The SPE – the blueprint for European companies?

The European Commission has recently published a proposal that would create a new type of European private company to be known as an SPE (Societas Privata Europaea). The proposal takes the form of a directly-applicable Regulation that could come into effect by 1 July 2010. Although it will require local law in each member state to supplement the final version of the Regulation, the features of the SPE are generally more attractive than those of its older brother, the Societas Europaea (SE), which has been in force since 2004 but which has had very little take-up in the UK. As an SPE will have a legal form that is recognised throughout the EU, it has obvious attractions for multinational groups and could in time become the blueprint for European companies.

Unlike the SE, the SPE would not require any cross border element. According to the proposal, its main features would be:

• Ease of formation
• A minimum share capital of €1
• Requirement to cover at least forty specific areas in the articles of association
• Requirement to have its registered office and principal place of business in a member state (but not necessarily the same one)
• Uniform rules on distributions (and the option of a solvency certificate to be issued before a distribution)
• A registered share system for shareholders
• Certain prescribed matters requiring decisions of shareholders, some requiring a minimum two thirds qualified majority
• Minority rights allowing the right to request a shareholders meeting or a competent court or authority to appoint an independent expert to investigate a breach
• Corporate governance using a one tier or two-tier system of management
• Specific duties of directors
• Procedure for registered office to be transferred to another member state
• Information rights for shareholders
• Employee participation on the same basis as already applies in the jurisdiction of registration.

Governing law

An SPE would be a limited liability company governed principally by the Regulation. Various matters will have to be regulated by the company’s articles of association, including:

• The company’s name
• Initial capital
• Rights attaching to classes of shares
• Any pre-emption rights on issue or transfer of shares
• Whether shareholders have any drag-along or tag-along rights
• Whether interim dividends can be paid, and whether the board must sign a solvency certificate before doing so
• The procedure for increasing, reducing or changing the share capital
• How shareholder resolutions can be passed, and the majority required
• How shareholder meetings are convened and resolutions proposed
• Whether the board is one or two-tier, and its composition
• The procedure for appointing and removing directors
• Whether any related party transactions need to be authorised
• The rules on directors delegating their authority.

Generally, shareholders will be free to decide how such matters should be regulated. But the Regulation will specify certain minimum protections for minority shareholders – in particular, the most important decisions, such as approval of the annual accounts, any reduction of capital, transformation or a merger of the SPE, will have to be taken by a qualified majority of at least two-thirds of all the SPE's voting rights. Minority shareholders can be given additional rights in the articles of association.

Those matters that are required or allowed by the Regulation to be governed by the articles will not be subject to national company law, but otherwise the national company law which applies to private limited liability companies in the member state where the company’s registered office is situated will “fill in the gaps”. And areas that are outside the scope of company law - such as insolvency, tax, employment law and accounting - will be governed by the applicable national law.

Like the Societas Europaea (SE), an SPE would therefore be a creature of European law, formed under the Regulation and governed principally by it. As such, it will be recognised by all member states, and will be able to transfer its registered office from one state to another. A business incorporated as an SPE in one member state that wishes to operate in another member state will therefore not need to establish a branch, or incorporate a subsidiary, in the second state. This should save significant time and costs.

Comment

The draft statute will be the subject of consultation between member states. At first glance, most of the concepts are very similar to those used for English private limited companies, but there are some unfamiliar concepts too. These include non-specific information rights for shareholders; shareholder withdrawal rights; the power to expel shareholders; and specified duties of directors. The directors’ duties specified in the draft are very similar, but not identical, to those recently codified in the Companies Act 2006.

The advantages, however, for multinational groups to use the same entity in different jurisdictions throughout Europe has obvious attractions and the SPE could in time become the blueprint for European companies.

Source materials

Click here for the proposed Regulation and here for the accompanying FAQs.
Our main Law-Now article on the SE (published on 13 September 2004) can be found by clicking here. Other articles can be found by searching on LawNow for “European company”.