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Investing in a German SE

Dr Wolfgang GrobeckerDr Eva Nase
Although embedded in a European Legal Framework, a European Company (Societas Europaea or SE), which is registered in Germany more or less resembles a German Aktiengesellschaft (AG). The administration and management, the corporate governance and the rights of shareholders of a German SE are primarily governed by its articles of association and by national statutory laws: in Germany by the laws applicable to an AG, in particular the German Stock Corporation Act (Aktiengesetz), unless the EU regulation or the national implementation laws provide otherwise. In practice, German statutory laws have more of an influence on the governance of an SE than the European legal framework.

An SE can be incorporated in Germany in five ways: (i) by way of a merger of two stock corporations; (ii) by incorporating a joint holding or (iii) a joint subsidiary SE; (iv) by a transformation of a German AG into an SE; and (v) by incorporating a subsidiary SE by another SE.

An SE can, therefore, particularly be used as a vehicle for cross-border investments, since it may be established by way of merger of two or more companies registered in different EU/EEA member states. Another alternative for a cross-border investment in Germany by way of a merger has been implemented by the European Directive on Cross-Border Mergers in 2007, which follows a similar legal regime.

The SE allows for more flexibility with respect to corporate governance and employee participation than a German AG. It also can be moved to another EU member state, while keeping its legal identity.

The articles of association of a German SE can provide for a one-tier corporate governance system with an administrative board (Verwaltungsrat), complemented by managing directors. The board is responsible for the direction and establishment of the general principles of the SE, including the election of managing directors (Geschäftsführende Direktoren), and the supervision of the affairs of the SE. The managing directors are responsible for the day-to-day management of the company, subject to the directions of the board. Alternatively, the articles of association can determine to implement a two-tier structure consisting of a management board (Vorstand) and a supervisory board (Aufsichtsrat), which is the traditional system for a German AG. A one-tier corporate governance structure is internationally well-conceived and more common than the two-tier structure. It could now also be implemented in Germany, but only in the legal form of an SE.

A German SE is not subject to German employee participation or co-determination law. Instead, employee participation and co-determination is – subject to certain limitations – governed by an agreement to be entered into between the management and the employees, represented by a so-called special negotiating body. The negotiations are a mandatory part of the process of establishing an SE and a prerequisite for its registration.

Another point of interest for an investment in a German SE could be the possibility to transfer its registered office to another member state in the EU/EEA without the SE being dissolved or wound up. In this case, however, an SE must offer to acquire the shares of those (minority) shareholders, if any, objecting to the general meeting's resolution approving the move across the border against adequate compensation in cash.

Wolfgang Grobecker and Eva Nase

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