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European company

The European Company Statute enables companies to operate their businesses on a transnational basis within the European Union under the same corporate regime. A particular feature of this legal form consists of obligatory negotiations on the right to worker involvement in European companies, which includes the question of employee representation at board level.

A European company (Societas Europaea (SE)) operates on a Europe-wide basis and is governed by EC law directly applicable in the Member States, rather than by national law. This was established by the European Company Statute (ECS) Regulation (Council Regulation (EC) 2157/2001 on the statute for a European company (SE)). Council Directive 2001/86/EC supplementing the ECS stipulates employee involvement in SEs in the form of information and consultation of employees and, in some cases, board-level participation. Both the regulation and the directive were adopted on 8 October 2001 and were required to be implemented in the Member States by 8 October 2004.

EU-based companies may become SEs in four ways (the first three involve more than one company): merger; creation of a joint holding company; creation of a subsidiary; or when a single EU-based company is transformed into an SE, provided it has had a subsidiary governed by the law of another Member State for at least two years. A company based outside the EU may (if individual Member States so decide) participate in the creation of an SE on condition that it is created under the law of a Member State, has its registered office in that Member State and has ‘a real and continuous’ link with a Member State’s economy.

Council Regulation 2157/2001/EC on the ECS is linked with Directive 2001/86/EC on the involvement of employees in the SE: they ‘form indissociable complements(s) … and must be applied concomitantly’ (Council Regulation 2157/2001/EC). Consequently, in accordance with Article 12(2) of the regulation, an SE may only be registered if an agreement for employee involvement pursuant to Article 4 of Directive 2001/86/EC has been concluded. Arrangements for employee involvement differ according to the way the SE is created. Companies that decide to establish an SE must negotiate with a special negotiating body (SNB), comprising employee representatives elected or appointed in proportion to the number of employees employed in each Member State.

There are three possible scenarios with regard to employee involvement in an SE:

  1. The SNB may decide, with a two-thirds majority, not to open negotiations or to terminate negotiations that are already ongoing. In this case, national rules on information and consultation of employees enter into force and only a European Works Council is constituted.
  2. The SNB and the competent bodies of the participating companies conclude an agreement on the involvement of employees according to Article 4 of the directive.
  3. The SNB and the competent bodies of the participating companies fail to reach an agreement or agree voluntarily to apply the obligatory standard rules according to Article 7 of the directive.

As required by Article 15 of the directive, on 30 September 2008 the European Commission published a Communication reviewing the application of the directive with a view to proposing any necessary amendments. Due to the lack of practical experience in applying the directive, the European Commission decided to defer the revision process. However, a particular concern is caused by the lack of provisions to deal with changes taking place within the SE after its establishment. According to the Communication, this shortcoming might include the risk of losing or reducing employee participation rights.

In June 2010, some 588 SEs were established. Only around a quarter (145) are carrying out “real” economic activities with employees (“normal SEs”). This implies that to date the vast majority of SEs is not actively doing business and employing people. Many of the SEs (78) are so-called “shelf” companies which are for sale with most of them in the Czech Republic (43), “empty” SEs (82) without any employees yet and a rather large number of SEs (around 283) on which no information is available at all (“UFOs”). This diverse picture of different types of SEs is also replicated with regard to the geographical coverage: In eight Member States (BG, EL, FI, IT, LT, MT, RO, SI) no SE has been registered. The diffusion of “normal” SEs is also very unequal with Germany being the most important country for “normal” SEs (73) and 20 SEs are present in the Czech Republic. Around 45% of normal SEs have been established by the conversion of an already existing company, while around 25% resulted from mergers. Only a comparatively small number have been established as holding companies or as subsidiaries. Half of all normal SEs have fewer than 500 employees.

See also: consultation in the enterprise; corporate governance; corporate structures; Davignon Group; employee representation; European Cooperative Society; European Works Councils; information and consultation; restructuring; special negotiating body.

Please note: the European industrial relations dictionary is updated annually. If errors are brought to our attention, we will try to correct them.
Page last updated: 03 December, 2010