Recently we have seen of one of the most significant initiatives
of the EU related to economic and administrative harmonization and promotion
of the common market in the EU countries. This initiative (in the form of
two regulations) regulates the establishment of a new legal entity called
the European Company or Societas Europae (SE), will doubtless
create a concrete change in the traditional structure of companies in Europe.
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| In his previous article on the pan-European
legal model, attorney Avi Omer commented that "many corporations
operate in a 'vacuum' of legal ambiguity." |
After
more than 30 years of debate, the SE was brought about as a result of
two regulations of the Council of the Union (#2157/2001 and #2001/86/EC).
Both regulations were passed in 2001 and came into force
in 2004.
These regulations, beyond their potential implications for the economy of
the EU, express the trend toward unifying and simplifying mechanisms and
processes, and eliminating the need to establish and register companies and
subsidiaries separately in each and every country where
a business corporation operates.
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| What Is the SE? |
 The
SE is not merely another local company
in a particular country, but rather a pan-European company. From
the moment of its registration in one of the countries of the EU, the company
is automatically recognized as a
legal entity in every other country of the EU, and it is free to function
in any one of those countries, as if it were a local company.
This new legal
entity is estimated to save EU businesses over €30 billion in the first
year of the regulation's implementation.
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| Who Can Become a SE? |
The privilege of establishing an SE is granted
to bodies with a true connection to the EU.
A new European Company can be established in one of four ways:
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- Merging two or more public companies from two or
more EU countries
- Establishing a joint holding company for public or private limited
companies from at least two different countries in the EU
- Forming and establishing a subsidiary company from at least
two different countries in the EU
- Transforming a public limited company registered in one of the
countries of the EU, which has owned a subsidiary in another EU country
for at least two years
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Further, establishing an SE is subject to the additional
prerequisite conditions of two years' existence and capital of at least €120,000.
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| Registration & Taxation |
Registration of a European company
in any one of the countries of the EU is done with representatives of the
SE registrar in that country. The SE is recognized as any
public limited company and subject to the instructions of the regulation.
Once
registered, the company is not necessarily connected to the country where
it was established because its identity is that of a pan-European
company, one that is entitled to operate in
any one of the countries of the EU – without limits (virtually), the
need for permits, or the need for registering in every country separately.
Unlike registration, taxation is not as seamless. Until
full economic harmonization within the EU, SEs operating in multiple EU countries
are subject to different tax rates in different countries. The
EU Commission is deliberating between two possible options to solve this
problem: (1) taxing the SE according to the laws of the country in which
its main office is located, or (2) creating a series of legislative activities
with the agreement of the EU countries, which will form a uniform basis for
taxes.
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| The SE Advantages |
Due to the following advantages, there is no doubt
the SE is of great interest to the business world
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Removes the necessity of establishing subsidiaries in every
country of commerce
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Facilitates employee mobility among EU countries
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Merges bodies and companies (particularly those which were
established only on the basis of geography)
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Reorganizes and pools resources
(closing unnecessary multinational offices)
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Removes barriers to pan-European trade
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Produces uniformity among economic and legal units of
business
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Promotes uniform management of companies and provides for a
uniform directive for employee involvement in the company and its management
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Grants "public source" staus to private
incorporated companies that have become SEs
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Simplifies reporting procedures and reduces the size of boards
of directors
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Creates new financial tools for raising capital
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| How Do Israeli Companies Benefit? |
Israeli companies with subsidiaries or partner companies
in EU countries, and meet the criteria described above, can be organized
as an SE. We see this as an important step toward a pan-European
Union, one which may well contribute to harmonization and economic solidarity
within the EU and beyond.
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| What's Ahead? |
We believe the full implementation of the regulation will be
completed toward the end of 2006; however, there are a number of issues for
the EU still to consider, not the least of which is the taxation system.
Still,
the effectiveness of this new entity will lead to greater
harmonization in commercial activity, increased economic leverage, simplified
procedures, and greater ease in agreements between SEs.
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About the authors: Attorneys Avi Omer and
Shimrit Ohana are with Omer-Yuster and Co., an Israeli law firm specializing
in European law.
In addition to its branches in Israel (in Ashkelon and Tel Aviv), the firm
operates a branch in Brussels, and has extensive activity in most of the
EU countries. Omer-Yuster has been providing a full range of legal services
to Israeli companies for more than 15 years.
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