurance companies
in accordance with the relevant sector-specific directives
apply to SEs in these forms.
worker involvement
The employee participation regime was particularly
contentious. Employee participation (or co-
determination) is well-established in some continental
Member States but not elsewhere. Co-determination
Member States were concerned that the SE would be
used to evade employee participation rights already
applicable, while other Member States did not want a
mandatory employee participation regime, and
employee participation in key management decisions,
to be imposed on the SE. This divide is best
represented by the German and UK negotiating
positions on employee participation.
What are the provisions for worker involvement in European
Companies?
Under the Directive on worker involvement, the creation of a
European Company requires negotiations on the involvement of
employees with a body representing all employees of the companies
concerned. If it proved impossible to negotiate a mutually-
satisfactory arrangement then a set of standard principles, laid down
in an annexe to the Directive would apply. Essentially these principles
oblige SE managers to provide regular reports on the basis of which
there must be regular consultation of and information 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.
What are the provisions for worker involvement in
European Companies?
In certain circumstances, where managers and employee
representatives were unable to negotiate a mutually-
satisfactory agreement and where the companies
involved in the creation of an SE were previously
covered by participation rules, a European Company
would be obliged to apply standard principles on
participation of its workers. This would be the case of a
European Company created as a holding company or
joint-venture when a majority of the employees had the
right, prior to the creation of the SE, to participate in
company decisions.
What are the provisions for worker involvement in
European Companies?

In the case of a European Company created by a merger,

the standard principles on participation of its workers
would have to be applied when at least 25 % of employees
had the right to participate before the merger

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.
The need for a common European Company

There is a need for a form of incorporation which:

(A)is as uniform as possible from country to country
so that commercial enterprises are able to operate in
familiar territory when they use a foreign company of
this,
(B) has the special characteristic that the company can
change nationality, i.e. it can be transferred to another
country, without needing to be liquidated in the
country of origin and be re-incorporated in the
receiving country.
The need for a common European Company

Aims and considerations

-creation of a cross-border corporation in the form of a limited company.

-A European Company is subject to independent legislation (methods of

establishing a European Company)

-Completion of the internal market. Companies should be able to plan and

carry out the reorganization of their business on an EU scale.

-Mergers (EU competition law).

-Legal and psychological difficulties. Companies can not truly act

internationally. The European company combats these concerns.

-A Regulation applies immediately and directly in all Member States.

The need for a common European Company

Aims and considerations

-Companies with a European dimension (Recital 7 of the Preamble:

The provisions of such 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 law).

-capital markets rules apply also to European Companies. The use of a

European Company as a form of incorporation should naturally not be
used as a means of avoiding stock exchange rules and the rules for
prospectuses, securities trading and so on.

-It takes the form of a company with share capital since this is the form
most suited to the needs of a company carrying on business, on
European scale.
The need for a common European Company
Aims and considerations

-Its legal basis is Art. 308 EC (now, Art. 352, 352 TFEU). Recital 28 of
the Preamble: The Treaty does not provide, for the adoption of this
Regulation, powers of action other than those of Article 308 thereof.)

-The principles of subsidiarity and proportionality are satisfied.

Recital 29 of the Preamble: Since the objectives of the intended action,
as outlined above, cannot be adequately attained by the Member States
in as much as a European public limited-liability company is being
established at European level and can therefore, because of the scale and
impact of such company, be better attained at Community level, the
Community may take measures in accordance with the principle of
subsidiarity enshrined in Article 5 of the Treaty. In accordance with the
principle of proportionality as set out in the said Article, this Regulation
does not go beyond what is necessary to attain these objectives.
The structural changes etc. which are
now possible.
The two most significant new possibilities for cross-
border corporate mobility which the SE Regulation
introduces are:

1) the possibility of making cross-border mergers,

when this is carried out in association with the
formation of a European Company,
2)the possibility of moving the company domicile
(seat transfer) to another country, once a European
Company has been set up.
The structural changes etc. which are now possible.
-EU Company Law has not previously allowed a cross-border merger by
which a company in one country takes over a company in another country
through merger (absorption or combination) or by civil law universal
succession. It has not been possible to retain legal personality in a cross-
border merger. One of the companies must be liquidated and thus cease to
exist (with subseqent taxation and disposal of shares by the shareholders),
or alternative solutions must be used, such as the formation of a joint
subsidiary company or a common holding company.

The SE Regulation now makes such a cross-border merger a possibility.

A European Company could be formed by a cross-border merger.
(see, Tenth Directive 2005/56/EC of the European Parliament and of the
Council of 26 October 2005 on cross-border mergers of limited liability
companies, which was adopted after the SE Regulation).
The structural changes etc. which are now
possible.

However, this does not mean that there is ‘open season’ for cross-border
mergers:
1)The authorities of the individual Member States have a right of veto, as
they can prevent a merger taking place if it is ‘against the public interest’
(formation of a European Company).
2)A cross-border merger can only take place when a European Company is
formed, but it can not be used subsequently in the life of a European
Company by allowing the cross-border merger of a European Company
with, for example, another European Company or with an ordinary company
in another country, unless again this is connection with the formation of
another European Company.
The structural changes etc. which are
now possible.
Until now EU Company Law has not allowed a cross-border transfer of
a company, with the retention of its legal personality.

This is now made possible by the European Company, once a European

Company has been formed.
The structural changes etc. which are now possible.
-Seat transfer and retention of legal personality create lots
of problems.
-See, case law on seat transfer and corporate
mobility(Centros, Daily Mail etc)
-The 14th Company Law Directive was not adopted.

-The European Company allows seat transfer. It enables

movement to be made from one country to another, both in
the company’s statutes and in fact, in such a way that the
legal personality of the company is maintained. So, the
European Company can freely choose its domicile.
What has not (yet) been
achieved.
Still far from true harmonization

Still far from a transnational

undertaking
What has not (yet) been achieved.
Problems
renvoi (referral) technique
-The SE Regulation uses the renvoi (referral) technique.
Renvoi means that on a number of points, such as the
maintenance of capital or the increase or decrease of
capital, there are no independent rules for European
Companies and reference is merely made to the conditions
that apply in the European Company’s home country
(national company law).
This technique leads to lack of uniformity from country to
country in matters such as the capital status of European
Companies etc.
Is “supranational”?
What has not (yet) been achieved.
Problems
renvoi (referral) technique
However, EU Company Law Directives are
implemented in the Member States. This
gives a degree of uniformity.
Article 9(2): The provisions of laws
adopted by Member States specifically for
the SE must be in accordance with
Directives applicable to public limited-
liability companies referred to in Annex I.
What has not (yet) been achieved.
Problems
-Uniform taxation of European companies? Calculation of
taxable income and rates of taxation? (European Parliament
tried to obtain uniform tax rules)

-Recital 20 of the Preamble: “This Regulation does not cover

other areas of law such as taxation, competition, intellectual
property or insolvency. The provisions of the Member States'
law and of Community law are therefore applicable in the
above areas and in other areas not covered by this
Regulation.”
What has not (yet) been achieved.
Problems
-The SE Regulation has not established a common
European law governing corporate groups (national
company laws apply only to domestic companies and not
to foreign companies even if they are linked to the
domestic company-see also subsidiaries). It is therefore
highly complicated for groups with a parent company in
one country and with subsidiaries in one or more other
countries to get a legal overview of what the companies of
the group may or may not do in relation to each other
(studying the company law of different Member States)
-in favour / against harmonization.
-The SE Regulation has no provisions for SE group
enterprises.
What more can be achieved? FUTURE PERSPECTIVES
Article 69: Five years at the latest after the entry into force of this Regulation, the
Commission shall forward to the Council and the European Parliament a report on the
application of the Regulation and proposals for amendments, where appropriate. The
report shall, in particular, analyse the appropriateness of:
(a) allowing the location of an SE's head office and registered office in different
Member States;
(b) broadening the concept of merger in Article 17(2) in order to admit also other types
of merger than those defined in Articles 3(1) and 4(1) of Directive 78/855/EEC;
(c) revising the jurisdiction clause in Article 8(16) in the light of any provision which
may have been inserted in the 1968 Brussels Convention or in any text adopted by
Member States or by the Council to replace such Convention;
(d) allowing provisions in the statutes of an SE adopted by a Member State in
execution of authorisations given to the Member States by this Regulation or laws
adopted to ensure the effective application of this Regulation in respect to the SE which
deviate from or are complementary to these laws, even when such provisions would not
be authorised in the statutes of a public limited-liability company having its registered
office in the Member State.
Article 8: An SE which has transferred its registered office to another Member State shall be considered, in
respect of any cause of action arising prior to the transfer as determined in paragraph 10, as having its
registered office in the Member States where the SE was registered prior to the transfer, even if the SE is sued
after the transfer.
The 2010 Commission Report on the application of the
Statute for a European Company (SE)
 
In November 2010, the European Commission presented a
Report to the European Parliament and the Council on the
application of the Regulation on the Statute for a European
Company (SE). This Report is part of the review process of the
SE Regulation. The Report includes a description of the positive
and negative factors, which influence setting up an SE and
highlights trends on the distribution of SEs throughout the EU. It
also analyses the main problems encountered when setting up
and running an SE. An accompanying Commission Staff
Working Document supplements the assessment. It takes
inventory of SEs and analyses the flexibility of relevant national
legislation in the different Member States.
The 2010 Commission Report on the application of the
Statute for a European Company (SE)
Advantages:
The Report stresses that the European company has made it
possible for companies with a European dimension to
transfer the registered seat cross-border, to better reorganize
and restructure, and to choose between different board
structures. At the same time, it has upheld the rights of
employees to be involved in decision-making within
companies and has protected the interests of minority
shareholders and third parties. The European image and
supranational character are additional advantages that the
Statute offers to companies.
The 2010 Commission Report on the application of the
Statute for a European Company (SE)
Disadvantages: The Report acknowledges that the application of
the Statute also poses a number of practical problems. 1)First, the
SE Statute does not result in a uniform SE legal form across the
European Union, but in 27 different types of SEs. 2)Second, the
Statute contains multiple references to national law and
uncertainty remains as to the legal implications of the Statute’s
directly applicable rules and their interface with national law.
3)Third, the uneven distribution of SEs across the EU suggests
that the Statute does not respond sufficiently well to the needs of
companies in all 27 Member States. The Commission is currently
reflecting on potential amendments to the SE Statute, with a view
to making proposals in 2012, if appropriate.
 THE NEXT STEP-FUTURE
ACTIONS

SOCIETAS PRIVATA EUROPAEA—

THE COMMISSION’S PROPOSAL
FOR A REGULATION ON A
STATUTE FOR A EUROPEAN
PRIVATE
COMPANY (EPC)