The European Cooperative Society (SCE) constitutes another step in the completion of the EU’s internal market. It aims to reduce existing cross-border obstacles and to make it easier for companies to operate across European borders, thereby enhancing their competitiveness. In this sense, the SCE complements the legislation on European Companies (SE) which has enabled companies to set up as a European public limited company. The SCE fills the gap regarding the transnational activities of cooperatives. As in the case of the SE, the SCE legislation consists of a Regulation on the Statute for an SCE and an accompanying Directive on worker involvement. The Regulation came into force from 18 August 2006, by which date the member states also had to transpose the SCE directive into national law.

According to the wording of the SCE regulation the completion of the internal market not only means that barriers to trade should be removed, but also that the structures of production should be adapted to the Community dimension. For that purpose it is essential that companies of all types the business of which is not limited to satisfying purely local needs should be able to plan and carry out the reorganisation of their business on a Community scale.

According to the EU Commission there are around 300,000 cooperatives in Europe, employing 2.3 million people and providing services to 83.5 million members. Although cooperatives exist in all member states their significance and the rules governing them vary substantially from country to country. The enormous differences proved a major obstacle to the Commission’s aim of harmonisation and caused a long delay (more than 30 years). Significant differences between member state regulations include the possibility of investment by non-members, voting rights (“one-member, one vote” versus “weighted voting”) and the minimum number of members required to found a cooperative.

The approach used in the SE legislation paved the way for the SCE. Instead of “inventing” a completely harmonised European Cooperative which would look the same in all countries the SCE statute establishes a European framework. On many questions, the SCE statute leaves a degree of discretion to the member states. Moreover, on all issues not regulated by the SCE statute national law will apply. For tax purposes, for example, an SCE is treated like any other multinational company according to national fiscal legislation.

An SCE can be established by natural or legal persons living or having their seat in different member states. This differs from the SE in that natural persons can also be actors. The minimum capital of an SCE is EUR 30,000.

Formation can take place:

• by foundation of a new cooperative ('ex novo'), by five or more natural persons, by two or more legal entities or by a combination of five or more natural persons and legal entities;
• by a merger of two or more existing “national Cooperatives”; or
• by a conversion of an existing “national Cooperative”.

As is the case for the SE, there must always be a cross-border element. For example, an existing cooperative can only transform itself into an SCE if it has an establishment or subsidiary in another member state. In the other listed cases natural persons or legal entities must always come from at least two member states. This requirement shows the rationale behind the SCE statute which is to promote and facilitate the cross-border activities of cooperatives operating in different member states. It is not meant to be an alternative form for cooperatives which operate (almost) entirely in a single member state.

An SCE – just like an SE – can relocate to another member state without having to be wound up and re-register. Moreover, its founders can also choose whether the SCE shall be governed by a monistic board structure (administrative board) or a dualistic one (management board plus supervisory board). This freedom of choice exists irrespective of the country in which the SCE is seated.

Concerning the important topic of worker involvement (information, consultation and board-level representation rights) the SCE follows almost exactly the procedures and standards set by the SE. This means that – prior to its registration – an agreement shall be negotiated between the employer and a special negotiating body (SNB), the latter being composed of representatives from all member states in which the future SCE has employees. The “Directive on employee involvement in the SCE” lays down standard rules which shall apply if the social partners do not reach an agreement. These minimum rights include the setting up of an “SCE works council” with transnational information and consultation rights. Whether the SNB has the legal right to ask for representatives on the supervisory or administrative board depends on whether such rights existed before in at least one of the participating cooperatives (before/after principle). If certain thresholds are met the standard rules on participation apply automatically (for example, in the case of a merger if at least 25% of the employees previously had participation rights; in the other cases the threshold is 50%).

A special procedure applies to SCEs established by natural persons or by a single legal entity and natural persons, which employ less than 50 employees or employ 50 or more employees in only one member state. Worker involvement in these SCEs is governed by the national provisions for cooperatives of the country in which the SCE has its registered office. For its subsidiaries and establishments, the provisions of the member state where these are situated shall apply. This return to national regulations in the field of worker involvement is one of the few special features of the SCE statute where the mechanisms differ from SE legislation.