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European Company Statute Enters Into Force

February 2005 - Corporate & Commercial. Legal Developments by Dillon Eustace.

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On 8th October, 2004, the European Commission announced the entry into force of Council Regulation (EC) No. 2157/2001 on the Statute for a European Company (the "Regulation"). On the same date a related Directive on worker participation also came into force. An underlying motive behind the Commission's efforts to create a supra-national form such as the European Company was to encourage the formation of larger companies with greater economies of scale to compete more effectively on the global market with their American and Japanese counterparts. The Regulation is intended to remove the legal obstacles to the development of European Companies otherwise known as SEs (from the Latin "Societas Europaea"). SEs can be set up in one of four ways:

(a) by the merger of two or more public limited companies from at least two different EU Member States;

(b) by the formation of a holding company promoted by public or private limited companies from at least two different EU Member States;

(c) by the formation of a joint subsidiary of two or more public or private limited companies from at least two different Member States;

(d) by the transformation into an SE of a public limited company ("plc") which has, for at least two years, had its subsidiary in another Member State; and

(e) by the creation by an SE of a subsidiary in the form of an SE.

An SE is a limited liability company whose capital is divided by shares with a minimum capital of at least €120,000, although where Member States require larger capital for companies exercising certain types of activity the same requirements will also apply to an SE with its registered offices in that Member State. An SE will operate (through subsidiaries or branches) in at least two Member States. It will be managed by a single board or a dual board (supervisory board or management board), depending on the choice made by the founders of the SE. It must, as a rule, have its registered office and principal office in the same Member State (the "real seat" concept) and will be governed by the laws of that Member State.

It will be required to have a system of employee involvement through which employee representatives are able to exercise and influence decisions to be taken within the SE. Such involvement may take the form of information and consultation within a works council type body or participation by employee representatives in the management of the SE at board level.

Despite the fact that the European Company Statute was adopted at EU level in 2001, so far only Belgium, Austria, Denmark, Sweden, Finland and Iceland have taken the necessary measures to allow European Companies to be founded on their territory. The Regulation is however directly applicable in all Member States as of the 8th October 2004.

For further information, please contact any member of our Corporate and Commercial Department.

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