Introduction
The contemporary business world is complex and characterized by various attributes that affects it in one way or the other. There are various guiding principles by which business enterprises are expected to adhere to in order to not only attain maximum productivity and profitability but also as an obligation to fulfil various statutory bodies’ requirements and the societal needs. The European Company statute is considered as an extremely crucial element especially in regard to the concept of free movement of companies. It is a tool that offers an opportunity for companies that operate in two or more countries to form a European Company, that is, a public limited-liability company. It is an instrument that covers all companies that operate in the European Union. It is aimed at bringing about efficiency in carrying out business operations across borders. Free movement of companies is a positive attribute in the business sector as it is linked with bringing about efficiency, effectiveness as well as economy in the business operations through elimination of restrictions or barriers related to coverage of business operations. This piece of work gives a critical discussion on the issue of the adoption the European Company statute and its effect on free movement of companies.
The European Company statute
The European Company statute is an extremely crucial tool with respect to carrying out business in Europe. It can be defined as an instrument that grants companies, which operate in more than one country, a chance to form a public limited-liability company generally termed as the European Company. In simple terms, this entails the establishment of all the business operations as a single entity under the community law. The European Company statute is a well established tool that is applicable all over the European Economic Area (EEA). The European Economic Area comprises of Norway, Iceland, Liechtenstein as well as the 25 European Union (EU) Member States. The main essence of the European Company statute is to simplify the terms that are involved in operating business in more than one country and hence the concept of free movement of companies. The adoption of the European Company statute is aimed at enabling the European Companies to operate through out the European Economic Area under a single set of rules as opposed to complying with the legislation of the individual countries in which they operate. This is an incredibly significant aspect in business as it helps deal with the problems that are associated with bureaucracies. It also eliminates inconsistencies that could have been presented by the different legislations in different countries. A European Company is also known as SE or Societas Europeae (Latin term). It possesses a legal personality meaning that it is in a position to sue others or to be sued.
Background Information
In order to have a better understanding of the effects of the European Company statute on the issue of free movement of companies, it is good to have some background information of the statute. The concept of the European Company Statute came about as a result of a desire to have an instrument that would enhance business of companies. This would be achieved through allowing for freedom of establishment as stipulated in the Treaty, the elimination of any conflicts that would arise due to differences in company rules that are present among different member States of the community as well as guaranteeing a better working condition of the European Capital Market.
The European Company Statute is neither a very old concept nor is it too new. It created a new form of company, the European Company, in 2001. However, the concern of freedom of movement for companies is an old issue in the European Union (EU) law and does not start with the regulation of 2001. The legislative history of the European Company Statute is relatively long. Its adoption is deemed to have taken more than 30 years before the adoption of the regulation in 2001. The regulation is usually complimented by a directive that governs employee participation.4 Although the European Company Statute is an instrument that had been discussed and debated upon by various parties for a long period of time, it came into effect in the year 2004, 8th October.
To understand the impacts of the European Company Statute, it is important that we look as some of the relevant treaties and their interpretations with respect to the jurisprudential background of the European Court of Justice.
The Rome Treaty and the EC Treaty
The shared appreciation and the freedom of movement of companies can be clearly seen in articles 43 and 48 of the EC Treaty. This is with respect to the analogy related to the natural persons. Article 48 necessitates that the companies involved are treated in a similar manner as the nationals. This is mainly for the purpose of the Treaty provisions of freedom of establishment as indicated in article 43. However, this is not practically possible because there are distinct variations between legal persons and natural persons. Despite that many efforts that have been made to harmonize the European Company law including directives, there are many differences that still stand and thus a need to resolve them in a strategic manner.
Profit making companies that are governed by either the private or public law are the main beneficiaries of the freedom of establishment. The EC Treaty lost some part of its significance following the adoption of the European Company statute. All in all, it still stands as the principal foundation of interpretation of the directive and regulation. The EC treaty still remains as a constituent of the European Company law due to the fact that it touches on the concept of freedom of movement of companies in Europe, which still have some pending issues to completion.
The European Court of Justice Cases law
The European Court of justice was involved in making many decisions in regard to the scope of the freedom of movement of the European companies as stipulated by an interpretation of the provisions of the EC treaty. The decisions were extremely significant in the establishment of the European theory that deals with freedom of movement of the companies. The Centros case is relevant when it comes to the discussion of the European Company statute and its effect on the freedom of movement of companies. The Centros case puts forth two major ideas. To begin with, the European Court of justice states that in the case where a company had previously exercised its right of establishment under the Treaty, the member States are forbidden from discriminating the company. This is mainly on the grounds that it was formed in accordance with the law of another member State in which it has a registered office although it could not be carrying on any business. The other major issue depicted in the Centros case is that no State has the authority to limit the freedom of establishment on the basis of defending creditors or avoiding fraud especially if there are other means through which the creditors could be protected and fraud countered.
The European Court of justice also admits a total right of mutual recognition of foreign companies among the member States. This is a step that shows its recognition of the freedom of establishment. Nonetheless, the European Court of justice does not go beyond the stage of the incorporation theory. Attainment of the EC Treaty’s goal of organizing a freedom of movement to companies on a similar level as that of the freedom of movement of the citizens has proved hard despite the efforts of setting up a large right of mutual recognition within the European Union by the cases law of the European Court of justice. In addition, the mutual recognition is not powerful enough to control most of the operations for instance allowing for change of the applicable law or making provisions for movement of the headquarter of the company. To solve these problems, the European Company statute comes in and brings a new vehicle that contributes to freedom of movement of the European Companies.
Formation of a European Company
There are different ways through which a European Company can be formed. They include the formation of a merger, which only applies for public limited companies that are located in different countries and the establishment of a joint subsidiary in case of legal entities that originate from more than one country. A European Company can also be formed where a public limited company that was formerly established under national law and had one or more subsidiaries in another country for two or more years is converted into an SE. The other way of formation of a European Company is the establishment of a holding company. This is however specifically allowed for private and public limited companies that contain registered offices in two or more countries.
There are factors that are deemed crucial in the formation of a European company or rather some requirements that ought to be fulfilled in setting up an SE European Company. For instance, a European company must have a minimum capital of 120,000 euro. The amount is usually more than this where the company is registered in a nation that necessitates a larger capital for some companies. The capital of a European Company is usually divided into shares. Under normal circumstances, a European Company does not have to be quoted but in cases where it is quoted, it is treated in an equal manner to a public company that is established under national law.
Although there is usually no central register for the European companies, the place where SE has its central administration and management is considered to be its registered office. A single register is used for both SEs and other companies that are established under the national law. The Official Journal of the European Union is the principal publication for operations related to European companies especially registration and liquidation.
The legal basis of the European Company Statute
The European Company Statute is a legal entity. Its legal basis can be understood in the view of two major parts of legislation. They include; ‘the Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European Company which is directly applicable and the Council Directive No 2001/86/EC of 8 October 2001 complementing the Statute for a European Company with regard to the involvement of employees in the European Company which has to be implemented into national law.’
Despite the fact that the European Company statute is very powerful, there are cases where some matters that are not covered by the European Company Statute arise. They include; intellectual property, compensation and taxation among others. In such cases, the national legislation of the country where the European Company is registered applies. Other business operations and practices that are usually left in the hands of the national law include insolvency and suspension of payments, winding-up as well as liquidation among others.
The adoption of the European Company Statute and the free movement of companies
Freedom of movement of companies is considered to be a crucial aspect in facilitating business operations. Free movement of companies can be defined as the likelihood for companies to either establish or change their businesses from one State to another, within the European Union while at the same time maintaining their rights. This can be depicted from the Article 48 of the EC treaty as inferred by the Cases law of the European Court of Justice (ECJ).
There are various reasons that could be put forth in regard to freedom of movement of companies. The major reason is however the provision of integration of European businesses. There is also the aspect of a single market and the freedom of movement of companies is considered to be a positive step towards achieving it. In addition to enhancing the competitiveness of Europe through allowing for exploitation of all the cross-border opportunities, a combination of competition of jurisdiction and the freedom of movement of companies offers a more efficient legal environment that fosters business undertakings.
As earlier noted, Centros plays a critical role in the promotion of the free movement of companies in the European Union. In addition to Centros, there was some other number of decisions in which the European Court of Justice took valiant steps in an effort to promote the free movement of companies. The decisions have had considerable impacts in regard to the issue of mobility of companies. A good example is the regulatory arbitrage which is now a reality in the European Union. It allows companies to choose to integrate in the member States that provide them with the most desirable legal regime. For this reasons, there has been a tendency of member States adapting legal frameworks that in one way or the other facilitate company mobility.
Although the issue of European Company is not a sole solution to freedom of movement of companies, it plays a significant role in facilitating it. The issue of Societas Europeae is considered to be a compromise between the principle of subsidiary and harmonization. The European Company statute makes it possible for all the companies that operate all other the European Union to utilize or rather work under a common single set of rules and guidelines in addition to provision of an adaptive structure. The terms and conditions stipulated for a European Company are also favorable and allows for efficient across border business operations without the need for expensive and sophisticated network of subsidiaries.
Limited freedom of movement is an issue that was earlier recognized by the jurisprudence of the European Court of Justice as can been seen in Chapter 1. However, Article 8 and 1 and some other articles of the Statute particularly in Chapter 2 are associated with the main contribution to the issue of establishment of freedom of movement of companies.
Article 8(1) states that:
“The registered office on an SE may be transferred to another Member State in accordance with paragraphs 2 to 13 (about the proceeding of the transfer). Such a transfer shall not result in the winding up of the SE or in the creation of a new legal person”.
This therefore shows that the article authorizes the cross border establishment of a European company. An SE is also given a chance to decide on an applicable law by transfer of its registered office as well as cross border merger. This is a positive move that allows for free movement of companies. The change of law applicable must however take into account the interest of the stakeholders as well as the shareholders. Article 37(3), stipulates that an SE can not use the freedom provided in the same time of its conversion from a public limited company. This provision is very crucial in the prevention of a Delaware effect.
What brings about some doubts in regard to the effectiveness of the European Company statute with respect to freedom of movement of companies is the fact that the European Company Statute is not homogenous but rather has some form of structural constraints to freedom of movement. This can be clearly seen in Chapter 3. For this reason, there is a need for establishment and implementation of some other alternatives and better results would be attained through proper implementation of the European Company Statute on domestic levels. This is well depicted in Chapter 4. This shows that despite the fact that the European Company statute is a critical element and facilitates the free movement of companies, it can not do this solely but there has to be some other efforts or alternatives to make the whole process a success.
The implementation of the European Company Statute is deemed to have varying effects in regard to the free movement of European companies. For instance, it is deemed to have some limiting influence. This can be attributed to the real seat theory which has an effect of paralyzing freedom of movement of the European company. There is therefore a need for member States to assume a more flexible position that is aimed at allowing for freedom of movement.
The fact that the European Company Statute offers a limited freedom of movement necessitates a need for future improvements and alternatives in regard to the concept of free movement of companies. The future improvements and alternatives are meant to be implemented in the event that the European Company Statute does not institute high level freedom of movement that is necessary for the setting up of a common market. This will significantly help in the creation and facilitation of new ways aimed at achieving freedom of movement.
One of the improvements that could be adopted includes the 14th Directive of transfer of the registered office. This is deemed to have an effect of recognizing the preference to the incorporation theory as well as negotiating for the desertion of the provision of Article 7 of the European Company Statute. Another positive measure in enhancing freedom of movement is the adoption of the 10th Directive on cross border Mergers. This will effectively compliment the European Company statute.
Benefits of becoming a European Company
The concept of free movement of companies can also be understood well when looked at in line with the benefits of being a European company. There are various advantages that are associated with being a European Company. One major benefit is the significant reduction of legal and administrative costs. This translates to enhancement of efficiency, effectiveness as well as economy in the business operations which in turn increases productivity and profitability of a company. This is made possible through allowing companies that operate in more than one nation within the European Economic Area to make a holding company. This allows it to operate all over the European Economic area under one set of rules with a cohesive reporting and management system. This therefore dictates that the practical and legal restrictions that could have been presented by the different legal systems in the different countries are eliminated.
Another benefit is that of expansion of companies under the European Company Statute. This is made possible through efficient restructuring of the companies’ cross-border operations without the need of establishing a network of subsidiaries that could be ruled by varying national laws. This therefore eliminates costs and wastage of time that are associated with red tape of cross-border operations. This allows maximum exploitation of all the available opportunities. This is a positive step towards boosting the overall Europe competitiveness hence enhancing business operations within and outside the continent.
The adoption of the European Company Statute can be said to have made the concept of free movement of companies a reality to a large extent. This is because it has been able to set up favourable grounds through which the European companies can operate across borders at ease as discussed earlier. Despite the fact that some improvements ought to be done and alternatives incorporated, the impact of the European Company Statute can not be underrated. It sets a path for other measures that are aimed at facilitating freedom of movement of companies.
Conclusion
From the above discussion, it is evident that the concept of freedom of movement of companies is complex and surrounded by various aspects. Freedom of movement of companies is associated with a variety of benefits to the companies and countries involved, for instance, the elimination of the need to have to follow some sophisticated bureaucracies and various regulations that are present in the different member states. The European Company Statute is one of the major instruments that have facilitated the freedom of movement of companies. This is through the establishment of a single set of rules to govern all the business companies that operate in the European Union. This is as opposed to where the companies would have to deal with a lot of legislations which are not only costly but also time consuming, an aspect that could affect the profitability and productivity of a company negatively. Although the issue of European Company is not a sole solution to freedom of movement of companies, it plays a significant role in facilitating it. The issue of Societas Europeae is considered to be conciliation between the principle of subsidiary and harmonization.
The European Company statute makes it possible for all the companies that operate all over the European Union to utilize or rather work under a common single set of rules and guidelines in addition to provision of an adaptive structure. The terms and conditions stipulated for a European Company are also favourable and allows for efficient cross border business operations without the need for expensive and sophisticated network of subsidiaries. This therefore translates to the fact that the adoption of the European Company Statute has played a significant role in facilitating the aspect of the free movement of companies. This is however in conjunction with other efforts made by other parties. The role of the European Company Statute in freedom of movement of companies can therefore not be underestimated. All in all, the above named improvements should be considered and the alternatives implemented to compliment the European Company Statute.
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