TAKING COUNSEL: How European is a European company?

  • 2007-10-17
  • Zane Veidemane [Kronbergs & Cukste]
After almost 40 years of negotiations within the institutions of the European Union regarding the necessity to establish a framework for companies operating at a truly pan-European level across the European Union, the European Council in 2001 adopted the Regulation on the Statute for a European Company ("SE Regulation").
The establishment of a 'European Company,' also called 'Societas Europaea,' actually became possible at the end of 2004 after member states of the European Union had taken the necessary steps to enable this registration for the 'European Company.'

If the framework for a truly European company has indeed already been established and available for a number of years, why do we actually see so few companies established as 'Societas Europaea?'
The answer to that is probably that a European company is not a real European company.

The SE Regulation sets forth four different ways of establishing a 'Societas Europaea.' One is to merge at least two public limited liability companies that are operating in different member states of the European Union. Another way is to establish a holding 'Societas Europaea' which would manage at least two public or limited liability companies, either established in different member states of the European Union or having a subsidiary or branch in different member states of the EU. Yet another way is where at least two companies operating in different member states, or having a subsidiary or branch in different member states establish a subsidiary 'Societas Europaea.' Finally, a public limited liability company which for at least two years has had a subsidiary company in another member state of the EU can transform itself into a 'Societas Europaea.'

After presenting the above-described ways of establishing a 'Societas Europaea,' the SE Regulation stops short. It merely provides that once established, a 'Societas Europaea' is operated in accordance with provisions of the national legislation applicable to public limited liability companies in the country where the Societas Europaea was established. Thus, even if we go ahead and establish our own 'European Company,' in reality it will be only little more than an ordinary limited liability company.
The sole feature rendering the Societas Europaea as a unique legal person is the ability to change the country of establishment (to transfer its registered office to another EU member state) without undergoing liquidation. However, lengthy formalities have to be followed before the transfer is complete, and national authorities can actually oppose the transfer.

It is also perhaps noteworthy that the establishment of a Societas Europaea requires previous negotiations with employees, and an agreement must be reached between the employees and companies being transformed.

It follows that at this point, the formation of a Societas Europaea is mostly used to merge companies that are established in different member states of the EU, since national legislation of many member states does not allow for cross-border mergers, other than by formation of a Societas Europaea. 'Merger' within the meaning of commercial law describes a situation where either two companies create a new company and as a result, they themselves cease to exist, or one company is merged into another company and as a result of the process the former ceases to exist. Mere acquisition of a company is not a merger within the meaning of commercial law.

Zane Veidemane is a lawyer at Kronbergs & Cukste. Together with Teder Glickmann & Partnerid in Estonia and Jurevicius, Balciunas & Bartkus in Lithuania, Kronbergs & Cukste belongs to Baltic Legal Solutions, giving seamless legal service across the Baltics. Baltic Legal Solutions is also a member of the Pinsent Masons Luther Group, a pan European network of law firms, including the United Kingdom, France, Germany, Hungary, Austria and the Baltics