Societas Europaea/European Company

Even if you do business in the US, you might have heard about the Societas Europaea. This article explains more about this type of business structure so you have more of an idea of what it entails and whether you would consider this structure for your business if you operated in Europe.

Not only large companies, but also smaller companies no longer restrict them­selves ex­clu­sive­ly to their national en­vi­ron­ment. The ubiq­ui­tous term “glob­al­iza­tion” and the internet extend the view beyond national borders. For this reason, it makes sense to think in­ter­na­tion­al­ly when it comes to the choice of business structure. Although the majority of our national forms of business are rec­og­nized worldwide, Societas Europaea (SE) also promises to make European business easier.

The as­so­ci­at­ed "SE Im­ple­men­ta­tion Act" (SEAG) came into force at the end of 2004. However, com­par­a­tive­ly few companies have opted for it, although their number has increased in recent years (with well-known examples being Puma, SAP, and Zalando). One reason for this could be that the es­tab­lish­ment of an SE is a rel­a­tive­ly complex un­der­tak­ing, which also requires an existing in­ter­na­tion­al con­nec­tion.

You may have already seen that some European companies have SE suc­ceed­ing their name, but do you know the meaning behind it? Companies that have their head­quar­ters in an EU member state can, under certain con­di­tions, choose this legal structure when they are founded.

The Societas Europaea is a business structure for public limited companies within the European Economic Area (EEA). It was created in October 2004 by the EU and is intended for companies that are in­ter­na­tion­al­ly active within the EEA or intend to be so. For this purpose, this business structure offers special ad­van­tages under company law.

The decided starting capital of a company like this takes the form of shares and must amount to at least €120,000 ($138,000). These se­cu­ri­ties can be traded on the stock exchange as usual. For the company, this business structure offers the advantage of being able to operate through­out the European Union without any hurdles. This makes it much easier for a European Company to open new branches in other EU countries.

If a company is to relocate to another EU country, this is much easier with a Societas Europaea. Under normal cir­cum­stances, a company with a national business structure has to set up a com­plete­ly new company in the new country – at a cor­re­spond­ing­ly high cost. A European Company, on the other hand, has the freedom to relocate its reg­is­tered office anywhere within the European Economic Area (EEA – EU plus Iceland, Liecht­en­stein, and Norway). It is also easier to merge two companies if both have the same SE structure.

However, a German Societas Europaea, for example, is not identical in every way to its coun­ter­parts in other countries. The cor­re­spond­ing EU reg­u­la­tion leaves gaps in some areas, which are filled by national company law as well as by already existing EU law. This applies, among other things, to tax law, com­pe­ti­tion law, in­dus­tri­al property law, and bank­rupt­cy law.

A number of com­mer­cial law elements are regulated at national level, although the SE is an in­ter­na­tion­al business structure. Since, for example, there is no Europe-wide com­mer­cial register, these companies are also included in national com­mer­cial registers. The country of the head office is decisive. The formation of the company is then published in the Official Journal of the European Union. If the company moves its reg­is­tered office to another country, it must be entered in the register again.

The European Company has a number of char­ac­ter­is­tics that make this business structure stand out. Since it is European law, some of these char­ac­ter­is­tics may be new to an en­tre­pre­neur who has been active only na­tion­al­ly up to now.

A Societas Europaea cannot simply be formed out of the blue. EU reg­u­la­tions provide various options for es­tab­lish­ing one, but in all cases, it is reserved for existing companies. In addition, the options mirror the in­ter­na­tion­al character of the business structure. These are the ways in which an SE can be formed:

• By merging, two or more public limited companies may form a Societas Europaea. At least two are from different EEA countries.
• A common holding SE may be formed by several joint-stock companies or limited liability companies, at least two of which come from different EEA countries or have had sub­sidiaries or branches in another EEA country for at least two years.
• A col­lec­tive sub­sidiary Societas Europaea may establish several companies of all kinds (including part­ner­ships) and legal entities (cor­po­ra­tions, as­so­ci­a­tions, foun­da­tions, etc.), of which at least two are from different EEA countries or have had sub­sidiaries or branches in another EEA country for at least two years.
• An SE can be converted into a stock cor­po­ra­tion if it has had a sub­sidiary in another EEA country for at least two years.

Fur­ther­more, an EEA country may allow a company from a certain country to also par­tic­i­pate in a Societas Europaea if it is active in that par­tic­u­lar country, but has its head office in another EEA country.

In all cases, you have to overcome quite a few hurdles to set up an SE. If you want to start a company and are con­sid­er­ing a European Company, you must either have already gained an in­ter­na­tion­al foothold with a company or first look for a partner abroad. Also, the required start-up capital of 120,000 euros ($138,000) and the stock cor­po­ra­tion as a legal structure do not seem too appealing for a typical start-up in the initial phase.

Anyone wishing to set up a Societas Europaea can decide on which principle it should be managed: dualistic or monistic. In the dualistic model, which is common in countries such as Germany, the man­age­ment and the con­trol­ling body are separate: there is a man­age­ment board and a su­per­vi­so­ry board. The monistic system, which is par­tic­u­lar­ly common in the Anglo-Saxon world, has only one man­age­ment body that combines executive and su­per­vi­so­ry powers: the board of directors. It brings together directors with and without man­age­r­i­al authority (executive and non-executive).

Both models have their ad­van­tages and dis­ad­van­tages: In the dualistic system, the man­age­ment of the company and the control of man­age­ment are clearly separated, so that there is more trans­paren­cy. On the other hand, the par­al­lelism of the two bodies increases the or­ga­ni­za­tion­al effort and slows down the company's ability to act. The monistic system functions much more simply: the company man­age­ment is smaller and thus more cost-effective and capable of acting at the same time.

According to the law, with up to three million euros ($3.5 million) of share capital, a single person can form the board of directors and also act as managing director. In fact, in Germany in par­tic­u­lar, the leaner struc­tures are regarded as the reason for switching to the Societas Europaea. On the other hand, the decision-making processes in the company are less trans­par­ent.

The ac­count­ing of an SE follows the national law of the country in which it has its reg­is­tered office. Local law also applies in the event of in­sol­ven­cy or regular dis­so­lu­tion.

The Societas Europaea was initially crit­i­cized by trade unions. It was accused of en­cour­ag­ing the cur­tail­ment of workers' rights. In fact, the EU Com­mis­sion has en­deav­ored to take into account the different forms of employee rights in the various EU countries when drafting the relevant reg­u­la­tions and, in case of doubt, to always give priority to the re­spec­tive more far-reaching reg­u­la­tions.

In principle, legal reg­u­la­tions stipulate that the planning and es­tab­lish­ment of a Societas Europaea cannot take place without the in­for­ma­tion and par­tic­i­pa­tion of the employees concerned. To this end, the company man­age­ment(s) should first inform the affected employees about the planned Societas Europaea and then negotiate with them about co-de­ter­mi­na­tion in the planned new company in a specially es­tab­lished "special ne­go­ti­at­ing body" in which the employees are rep­re­sent­ed according to a precise key.

These ne­go­ti­a­tions can last up to six months – or up to a year with the unanimous approval of the committee. If the committee does not reach a ne­go­ti­a­tion result, a so-called standard rule will apply. Pre­vi­ous­ly valid co-de­ter­mi­na­tion rights are also to apply as much as possible in a new SE. The aim is to achieve the highest level of co-de­ter­mi­na­tion for the various companies involved in the SE.

In practice, it is not least the time-consuming ne­go­ti­a­tion of employee rights that is proving to be an obstacle to the formation of SE companies. The legal un­cer­tain­ty as­so­ci­at­ed with the different national reg­u­la­tions is mentioned as an ad­di­tion­al obstacle. In any case, various con­sult­ing firms are now offering ready-made SEs for sale as so-called shelf companies. They do not have any employees, but are already reg­is­tered in the com­mer­cial register, so that the formal procedure of employee par­tic­i­pa­tion, which would otherwise have to take place before the company is founded, can be dispensed.

Companies operating through­out Europe can benefit from an SE business structure. It makes it much easier, for example, to transfer the reg­is­tered office to another EU member state or to cooperate in­ter­na­tion­al­ly with other companies in a holding company. This means that profits generated in different countries can also be used within a Societas Europaea without profit dis­tri­b­u­tions.

The com­par­a­tive­ly high share capital is a bit off-putting for smaller companies: €120,000 ($138,000), for example, is not nec­es­sar­i­ly feasible for a start-up in the initial phase. Other – even large – companies see a major advantage in the in­de­pen­dent, national sub­sidiaries (in contrast to the sub­sidiary SE): if a company fails in one country, the entire company is not im­me­di­ate­ly at risk.

Many see a further dis­ad­van­tage in the national dif­fer­ences in the structure of the SE: it is intended to simplify in­ter­na­tion­al en­tre­pre­neur­ial work. However, since the as­so­ci­at­ed law has to be re­plen­ished na­tion­al­ly in many places, different reg­u­la­tions often come into effect, which in turn increases the effort and un­cer­tain­ties. In a 2010 report by the EU Com­mis­sion on ex­pe­ri­ence with the SE Reg­u­la­tion, it even says: "The SE Statute does not create a uniform SE business structure in the European Union, but 27 different SE types".

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