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The Open Debate about the Challenges Related to SE Foundation

According to the government department responsible for social welfare and the oversight of employers and trade unions, the foundation of SEs and their incorporation into the Czech legal system represents a new and very important step aiming at the better functioning of the Single Market and supporting one of the fundamental freedoms of the EU, freedom of movement. The companies which are trying to profit from the extended EU market will by means of the SE be able to avoid the complicated and financially burdensome issues facing their subsidiaries, each subject to national legislation. They will be able to relocate their headquarters within the EU without having to dissolve and re-incorporate. The SE Regulation did not take effect in the Czech Republic until October 2004, and the Czech executive law on the SE has not yet been approved, although it was again discussed at the 16 November 2004 legislative assembly and will be considered for adoption soon. This is why no SE has been established in the Czech Republic and the regulation has had no concrete outcome so far.

A major challenge linked to SE foundation is the possibility of multinational corporate mergers, which have not so far been allowed by the Czech legal system or by the other EU member states. Since 8 October, when the Regulation came into effect, it has been possible to merge an incorporated company with a company in the Czech Republic or Slovakia through an SE and to relocate the headquarters to any EU country.

The possibility of establishing an SE has made the financing and reorganisation of multinational corporations less problematic in administrative, legal and financial terms. This creates attractive conditions for joint ventures, favourable opportunities for investors and profitable possibilities for the country in which the SE will be established. However, it is important to say that only countries with well functioning legal systems and suitable business environments will become candidates for corporate residence.

Other frequent points of discussion in relation to this new form of corporation are: efforts to eliminate the psychological barriers between EU members and pursuit of an integrated European identity and business approach.

Since the SE will not exist as a large integrated corporation, but will function in 25 national ‘versions’, the question is whether relations between these variations could be any closer (and how much) than the present national regulations imply. Another issue is whether declaration of the company as “European” will influence people’s thinking and behaviour and contribute to the formation of a European identity.

Since no SE has yet been established in the Czech Republic and the short time available for preparation of the executive law did not allow any discussions, we cannot really talk about an open debate on the effects and results of SE implementation in Czech business conditions.

In fact, the only open debate covered no more than the most problematic areas.

While preparing the law, the government, the employers and the trade unions worked on establishing employees’ rights to participate in the foundation and functioning of SEs. The Directive itself allows the transfer of one country’s rules on employees’ participation to another EU country. Each country takes an individual approach, which raises the question of how the particular SE will be willing to accept a higher level of employee ‘interference' in its management if the country of origin is more open in its management style.
While the Czech employers preferred the Anglo-Saxon model of representing employees’ interests, the trade unions were pursuing the German model, with ‘above-standard’ rights and privileges for employees. The strict rules in this area may have a ‘discriminatory’ effect on companies with strong employee participation in management – e.g. German companies could be prevented from merging with corporations from other EU members with stricter guidelines regarding employee involvement.

Another problematic area is tax.

Each EU member should apply the general European and domestic legal regulations. The present form of the EU Tax Directive doesn’t specify SEs or the relocation of an SE residence from one EU country to another. The problem is being addressed by an upgrade of this Directive which is being discussed by the EU Parliament.

In all EU countries in which an SE operates but does not have its seat, certificates of incorporation will be registered only after fulfilment of the legal requirements of participating countries.
Since the experience of Certificates of Incorporation based on the similar Czech legal institution – e.g., registering the raising of basic capital on the basis of the notarial deed of Directorate’s certificates (according to the Business Law, § 206 paragraph 2, stating that the notarial court should not examine further facts except for the management’s condition and procedures) – has been rather difficult, the fear is that Czech judges will be willing to implement registration based only on the certificates of fulfilment without further examining these documents. This has the potential to cause significant problems down the line, and additional attention should be paid to this area.

The Czech law on SEs, with reference to the Directive, regulates at least the basic rules of one-tier corporations in the EU, and SE founders have a choice of establishing either a one-tier or a two-tier corporation. Unfortunately, Czech law in general covers only the dualistic form, so choice of the one-tier form would lead to a certain legal insecurity and doubts concerning which legal system would apply.

Alle Czech Republic