European Company (Societas Europaea)

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by Karl Riesenhuber

1. Subject and historical development

The European Company (Societas Europaea (SE))—sometimes considered to be the ‘flagship of EC company law’ (Hopt)—is a supra-national European public limited liability company subject to EU law with legal personality and with capital divided into shares of not less than €120,000. The name of a European Company shall be preceded or accompanied with the abbreviation SE. The SE is one of several supra-national forms of companies under EU law: the European Economic Interest Grouping (EEIG), introduced in 1985, is a company-form designed for object-specific cooperation and for the cooperation of those in liberal professions; and the European Cooperative (Societas Cooperativa Europaea), is a society with the principal object of satisfying the needs of its members or developing their economic and social activities; its structure otherwise mainly follows that of the SE. The Commission has recently published a proposal for a European Private Company (Societas Privata Europaea), a supra-national form of a limited company.

The SE was intended to provide a genuinely European company form, in principle not tied to the national legal system of a Member State. Structured uniformly throughout the Union, the SE is expected to enhance Union-wide cooperation, to result in efficiency gains, to provide for greater mobility and to find acceptance throughout the internal market more easily than national company forms.

The European Company was the first project of EU company law and turned out to be the most protracted one. The structure of the SE on the one hand and the issue of employee involvement on the other proved to be extraordinarily controversial in substance; these issues could ultimately only be resolved on a procedural basis. Practitioners and academics had proposed a European Company as early as 1959 (Thibièrge, Rodière, Sanders, E Ulmer). Based on a draft by Pieter Sanders, the Commission issued a first proposal for the European Company in 1970. In no less than 400 articles, the proposal comprised a fully-fledged company law for public limited companies including rules on co-determination, accounting and taxation. In substance, the proposal was largely based on the German model with its two-tier system, a one-third employee co-determination scheme and a European works council. Subsequently, legislatures backed away from these core elements and opened the originally uniform proposal for alternative structures, leaving more room to make rules compatible with the national cultural traditions of company structures and employee involvement. A 1989 proposal split up the rules of organization on the one hand and the rules of employee involvement on the other, determining the former in a regulation and the latter in a directive. Pursuant to this proposal, the SE could now be structured alternatively according to the one-tier or the two-tier system. With regard to co-determination, the directive provided fewer than four models which were conceived to be equivalent. Ultimately, the procedural mechanism of a negotiation-model employed in Dir 94/45 on the establishment of a European works council proved to be groundbreaking. The Davignon report proposed also using the negotiation-model for the issue of employee involvement in the SE. A political consensus was reached at the 2000 Nice summit (‘the miracle of Nice’; ‘the end of the Thirty Years’ War’) and the SE Reg 2157/2001 and the accompanying SE Employee Involvement Dir 2001/86 (‘SE Directive’) were enacted on 8 October 2001.

The SE Regulation as finally enacted contains only 70 articles, the SE Directive another 17, accompanied by the ‘standard rules’ of the annex. The regulation, divided into seven titles, provides for (i) general rules, (ii) rules on the different forms of formation and (iii) on the structure of the SE as well as (iv) annual accounts, (v) liquidation, (vi) additional and transitional provisions and (vii) final provisions. The SE Directive provides for (i) general provisions, (ii) the negotiating procedure and (iii) rules concerning the principles of cooperation between the organs of the SE and the employee representatives.

In order to reach an agreement about the European Company, the originally uniform structure of the company had to be sacrificed and the rules on employee involvement had to be limited to a mere negotiation procedure. As a result, if one examines the details, there are as many different SEs as there are Member States. At the same time, the emerging flexibility makes it a particularly interesting company form.

2. Applicable law

While the central issues of formation and structure of the SE are regulated by EU law and, even though the SE Regulation is by its nature as a regulation, directly applicable in all Member States, many details require transposition into or supplementation by national law.

The determination of the applicable law follows a hierarchy instituted by Art 9 SE Regulation. Pursuant to this provision, (1) the SE shall be governed by the provisions of the regulation which, as directly applicable secondary legislation (Art 288(2) TFEU/249(2) EC; regulation), take precedence over the law of the Member States. The SE Regulation, however, only governs in detail the formation of the SE and otherwise merely contains a framework of rules to be fleshed out by national law. (2) Where the regulation allows for a determination by the company statutes, such provisions apply. (3) Matters which are not or not fully regulated by the SE Regulation are subject to the national law of the Member State where the company has its registered office. (a) Primarily, such provisions as specifically relate to SEs apply, otherwise (b) the respective rules applicable to national public limited liability companies and (c) the provisions of the SE’s statutes. As follows from the general principle of equivalence, Member States’ rules governing the SE must not be less favourable than the respective rules for national public limited liability companies. In that Art 9(2) SE Regulation requires that such rules be ‘in accordance’ with directives applicable to public limited liability companies, they may not be more favourable (see also the prohibition of discrimination in Art 10 SE Regulation).

3. Formation

The SE can (only) be formed in five ways (see the exhaustive list in Art 2 SE Regulation). In principle, the formation requires a cross-border element (‘international element’; as a matter of policy this is increasingly contested). There is however an exception where an existing SE is setting up a subsidiary (Art 3(2) SE Regulation). The formation of an SE by a natural person is—in contrast to the formation of national companies—not possible; additionally, only companies of certain (national) legal forms may form an SE (see, however, Art 2(5) SE Regulation).

(1) An SE can be formed by means of a merger, when two (or more) national corporations (as referred to in Annex I SE Regulation) from different Member States merge; the merger can be by acquisition or by formation of a new company; concerning the substance of the merger the legislature could—to a large extent—make use of the mechanism provided for in Council Directive of 1978 concerning mergers of public limited liability companies (Dir 78/855, now Dir 2011/35). (2) Public companies or private liability companies (as referred to in Annex II SE Regulation) that are either governed by the laws of different Member States or have had a subsidiary company governed by the law of another Member State for at least two years or have a branch situated in another Member State can create a holding SE (Art 2(2), 32–34 SE Regulation); in this case the original companies (that created the holding SE) continue to exist.

(3) Under the same requirements of internationality as (2) above, companies and firms in the wide sense of the freedom of establishment (Art 54 TFEU/48(2) EC) can form a subsidiary SE, ie a community undertaking (freedom of establishment). (4) Furthermore, a public limited liability company, formed under the law of a Member State, which has its registered office and head office within the Union can be transformed into an SE; this does not result in the winding up of the company or the creation of a new legal entity (Arts 2(4), 37 SE Regulation); this type of formation was especially controversial, as circumvention of employee involvement seemed most likely. (5) Finally, an SE can be formed by setting up a subsidiary SE (Art 3(2) SE Regulation).

According to Art 15 SE Regulation, the formation is governed by the law applicable to public limited liability companies in the Member State in which the SE established its registered office. Of course, the national law is harmonized in respect of the essential points by Dir 68/151 on coordination of safeguards (now Dir 2009/101) and Dir 77/91 on the formation of public limited liability companies and the maintenance and alteration of their capital. The required registration is also governed by the law of the Member State; it particularly requires that an agreement on employee involvement has been concluded or is superfluous (see 5. below) (Art 12 SE Regulation). The SE acquires legal personality on the date of registration (Art 16(1) SE Regulation).

4. Structure of the SE

The SE can be structured in different ways. Its structure comprises (1) a general meeting (Arts 52–60 SE Regulation) and (2) either a supervisory organ and a management organ (two-tier system) or an administrative organ (one-tier system) (Art 38 SE Regulation) (see the common rules for both systems in Arts 46–51 SE Regulation). The founders choose the system by means of a provision in the SE’s statutes. The right to choose a system allows for the respect and expression of the different traditions in the Member States (see Arts 39(5), 43(4) SE Regulation). The laws applicable to public limited liability companies in Germany, Austria and Poland have so far only recognized a two-tier-system; in Great Britain, Ireland and Spain only a one-tier-system has existed to date. Other Member States like France and Italy already had laws establishing the option to choose a system or mixed forms.

In the two-tier system, the management organ is responsible for managing the SE (Art 39(1)1 SE Regulation). The members of the management organ are appointed and removed by the supervisory organ. The supervisory organ, whose members are principally appointed by the general meeting, supervises the work of the management organ (Art 40(1)1 SE Regulation). For this purpose, the management organ regularly reports to the supervisory organ on the progress and the foreseeable development of the SE’s business (Art 41(1) SE Regulation). Additionally, the supervisory organ has other rights to be informed and to lead investigations (Art 41(2)–(5) SE Regulation). The supervisory organ also has to authorize certain transactions listed in the SE’s statutes (Art 48(1)1 SE Regulation).

The one-tier system does not assign management and supervisory duties to different organs. One single administrative organ manages the SE. The members of the administrative organ are in principle appointed by the general meeting (Art 43(1)1, (3) SE Regulation). The number of members is laid down in the statute of the SE; if employee involvement is regulated according to the SE Directive, the organ must consist of a minimum of three members (Art 43(2) SE Regulation). National law can provide that one or more managing director(s) must be responsible for the day-to-day management (Art 43(1)2 SE Regulation). The controlling function is fulfilled by the meetings of the administrative organ. The intervals between the meetings need to be laid down in the SE’s statutes; they may not exceed three months. The meetings are to be held in order to discuss the progress and foreseeable development of the SE’s business (Art 44(1) SE Regulation). Each member of the administrative organ is entitled to take note of any information submitted to the organ.

As a general rule—applicable to the one-tier and the two-tier structures—all board members are appointed for a period laid down in the statutes of the SE not exceeding six years. Re-appointment is possible (Art 46 SE Regulation). Unless the national law applicable to public limited liability companies provides otherwise, legal entities can be board members as well (not possible in Germany, for example) (Art 47 SE Regulation). Concerning the duties of the board members, the regulation only provides the duty of confidentiality (Art 49 SE Regulation), and rules concerning liability (Art 51 SE Regulation). A quorum requires the presence of at least half of the members; decisions may be taken with a majority of the members present or represented. In the event of a tie, the chairman of each organ casts a vote unless a different procedure is provided for in the statutes; however, no other procedure is allowed where half of the supervisory organ consists of employees’ representatives (Art 50 SE Regulation).

5. Employee involvement

A core problem which contributed to the prolonged legislative process (see 1. above) was the issue of employee involvement, given that the traditions of the Member States differ with regard to the degree of employee involvement at the plant level and at the enterprise level. As a practical matter, Member States with a high level of employee participation (ie Germany) were afraid that the introduction of the SE might lead to a ‘flight from employee co-determination’ and result in a downward spiral (‘race to the bottom’). Agreement in substance proved difficult or even impossible, and thus the legislature eventually resorted to the procedural mechanism first employed in Dir 94/45 on the European works council. The negotiation on employee involvement is left to the affected employer and employees (‘contract governance’), but the negotiation procedure is structured by procedural safeguards (quorums and the ‘standard rules’ of the annex in the case that negotiations fail) on the one hand and the so-called ‘before and after’ principle on the other.

The negotiation process takes place ‘in the shadow’ of the standard rules provided for in the annex to the directive that apply when the negotiations fail (unless the employee-side refuses to open or terminates the negotiations) (Art 7 SE Directive). Under the standard rules, employee participation at the shop level is carried out through a ‘representative body’ (sometimes called the SE-works council); at the level of the enterprise—depending on the level of participation in the participating companies before the SE was established—employee involvement in principle takes place through involvement in the supervisory or administrative organ. The representative body is formed on the basis of a representative model that takes account of the number of employees in each Member State. Similar to a European works council, the representative body has certain rights of information and consultation. The employee involvement complies with the ‘before and after’ principle. When the SE is established by transformation, the level of participation in the administrative or supervisory body remains the same as before registration; in all other cases the employees can elect, appoint, recommend or oppose the appointment of a number of members of the administrative or supervisory body of the SE equal to the highest proportion in force in the participating companies concerned before registration of the SE. Employee participation is only superfluous in cases where none of the participating companies previously included employee participation.

The negotiating process is initiated by the participating companies which inform the employees’ representatives (or, alternatively, the employees). This is in the interest of the company management since the SE, in principle, can only be registered once an agreement on employee involvement has been concluded (Art 12(2) SE Directive). The employees of the participating companies are represented by a special negotiating body which is to be initially created; here, too, a representative model ensures that employees from the undertakings (subsidiaries, establishments) in all Member States are represented (Art 3(1), (2) SE Directive). The competent organs of the participating companies and the special negotiating body negotiate with the aim of reaching an agreement concerning the involvement of the employees within the SE. The agreement is pre-shaped by certain minimum requirements (Art 4 SE Directive). The interests of the employees are secured by means of quorums within the special negotiation body, particularly where decisions resulting in the reduction of participation rights and decisions to not open or to terminate the negotiations are concerned (Art 3(4), (6) SE Directive). Should the negotiations not lead to an agreement within six months (or, if decided in joint agreement, within one year) the standard rules apply (unless the negotiations had never been opened or were terminated by the negotiation body) (Art 7 SE Directive).

6. Practical importance

Contrary to initial concerns, the SE is of considerable importance in practice. As of January 2011, some 700 SEs have been registered (158 in Germany, 20 in France, 26 in the United Kingdom). The choice of different alternatives concerning the structure of the company as well as the negotiation rules on employee involvement offer several new and attractive options.


Krzysztof Oplustil and Christoph Teichmann (eds), The European Company—All Over Europe—A State-By-State Account of the Introduction of the European Company (2004); Stefan Grundmann, European Company Law, Organization, Finance and Capital Markets (2007); Horst Eidenmüller, Andreas Engert and Lars Hornuf, ‘Die Societas Europaea: Empirische Bestandsaufnahme und Entwicklungslinien einer neuen Rechtsform’ [2008] Die Aktiengesellschaft 721.

Retrieved from European Company (Societas Europaea) – Max-EuP 2012 on 18 June 2024.

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