The European Company

Sally Ramage

Abstract

The new European Company Statute has allowed the formation of a European company, the SE, ‘societas europaea’. The writer has researched the present position of company law of three member states, UK, France and Germany to find that, as far as shareholder rights, there is very little difference despite the embedded notion that companies in these three member states must be different because they have different legal systems. The analysis also reveals that worries about new employee rights are unfounded as employee rights are already being converged by the International Labour Organisation and by trans-national companies in these member states.

Since its formation, the European Union has been one outside force which has issued directives to harmonise member states and resulted in changes in corporate law. The incorporation of the OECD’s internationally ratified code of corporate conduct, the Principles of Corporate Governance, has been another outside factor that has changed corporate law in different countries. The billions of US dollars lost through fraud, using the internet and tele-marketing, for example in trading in commodity futures contracts in stock markets the world over, has forced all countries to begin to standardise and share information There is a universal drive towards financial regulation in terms of monetary regulation, banking, securities and insurance regulation. This is global financial regulation to ensure markets that accurately reflect the forces of supply and demand free of disruptive and fraudulent activity and that violations are detected and prevented.

Introduction

This new type of company formed by the European Company Statute, is now available to commercial organisations with operations in more than one business state. The Statute came into force on 8^th October 2004 and it is thought that companies with registered offices in one or more member states will form one European company, ‘societas europaea ‘or SE, registered in one member state only, with one currency and under the law of that one state including matters of directors’ duties, capital and capital maintenance, preparation of accounts, audit of accounts, publication of accounts and compliance penalties, instead of the costly liquidation process they must go through at present. There will be options on rules on board structure, rules on enhanced creditor and minority shareholder protection, currency of capital and currency in which accounts are to be drawn up. One currency will be used but it can be the Euro or another, not both.

Other costs to be saved will be administrative costs and taxation. Only the tax rules of the member state in which the SE is registered will apply, which will mitigate certain national taxes such as capital gains tax on cross-border re-structuring. Also, the Interest and Royalties Directive (2003/49/EC) which provides relief from with-holding tax on interest and royalty payments made between associated companies of different member states will be extended to the SE.

There is an Employee Involvement Directive attached to the SE which will require that each SE must have a negotiating body made up of managers and employees and which will enable all employees of the SE to adopt the highest standards of that SE’s employees. So, for example, if the SE has an office in the UK and one in Latvia, the Latvian employees must have the same employment rights as the UK workers of the SE. The one factor that managers will be worried about is the potential for demands for European-wide collective bargaining.

UK- corporate law

The UK has a common law legal system and its company law vests control of the company primarily with company shareholders. Since 1844 the UK has had codified company law. since 1862 It has also had the London Stock Exchange which has played a role in regulating the financial market and ensuring shareholder primacy. Entry requirements is by the registration system. The law set broad limits for the allocation of control rights and left it to shareholders to change them within these limits. Minimum corporate capital and mandatory pre-emptive rights only became law later in the 1980’s in response to the EU directive. There has always been litigation on company law issues and the UK has a fine body of case law, developed over many years. Recently, there has been consolidation of financial regulation and the Financial Services Authority is the financial regulating body of the UK. In an attempt to identify best legal practice the FSA is overseen by the International Monetary Fund, IMF, which is due to investigate its processes at regular intervals to advise on shortfalls in compliance areas.

Germany - corporate law

Germany is a civil law country and has a formal legal system. and a General Commercial Code since 1861. It has developed its financial market largely internally with very little borrowing. Entry requirement is by the registration system. As to legal rights in company law, Germany leaves that to the law and not to the shareholders and company law dictates the rights and obligations of shareholders. There has been corporate governance rules in place well before other developed countries. There is modest company law litigation in Germany but the shareholder must first make a formal complaint to the supervisory board and not unless the matter is unresolved can it go to expensive litigation. Shareholders cannot litigate on behalf of the company, for example they cannot file a lawsuit against the BaFin regulatory body. Nevertheless Germany has a good amount of company case law for closed corporations.

German companies must have legal capital. Legal capital is the amount of capital that shareholders contribute to the company’s assets when they acquire shares. The provision of legal capital is a big issue world-wide and regulation for, especially, stipulate minimum legal capital.

France - corporate law

France, like Germany, has a civil law system and had its code de commerce, including a code on corporations, since 1807.Entry requirement is by the registration system and in France its highly mandatory company law determines the allocation of control rights. as well as stipulating the requirements for disclosing annual reports to company shareholders and the rights and responsibilities of shareholders.

There is little company law litigation in France, although shareholders can file lawsuits on behalf of the company.

Conclusion

In summary form, the similarities in company law between the UK, France and Germany, tabled in the appendix, show that there are few differences in company law and that the formation of a European company is but another step in achieving regulation and enforcement against fraud and risk.

Appendix

Shareholder Protection in UK, France and Germany

Right	UK	France	Germany
Proxy by mail	yes	no	no
cumulative voting	no	no	no
blocking of shares	no	no	no
shareholder litigation	yes	yes	yes
pre-emptive rights	yes	yes	no
minority shareholder extraordinary meeting	yes	no	no
change in company law	1998	1999	1998
legal capital	yes	yes	yes
capital decrease	no	no	no
capital increase	no	no	no
issuing authorised shares	no	Board	75%
share repurchase	no	Regulator clearance required	no

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