The SE will give companies operating in more than one Member State the option of being established as a single company under Community law and so able to operate throughout the EU with one set of rules and a unified management and reporting system rather than all the different national laws of each Member State where they have subsidiaries.
For companies active across the Internal Market, the SE therefore offers the prospect of reduced administrative costs and a legal structure adapted to the Internal Market as a whole.
Internal Market Commissioner Frits Bolkestein said yesterday:
"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."
The legislation is due to enter into force in 2004. Under the European Company Statute, a European Company can be set up by the creation of a holding company or a joint subsidiary or by the merger of companies located in at least two Member States or by the conversion of an existing company set up under national law.
Anna Diamantopoulou, Commissioner for Employment and Social Affairs, added:
"This tool is a fair wind for pan-European businesses. At the same time, it ensures that employees do not suffer any slippage in their existing rights to consultation and participation. Today's final adoption thus marks a clear staging post in the Lisbon strategy: to make the EU into the world's most competitive and cohesive place to live and do business. We must concede that the European company statute is not yet perfect: much work remains to be done on taxation matters. But, in the Commission's view, the glass is half full, not half empty".
Under an affiliated Directive on worker involvement in European Companies, the creation of a European Company would require 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 managers of European Companies 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.
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.
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. It is on this element that agreement on the Directive had, until a summit in Nice in December 2000, not proved possible.
The compromise struck by Heads of State and Government was to authorise a Member State not to 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. This compromise was endorsed by the Council on 20 December.
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.
1. What is the European Company Statute?
It is a new legal instrument based on European Community law that gives companies the of forming a European Company known formally by its Latin name of '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 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 now have to be implemented in national law in all Member States) on worker involvement. The Regulation and Directive will enter into force on the same day three years after their formal adoption.
2. How can a European Company be set up?
In one of four ways:
3. 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. The potential savings in terms of administrative costs were estimated to be up to €30 billion per year by the Competitiveness Advisory Group of industrialists convened in 1995 by the Heads of State and Government and chaired by Carlo Ciampi.
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.
4. 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.
5. 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.
6. 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.
7. Why did the European Parliament have to be re-consulted?
The European Parliament had to be re-consulted because the texts, notably in terms of the provisions for worker participation, had been amended since the Parliament last gave its Opinion (January 1991).
8. Where will a European Company be taxed?
An SE will, for tax purposes, be treated as any other multinational company according to the national fiscal legislation applicable at company level or branch level. There will be a fiscal advantage in creating a European Company by merger registered in one Member State but operating through branches in a variety of Member States.
If the Member State where the head-office is located taxes the world-wide income of the European Company, it will be possible, in the Member State where the head-office is located, to offset losses from some permanent establishments against profits from other ones. In practice, such compensation is not very often possible if the parent company is established as an independent entity operating through a variety of legally-independent subsidiaries rather than as an SE.
However, the SE will continue to be a taxpayer in the different Member States where the permanent establishments will be located.
European Companies created by merger will be the first type of company to be able to benefit from the Directive on eliminating double taxation of cross-frontier mergers. However, this will require a technical amendment to the Directive to add SEs to the types of companies eligible under the Directive.
9. What are the provisions for worker involvement in European Companies?
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. If it proves impossible to negotiate a mutually-satisfactory arrangement, then a set of standard principles, laid down in an annexe to the Directive, will 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.
In certain circumstances, where managers and employee representatives are 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 will be obliged to apply standard principles on participation of its workers. This will 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.
In the case of a European Company created by a merger, the standard principles on participation of its workers will have to be applied when at least 25% of employees had the right to participate before the merger. It is on this element that agreement on the Directive had, until the Nice Summit in December 2000, not proved possible. The compromise struck by Heads of State and Government was to authorise a Member State not to 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 will have to continue to apply.
10. 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 so as to enable medium-sized companies from different Member States to create an SE.
11. Why has it taken 30 years to approve this proposal?
Partly because the European Company, in order to be based on Community law valid in each Member State, has to be established by a Regulation (directly applicable in all Member States) as opposed to a Directive (implemented through national law).
Agreement therefore required consensus amongst all Member States on aspects of company law where there are still widely varying rules in national law. Moreover, it has required finding common ground between those Member States with a tradition of worker involvement (anxious that European Companies should not be used as a means to avoid national worker involvement requirements) and those Member States where worker involvement is not imposed (anxious that European Companies should not be used to introduce worker involvement obligations). In the end, it has required a compromise at the EU's highest political level, the European Council (at Nice).
12. Does the European Company Statute include provisions on employment contracts and pensions?
No. Employment contracts and pensions are not covered by the Regulation. They will be subject to national law in the Member States where the headquarters and branches operate.
As regards company pension schemes, European Companies stand to benefit from the provisions of the proposal for a Directive on occupational retirement provision presented by the Commission in October 2000, notably as regards the possibility for a company to set up a single pension fund for all employees throughout the EU.