Because of massive demand, particularly from small and
medium-sized companies, the European Commission started the
process of creating a European Private Company (Societas
Privata Europaea, SPE) in 2006 in the course of its
consultations regarding future action in the field of European
corporate law and corporate governance.
In December 2006, the legal committee of the European
Parliament made a proposal on the most crucial key points of an
SPE, which were adopted by the plenum on February 1 2007. On
July 19 2007, the EC Commission started the consultation
process concerning the introduction of an SPE by a public
survey, the results of which were discussed at an experts'
meeting on March 10 2008. Now, the EC Commission is expected to
present a proposal for legislation in the course of this
The SPE is considered to offer numerous advantages, not only
for small and medium-sized companies but also for private
equity investors, some of which are outlined below.
As the European law of limited liability companies has not
yet been harmonised, significant differences still exist among
the national types of these companies. The management of these
different company types within the portfolio of a private
equity investor requires a substantial amount of explanatory
support, creating significant costs.
The cost reduction potential of an SPE may especially be
realised if the SPE, which is equipped with a flexible statute
regarding corporate governance, is used as a standard legal
vehicle in (almost) all European jurisdictions that are
relevant within a private equity portfolio. In such an event,
many relevant corporate procedures and operations related to
the corporate governance of the companies may be standardised.
Private equity investors may also use an SPE as a special
purpose vehicle in the course of M&A transactions.
The existing European company types are not an alternative.
The European Economic Interest Grouping (EEIG) does not allow
for a limitation of liability, and is subject to significant
restrictions regarding its object of business because it must
not gain any distributable profits. The Societas Europaea (SE)
is subject to detailed and intense regulation, has significant
administration costs and is specifically designed for major
groups of companies.
Furthermore, the SPE is expected to face substantially fewer
psychological hurdles than national company types when used
abroad. Particularly companies from smaller or new EC member
states are confronted with such hurdles because their business
partners are not familiar with these entity types. Even worse,
such foreign companies are often instinctively suspected of
misuse. Therefore, for example, a significant number of private
equity investors still use a GmbH instead of a UK limited
An SPE may also be an appropriate instrument for
cross-border joint ventures. In the case of cross-border joint
ventures, one partner (at least) must agree to the use of a
legal entity existing under a foreign jurisdiction from that
partner's perspective. Due to its neutral character, the use of
an SPE may prevent distrust at an early stage of the joint
A further advantage of the SPE is its enhanced mobility,
since an SPE is granted legal personality in all EC member
states. Though the European Court of Justice (ECJ) has held
that hurdles to the moving in of foreign EC-based companies are
violations of Article 249 EC Treaty, a couple of EC member
states nevertheless still establish legal traps or hidden
obstacles to foreign companies.
While the details of the SPE's statute have not yet been
determined and are still being discussed, the legal committee
of the European Parliament made the following proposals, which
were subsequently included in recommendations to the EC
Commission by the European Parliament.
- The statute of the European Private Company shall be
governed by an EC Regulation to the extent possible in order
to prevent gold-plating by national legislators. This is
based on the assumption that any references to national
company law would seriously jeopardise the aim of a
standardised European company type. (The term gold-plating
describes the negative effects for the establishment of a
level playing field arising from the fact that the national
legislator in the case of EC Directives adds certain
provisions which go beyond the minimum standard of the
respective EC Directive).
- An SPE may be established by one or more natural persons
or legal entities and must be registered in a public
register; it may also be transformed into an SE and
transferred to other EC member states.
- An SPE shall have its own legal personality and limited
liability; while the EC Parliament has proposed a minimum
capital of e10,000 ($15,780), the system of creditors'
protection is still being intensively discussed. While some
voices support the system of minimum capital and its
protection, certain other voices support the alternative of a
solvency test. According to such a test, payouts and
dividends are permissible provided that the managing director
declares that after the payout or dividend distribution the
company is still able to compensate all due liabilities for a
certain period of time. If the forecast turns out to be
incorrect and the managing director has violated his or her
duties in preparing this forecast, the managing director can
be held personally liable.
- With regard to the corporate governance of the SPE, the
shareholders shall have the choice between a one- or two-tier
system (that is, including a supervisory board) similar to
the German GmbH.
- The laws of workers' co-determination of the EC member
state in which the SPE is registered shall apply and provide
assurance that the rights of employees are not derogated in
the course of mergers or other transformations. While the
debate on workers' co-determination has delayed the
legislative process of the SE for years, it is foreseeable
that the European legislator will handle all aspects related
to workers' co-determination in an SPE in a separate EC
- Following the model of certain European legislators, for
example the UK, it is being considered to provide certain
model articles of association to the shareholders of an SPE
(note that the German legislator also intends to follow the
approach of model articles by amending the German Act on
Limited Liability Companies, GmbHG). In this context, it is
currently being discussed whether the European legislator
shall create a flexible law that may be waived or modified by
the shareholders, but which applies subsidiarily if the
shareholders have not agreed on a certain provision in the
articles; or whether the European legislator should confine
itself to requiring the founders of the SPE to establish
provisions for certain topics in the articles.
- The accounting of the SPE shall comply with the EC
directives on accounting.
- The dissolution of the SPE and any bankruptcy procedure
shall be performed in accordance with the national provisions
of the EC member state in which the SPE is registered.
By developing the SPE statute, the EC Commission hereby
satisfies an urgent and massive practical need for a
standardised and flexible company type, which is accepted
throughout Europe. Because the SPE will be created along the
lines suggested by a significant number of practitioners, it is
expected that this company type will be frequently used and
highly appreciated not only by small and medium-sized
companies, but also by private equity investors.
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