Abstract
20 years ago, on 8 October 2001, Council Regulation (EC) No 2157/2001 on the Statute for a European company (SE) was enacted (the ‘SE Regulation’). This legislative act has given rise to the European public limited liability company law form called Societas Europaea or, in its short form, ‘SE’. The Societas Europaea exists in all EU Member States based on the national transposition of the SE Regulation, and it is the most important of three European company law forms next to the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).
Such birthday seems an appropriate occasion to reflect on the project of the Societas Europaea. The argument brought forward in this editorial is that that the SE may have to be regarded from a more specialised perspective than an attempt to create a European counterpart emulating a flagship national company law form. Rather, the entity could be adapted to specific purposes following larger pan-European commercial demands, for example in the area of financing transactions.
At the beginning, the SE was a dream: even before the creation of the European Union, on the 26th German Juristentag in 1926, Geiler proposed the creation of a supranational company form which would be available along with its national counterparts. 2 Further, shortly after the establishment of the European Economic Community in 1957 with the Treaty of Rome, on 22 October 1959, Sanders addressed the topic of a European public limited liability company in an inaugural lecture at the University of Rotterdam. 3 The idea behind the European public limited liability was not so much to harmonise the provisions of national public limited liability company law forms, which one could also call the national flagship company law forms, like the German Aktiengesellschaft, the French société anonyme, or the Dutch naamloze vennootschap; the idea was instead to add a European public limited liability company law form, which would then exist throughout all Member States. Foreign investors, for example, would not have to become familiar with specific national company forms but could fall back in each Member State on the same European company law form. Moreover, the company law form would be highly modern and reflect Europés position as a front-runner in company law regulations. One could argue that the goal set by those in favour of a European public limited liability company could not have been much higher.
As with many European integration projects, reality turned out to be more complex. The European Commission picked up the idea and submitted its first proposal for a European public limited liability company in 1970. Five years later, it published its second proposal. Both envisaged the SE as an autonomous European company law entity with a two-tier board and a system of co-determination modelled after the German approach. However, after the accession of the United Kingdom and Ireland to the European Community, these ideas were no longer feasible and the plan was dropped in the 1980s. The European Commission started to lobby for the SE again in 1988 in the context of the completion of the internal market. Contrary to the situation in the 1970s, sensitive areas were left to national law. The positions of Germany and the UK on co-determination were not compatible and it took more than 10 years before an agreement could be reached in 2001. 4
The outcome was thus a sort of hybrid company form: somewhat European and somewhat national. The SE was enacted through a regulation, which usually does not need to be transposed into the national laws of the Member States. That has however been different for the SE Regulation: as various matters and options were left to national law in order to achieve an agreement between the Member States, transposition was required. The end result was not one European public limited liability company law form, but the existence of as many different national SE company law forms as Member States.
Other challenging points have been the considerably high minimum capital requirement of 120,000 EUR. Moreover, the formation of an SE requires a cross-border element and cannot be incorporated as straightforwardly as is possible for national company law forms. 5 The ways of formation are, for example, a cross-border merger or a conversion, which makes the formation of an SE a rather costly, complex and lengthy process. 6 Yet, the SE also showed a very modern approach to company law: for example, the SE could carry out a cross-border company seat transfer, a possibility that exists, in principle, for companies in all Member States only since the enactment of Directive 2019/2121. 7 Considering that the transposition deadline of such Directive is 31 January 2023, the SE Regulation has been about 20 years ahead on such type of cross-border corporate operations. 8
The particularities of the SE are also reflected in the number of SEs incorporated in the Member States. Until 2019, about 3,351 SEs had been incorporated. 9 If one considers that around 19 million limited liability companies have been incorporated in the EU overall, and that an important fraction of these are public limited liability companies, 10 then the number of incorporated SEs is not very high. The SE has thus not managed to compete on a large scale with its national company law counterparts, the national public limited liability company law forms such as the German Aktiengesellschaft or the French société anonyme.
All this is not to say that the SE has not been successful. On the contrary! Looking back at the last 20 years of the European integration project, a general realisation follows that the tendency to attempt to Europeanise national set-ups (such as through a European public or private limited liability company) 11 may have to be replaced with a more targeted approach towards integration in specific areas.
Therefore, though putting the original dream of a European flagship company law form aside, the result that the SE has wielded is positive albeit likely different than what was intended. The SE has turned out to be a favoured company law form for vehicles with specific purposes that require a rather flexible corporate governance, the ability to carry out certain cross-border transactions, such as cross-border seat transfers, and at least a certain amount of harmonisation of the company form across different Member States.
As an example, many holding companies of European champions across all industry sectors, listed at stock exchanges in many cases, have chosen the form of an SE. While it has been argued that large German company groups also opt for the SE company law form because such company form allows to limit co-determination rights to a certain extent, 12 that is, rights of employee representatives to be appointed to company boards, this kind of regulatory arbitrage is arguably not the main reason why top holdings of many large company groups have adopted the SE company law form. A variety of large company groups outside of Germany also have top holding companies in the form of an SE and most of the recent SPAC vehicles (special purpose acquisition vehicles) that have been formed in the EU have been incorporated as an SE. 13 Considering the high stakes and financial risks involved in such SPAC transaction, the investors clearly seem to trust the SE as a company law form.
Some of the competitive advantages of the SE however have started to disappear. Through Directive 2019/2121, the advantages in the area of cross-border corporate operations will no longer exist, as also national company forms in all Member States will for example be able to carry out a cross-border seat transfer, referred to in such Directive as ‘cross-border conversions’. As Directive 2019/2121 allows entrepreneurs to choose national company law forms available in other Member States through a cross-border conversion in a more flexible manner, it is possible that regulatory competition may also increase vis-à-vis the SE company law form in the near future.
As a consequence, considering that the SE Regulation was enacted 20 years ago, it may be the right time for the European Commission to put a ‘modernisation overhaul’ of the SE Regulation on its company law agenda. 14
Obvious points to discuss in such reform could be the lowering of the minimum capital requirement and the possibility of a simpler formation process. A general further harmonisation of the SE provisions may be an advantage in order to come closer to a truly European company law form. Additionally, the employee participation rules should be examined in accordance with the experience gathered over the last 20 years. However, it may be overly optimistic to expect such full-scale reform to take place. It would mean that Member States allow a European company law form to exist in a more competitive way next to their national public liability company law forms.
Yet, if one considers again that the SE is the favoured vehicle for certain special purposes, one might argue that the SE has mostly not been used as a generalist public limited liability company law form and should also not be reformed so to be one. SE turned out to be rather a specialised company law form for specific needs, be it in the area of corporate finance, corporate governance or cross-border operations. In order to further consider which reforms may benefit the SE, such purposes should be considered in depth and it should be examined how, for such special purposes, the regulations governing the SE could be further modernised. For example, considering that the SE is frequently used as a vehicle in large financing transactions, be it in the context of public offerings or other, it might for example be a consideration to reflect what further advantages the SE might offer in relation to such transactions. These could be flexibility in relation to share classes, voting rights, share redemptions or the provision of other financial instruments. In that way, the SE may be able to adopt front-running company law provisions that perhaps will again be 20 years ahead of developments for company law forms in Europe in general.
In that sense, happy birthday Societas Europaea! To another adventurous 20 years!