High-profile names such as BASF, Allianz, Porsche, Man Diesel, Eurotunnel, Schering Plough and Strabag took the step to become Societas Europaea (SEs) to reap the benefits, and several other heavyweight companies are now following suit. There were 751 SEs registered at the most recent count and the number has been rapidly increasing over the past 12 months according to the latest published figures. The SE has made a significant impact on companies operating within the EU but to several companies the SE and its benefits remain an obscurity.

Features of the form
SEs can now be seen in 22 of the 30 member states, and while Germany and the Czech Republic are leading the way with regards to overall numbers of SEs, France, the Netherlands, the UK, Sweden, Luxemburg and Austria are also home to significant numbers of SEs.

Although the SE represents its own legal form it coexists as a separate legal entity with the already established corporate systems of each nation. The SE, which must be registered in the correct commercial register of its member state, will be resident where its head office is based. The SE has a minimum subscribed capital requirement of €120,000 divided into shares which are eligible for listing on a stock exchange.

Latest figures show a high proportion of SEs – nearly 50 percent – are visible within the service sectors, largely the financial and commercial services. However, a significant number of SEs can also be found in the chemical, metal and building sectors.

 Setting up an SE
An SE can be set up in any one of five ways:
- By the merging of two or more public limited liability companies already established in at least two different EU member states;
- By establishing a holding company by either a public or a private limited company which is already in existence in at least two different member states or where they each have had a subsidiary or branch in another member state for at least two years;
- By creating a subsidiary through either a public or private company already established;
- Through the transformation of a public limited liability company established in one member state which has had a subsidiary in another member state for a minimum of two years; or
- Forming as a subsidiary of an existing SE.

Advantages of an SE
A key benefit of an SE is that the registered office may be relocated to another member state without the need for the SE to be wound up. Currently a public limited liability company wanting to transfer its registered office to another member state would have to follow a highly intricate insolvency process, whereas an SE can do the same in a manner which does not result in winding up or the creation of a new legal entity.

Companies which are setting up an SE have the choice of selecting either the one tier administrative board only or the two tier supervisory and management board structure. Therefore the regulation deals with both management systems presently employed in the EC and rather than creating one set of regulations pertinent to all SEs, national rules in the country of the SE’s registration will relate to issues like the minimum or maximum quantity of members for each tier and measures for their removal. This represents a key novelty introduced by the SE, since in several countries a strict board structure is prescribed by national company law for companies.

An SE also allows for a highly flexible employee participation scheme, as the employees of an SE can partake in the supervisory and administrative organ of the SE and can participate on an operational level via the establishment of a works council. The two types of employee involvement are decided in an agreement between the companies establishing the SE and the respective employees.

SEs can be used as a means to undertake certain types of cross-border mergers which are currently forbidden by the company law of various member states. For instance, a UK company is not allowed to transfer its business and assets to a company within another member state in a way that permits the transferee to issue shares to the transferor’s shareholders and the transferor to be dissolved without liquidation. This however is allowed where an SE is used. Famously, German insurance and asset management company Allianz, which operates in most member states, became an SE to facilitate the merger with its 55.4 percent Italian-owned subsidiary Riunione Adriatica di Sicurtà (RAS). RAS owned considerable holdings in four subsidiaries of Allianz based in Switzerland, Austria, Portugal, and Spain. The full integration of RAS presented virtually complete ownership of the subsidiaries, simplifying Allianz’s structure.

The facility to undertake cross-border mergers has freed companies from the legal twist they had formerly engaged in and made it possible for them to absorb their subsidiaries and establish branches. It has also helped to save VAT and rationalised companies’ global ventures.

The future of European business
While SEs remove the legal hurdles to company relocation, they do not deal with the impediments created by national taxation. It is particularly exit taxes that perturb the movement of member states. Acts affected by various taxation issues include the Spanish Corporate Tax Act, which states that if a tax-resident company in Spain relocates its residence abroad, it must pay tax on the difference between the fair market value of its assets and the book value thereof, except if those assets shape part of a permanent establishment in Spain.

Under Irish tax law, a company is taxed on its unrealised capital gains when it transfers its central management position or its control to another member state. Germany’s Exit Tax Rules, which were enacted in 2008 in section 1(3) of the German Foreign Tax Act, continue to force a tax burden onto Germany-based enterprises transferring functions out of the country.

On 16 March 2011, the EC published its proposal to introduce a common consolidated corporate tax base (CCCTB) in Europe. In addition to its simplicity and cost saving ability, its basic idea consists of dropping the administrative burden on cross-border companies through the creation of an optional single tax system for companies operating in more than one member state. This will mean companies will have to pay corporate taxes on their profits once rather than in each of the member states in which they operate. Member states will still be in charge of deciding their individual corporate tax rates which will allow for a certain amount of tax competition to be maintained within the EU. Combined with an SE, the CCCTB could possibly resolve outstanding tax issues affecting companies looking to become SEs.

It is widely believed that by incorporating the SE, the EU has managed to craft a corporate identity out of separate legal structures to allow European companies to function more flawlessly across the region. The SE defeats obstacles arising from the incompatible treatment of companies by national laws within the member state and gives European companies the alternative of forming a bigger entity to boost their global competitiveness. Its structure moreover assists cross-border restructuring for companies from various member states, and by doing so opens possibilities to investors who seek access to a business venture beyond the authority or jurisdiction of one national government.