With the EU Council's formal adoption on 8th October 2001 of the Regulation on the Statute for a European Company, together with a related Directive on worker-participation, the introduction of pan-European companies is now on course after more than 30 years. The Regulation is due to come into force on 8th October 2004, when it will become directly applicable in all member states.

The Regulation is intended to remove the legal obstacles to the development of European-wide companies, to be known as "SEs" (from the Latin "Societas Europaea"). By using an SE, businesses established in more than one member state will be able to operate throughout the EU on the basis of a single set of rules and a unified management system. A single operating structure might avoid the need for a complex network of subsidiaries governed by different national laws, and could mean significant reductions in administrative and legal costs. The Regulation does not, however, overcome all the difficulties inherent in cross-border operations - for example, there is no single EU-wide convention for preparing accounts.

The Regulation sets out the formation, dissolution, reporting, and management rules of the SE. It provides, for example, a uniform structure for general meetings, management structure, confidentiality, and for approving transactions with a significant impact on the community. In each case the SE must impact on at least two member states and must be formed from pre-existing companies with a two-year operating history. It will be possible to form an SE by one of four ways:

• the merger of two or more existing public limited companies from at least two different member states;
• the transformation of a public limited company that has had a subsidiary in another member state for at least two years;
• the formation of a holding company promoted by public or private limited companies from at least two different member states; or
• the formation of a subsidiary of companies from at least two different member states.

While all four ways will be available to public companies, private companies may only use the last two. The SE will be treated as a public company under the law of the relevant member state; it will, for example, be able to issue shares to the public. Its capital will be denominated in euros and its issued capital must be at least EUR120,000.

The SE must be registered in the member state where it has its administrative head office, and the law of that state will apply to the SE's financial and tax matters, and will determine its treatment on insolvency. It will be able to choose between a single board structure (like British companies) or the Continental two-tiered system of supervisory and management boards. If it wanted (for example, for strategic business reasons) to move its operation and head office into another member state, it would be able to move its registered office there without going through the process of winding up and re-registration.

Rather than having direct effect like the Regulation, the related Directive will have to be implemented individually by each member state by 8th October 2004 (and in practice it will not be possible to establish an SE in a member state which has not implemented the Directive). The Directive aims to ensure that worker-participation in SEs is available in each member state. Depending on the law of the relevant member state, worker-participation will not necessarily involve representation on the board. It will be at the level of supervision and strategic development as opposed to the day-to-day running of the SE, and will not confer any right of veto.

The process of forming the SE will entail negotiations on the involvement of employees with a body representing all employees of the companies concerned, and the Directive provides for a standard set of principles to apply if no agreement is reached. Essentially, these would oblige SE managers to consult regularly with a body representing the employees, and to provide it with regular reports covering current and future business plans, production and sales levels, the implications for the workforce, management changes, mergers, divestments, and potential closures and lay-offs.

For further information, please contact Marianne Walsh by telephone on +44(0)20 7367 2654 or by e-mail at marianne.walsh@cms-cmck.com or contact Simon Howley by telephone on +44(0)20 7367 3566 or by e-mail at simon.howley@cms-cmck.com.