The arrival of the Societas Europaea

07 October 2004

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For many policymakers, pan-European legal structures are an important symbol of a single market and a way of breaking down national barriers to cross-border activity. But, despite a lot of work over several decades, there have not yet been any significant breakthroughs, comments the law firm SJ Berwin. In spite of lobbying for many years, a pan-European investment fund structure is still on the starting blocks. In addition, although the European Union did give birth to a new form of business organisation intended for transnational co-operation in 1989 (the EEIG (or European Economic Interest Grouping)), this has limited use and has never really gained much momentum.

However, next month, 45 years after it was first proposed, the European company, governed (in large part) by a pan-European law and not the law of any one country, will become a reality. It will be known as the Societas Europaea (the Latin acting as a linguistic compromise), or SE, and will resemble a public limited company. The European law that facilitates this will have direct effect across the EU, and so the vehicle will, in theory, be available to businesses in every member state.

There is an important condition though; the company will have to be cross-border: either the shareholders have to be from at least two European countries, or there has to be a merger of companies from at least two countries, or an existing company that wants to convert to an SE must have had a subsidiary in another member state for at least two years. Still, there are plenty of businesses, including those operating in the private equity sector, that will qualify.

The big question is whether businesses will choose to adopt the new legal form. As a public company, there are disadvantages to those who might otherwise operate as a domestic private company, which will no doubt put most private equity houses off the new structure. There are also employee participation rights, although the extent of these was significantly diluted as the European rules went through various drafts. In all cases, however, it will be necessary to negotiate the extent of employee participation with worker representatives, and there are safeguards to prevent the SE being used by companies to reduce any existing obligations to employees. In addition, although the company itself is created under a partially harmonised law, domestic rules on (for example) tax, employment law, IP and directorsÂ’ liability continue to apply. The actual operation of an SE will in most respects be determined by the place of the registered office (which must be in the same country as the head office), or the location of the underlying business. There are also tax issues that remain unresolved on conversion of an existing company to SE status, although the European Commission is intending to deal with these soon.

There are a few advantages of the new vehicle, including an ability to transfer the registered office to other EU countries without significant formality. But the main attraction of them is likely to be symbolic. Companies that want to show they are truly European and not located in any particular country might feel that the new form is a useful way of doing so. This aside, the law firm concludes that it is hard to see much use being made of the SE over the next few years.