Katie Paxton-Doggett weighs up the advantages of a new type of company that can operate on a Europe-wide basis

On 8 October 2001, the Employment and Social Policy Council of Ministers in the EU adopted the European Company Statute Regulation (Council Regulation (EC) No.

2157/2001).

The statute creates a new type of company that can operate on a Europe-wide basis and be governed by community law directly applicable in member states, rather than by national law.

The European company, will be known by its Latin name of Societas Europaea, with the letters 'SE' preceding or following the company name in general usage.

The statute will apply throughout the European Economic Area (EEA), which means the 15 member states of the EU plus Norway, Iceland and Liechtenstein.

It will enter into force and be binding and directly applicable in all EEA states with effect from 8 October 2004.

The Department of Trade and Industry recently consulted on the transposition of the statute into UK law.

An SE can be set up in a number of different ways:

- By the merger of two or more existing public limited companies from at least two different EU member states;

- By the formation of a holding company promoted by public or private limited companies from at least two EU member states;

- By the formation of a subsidiary of companies from at least two different member states;

- By the transformation of an existing public limited company with an EU-registered office and head office, and which has, for at least two years, had a subsidiary in another member state, and;

- As a subsidiary of an existing SE.

There will be no central European registry of SEs, but registration will be published in the Official Journal.

An SE must register in one of the member states and will need to comply with national registration requirements of the country in which the administrative head office is located.

For an SE with a registered office in England or Wales, this would require filing and registering at Companies House in Cardiff.

Generally, an SE may register in any member state it chooses, and move to another member state.

One exception is for SEs formed by transformation, which must be registered in the same member state as the transforming company - although it could subsequently transfer its registered office.

A transfer proposal must be filed at Companies House two months before a decision can be formally made.

At least one month before the general meeting to decide on the transfer, an SE's shareholders and creditors will be entitled to examine the transfer proposal.

No transfer application may be made when the SE is subject to winding up, liquidation, insolvency or suspension of payments.

Publicly quoted companies, private companies and medium-sized companies can opt to become SEs - although the minimum capital requirement has been set at 120,000.

An SE will have legal personality, and its capital divided into shares.

The national law applicable to a PLC registered in the member state will govern the capital of an SE, its maintenance and any changes, together with shares, bonds, and similar securities.

Importantly, transformation of an existing PLC and subsidiary will not create a new legal entity, nor will it result in the winding-up of the company.

Draft terms of conversion must be drawn up, published, and approved at a general meeting.

An independent expert's report must state that the company has net assets at least equivalent to its capital plus distributable reserves.

All SEs must have a general meeting of shareholders.

However, in addition, they can choose whether to have a two tier structure with a supervisory and management levels, or a one-tier arrangement with just a single administrative body.

Both systems should be available in each member state.

Fortunately, UK company law makes specific provision for general meetings of shareholders within the Companies Act 1985 and the relevant common law.

One-member SEs can be created only where they are wholly owned subsidiaries of another SE.

National law shall apply in respect of preparation of annual and consolidated accounts, winding up, liquidation, insolvency and cessation of payments, and sanctions in relation to infringement of the regulation.

The directive accompanying the regulation sets out provisions on employee involvement.

Companies participating in the creation of an SE must hold negotiations over the employee involvement arrangements, with a special negotiating body (SNB) made up of employee representatives.

The SNB and management should set up a representative body, which is similar to a European works council, or an information and consultation procedure.

SNB negotiations must be completed within six months, or one year if agreed between the parties.

If no agreement can be reached, the standard rules of the member state will apply.

In addition, the annex to the directive sets out principles that will apply.

These provide for information and consultation via a representative body, and employee participation on the board in limited circumstances.

It took more than three decades of negotiations to find common ground between member states on company law to agree and adopt the statute.

The SE corporate structure offers much flexibility to companies working on a pan-European basis, but the differences in viewpoints between the member states are marked and do not suggest an easy introduction to the new corporate vehicle.

Needless to say, it is the directive regarding the involvement of employees in SEs that is causing most concern to employers and trade unionists.

Some European countries such as Germany and the Netherlands have a strong tradition of worker involvement and are anxious that SEs are not used as a vehicle to avoid national requirements.

Conversely, those member states where worker involvement is not imposed, such as Spain and, to some extent the UK, are not keen to introduce obligations.

Only time will tell how these differences will be overcome.

Solicitor Katie Paxton-Doggett is the producer of the Law Channel, Einstein Network