In June this year, the European Parliament formally adopted the European Company Statute, which provides that a European company may be incorporated. This is a concept that has been floated for the past 30 years and now sees some true legal form. Although the statute will not come into force until June 2004, now is a good time to consider whether this new form of corporation will be of substantial benefit to the administration of a corporate group operating in the European Union.

What is an SE?

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The company will be known as a Societas Europeae (SE). It is intended to be a recognisable form of company that can conduct its business in any member state of the European Union without the additional form of local regulation faced by a branch or a subsidiary of a company incorporated in another country. It is intended to provide a framework of rules allowing considerable fluidity within the EU and the ability to consolidate and merge with other operations in the EU without subjecting an operation to the application of any number of sets of national law that can be difficult to negotiate.

Why else would a company adopt this form?

Tax considerations will be one of the biggest drivers towards using the form of the European company, provided the company is established in a member state that taxes the worldwide income of the company. It will be considerably easier to offset losses from one part of the operations in one country against profits from another operation in another country. This may currently be difficult to achieve where different subsidiary companies have been incorporated.

It is also intended to allow a company to alter its seat of residence so this follows the main administration of the company without the need to shut one operation and to incept another.

How can we do it?

European company can be established by:

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1. The merger of two or more existing public limited companies from at least two different member states;

2. The formation of a holding company that is promoted by public or private limited companies from at least two different member states;

3. The formation of a subsidiary of companies from at least two member states; or

4. The transformation of a public limited company that has had a subsidiary in another member state for at least two years.

Are there any other relevant points to note?

In practice, it may take some time to establish an SE and this will certainly incur costs. In assessing the benefit of doing so, one has also to bear in mind other potential costs and burdens. The

regulation of a European company requires negotiation and consultation with a special negotiating body of the employees of the constituent companies.

This will also govern the terms by which employees of the SE will be involved in the decision making processes. Companies that are established, for example, in Holland, will be aware of local works councils that have the right to be involved in the decision making processes of the company and to be consulted at relevant stages. This right is to be enshrined also for the employees of an SE.

When structuring investments and acquisitions now it would be wise to consider this statute that will apply from 2004 onwards and identify the attitude of all parties to creating a European company so that certain advance measures can be taken.

Alex Woodfield is a corporate finance partner at London law firm Nicholson Graham & Jones

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