Brussels is proposing a new kind of European company for small, private businesses seeking to develop cross-border operations

AT FACE value, there is not much to link a German chemicals group, a rail tunnel operator and a healthcare research specialist. BASF, Eurotunnel and Schering-Plough Clinical Trials are all businesses that have chosen to incorporate as European companies rather than establish their operations under a variety of national legal structures - such as a British plc or a French société anonyme.

At present, such companies are a rare breed. The European company structure was first proposed 30 years ago and finally introduced, under the Societas Europaea or SE tag, in 2004. Since then fewer than 100 businesses have signed up.

Could this be about to change?

Brussels is now proposing a new kind of European company, this time called a European Private Company (Societas Privata Europaea, or SPE). As the name suggests, the structure is aimed in particular at small, privately-held businesses seeking to develop cross-border operations.

This time, as the draft legislation starts its long journey through the Brussels maze, some business organisations and corporate advisers are beginning to sound more enthusiastic about its potential deployment.

Vanessa Knapp, a partner at the Freshfields law firm, says: "It could be very useful, not just for small and medium-sized businesses. Multinationals that are saddled with complex historical subsidiary structures will also see this as an opportunity."

Jerome Chauvin, director of legal affairs at BusinessEurope, the industry organisations' umbrella group in Brussels, is hoping for "broad business support".

Everyone admits that the experience with the SE structure is not very encouraging. Companies that have made the switch to this legal status have usually done so for fairly idiosyncratic reasons.

For example, insurer Allianz took the step largely to make it easier to incorporate RAS, its Italian subsidiary, into the parent company, although it also stressed the advantage of being seen as a European, rather than a specifically German, business.

Meanwhile, other German groups have been attracted by the possibilities for streamlining their supervisory boards and making the employee representative element more international.

Lawyers point out that there are some significant differences between the SE rules and those proposed for SPEs. First, under the SPE statute it would be possible for a company's head office and its registered office to be based in different countries - a distinction that could be valuable for tax reasons, among others.

Second, potential cost savings could make the new structure particularly attractive to smaller firms.

The minimum capital requirement for an SPE is pitched at just €1, well below the current levels demanded in some countries when companies incorporate as domestic entities. EU internal market commissioner Charlie McCreevy has claimed that this alone could result in cost savings of up to €35,000 in some member states.

Third, the SE rules left considerable latitude to EU member states. "In effect, there were 27 versions of the SE," says one corporate adviser. By contrast, the range of company law issues covered by the proposed SPE statute is broader, meaning that this could become a more uniform, pan-European structure. (An SPE will be governed by national law, though, when it comes to matters such as accounting, tax, labour law and insolvency arrangements, as is an SE.)

Some business groups think that even more could have been done. For instance, Eurochambers, the association of European Chambers of Commerce, is broadly supportive but laments the lack of a template model for articles of association. This, it claims, could have helped smaller companies to push down incorporation costs even further.

Some EU states though are known to be unhappy with particular aspects of the SPE proposals. The very low minimum capital requirement, for example, has not been greeted warmly by Germany or Austria, where critics claim that this could make it too easy for fly- by-night businesses to incorporate.

So there is a possibility that more referrals to national laws could get added in as the statute makes its way through the legislative process - and that leaves many observers guarded about the SPE's usefulness at this stage. - (Financial Times service)