German Government seeks to end ‘circumvention’ of co-determination through shelf SE
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The German Federal Government has announced plans to restrict co-determination arrangements by way of European Companies (Societas Europaea – SE) established without employees. Companies currently planning or preparing an SE structure should closely monitor further developments and examine their available options at an early stage. However, neither a draft bill nor any specific implementation or transitional provisions have yet been announced.
Political declaration of intent by the German Government
On 2 July 2026, as part of its reform programme ‘For Economic Recovery and Employment’ to put an end to the use of so-called ‘Shelf SEs’ to ‘circumvent’ German co-determination law. How this objective is to be implemented in legislative terms remains to be seen.
In parallel, the Federal Government intends to campaign at European level to ensure that a future form of company under EU law – often referred to as ‘EU Inc.’ or the ‘28th regime’ – does not undermine national co-determination standards (for more on ‘EU Inc.’, see our blog post of 24 March 2026).
Why the ‘Shelf SE’ is well-established and attractive
Employee participation in an SE is not directly governed by the German One-Third Participation Act or the German Co-Determination Act. Rather, the European regulatory model is fundamentally based on ‘freezing’ the employee participation existing at the time of formation. Where employees are present, a special negotiating body negotiates with management regarding their future participation. However, in the case of a pre-established shelf SE set up without employees, there is initially no workforce capable of negotiating.
In 2024, the European Court of Justice held in its Olympus judgment (ECJ, judgment of 16 May 2024 – C-706/22), contrary to the previously prevailing view in case law – in particular that of the referring Federal Labour Court (BAG) – and in legal literature, that there is, in principle, no obligation to retroactively conduct the employee participation procedure if an SE established without employees acquires a majority stake in subsidiaries that employ staff. Accordingly, a retrospective consultation may only be considered in exceptional cases where there has been an abuse of law (for details, see Schmaus/Haas, ZIP 2024, 2915). The Federal Labour Court (BAG) has later followed this line of reasoning (BAG, decisions of 26 November 2024 – 1 ABR 37/20, 1 ABR 3/23 and 1 ABR 6/23).
On this basis, the (shelf) SE is, in practice, initially incorporated without its own business operations and without employees, and is later utilised, for example, as a group holding company or as a general partner in a limited partnership (SE & Co. KG). In addition to considerations relating to co-determination rights, other factors that may favour the SE include its European orientation and the choice between a dualistic and a monistic management system.
What changes are conceivable?
The political objective is clear, but the legal path to achieving it is not yet. In particular, consideration could be given to an obligation to implement the employee participation procedure as soon as the activated SE has a sufficiently large or adequately structured workforce. Other possibilities include special provisions for the activation of shelf companies or a more specific definition of the grounds for abuse in the SE Participation Act.
It is doubtful whether a far-reaching regulation at the national level alone would be tenable under EU law. Employee participation in the SE is largely governed by European law. The German legislator cannot, therefore, simply alter the fundamental principles of the European regulatory model. A comprehensive and legally certain reform might ultimately require an amendment to the SE Directive.
The question of whether a specific structure constitutes an abuse must be distinguished from the issue of its general admissibility under EU law. An abstract statutory obligation to renegotiate is likely to be subject to different conditions than the sanctioning of an arrangement that constitutes an abuse of law in an individual case.
What companies should consider now
Despite the legal situation still being unresolved, there may already be a need for action today. Companies planning an SE structure should first clarify whether the (shelf) SE is actually necessary for the project in question and what independent corporate law or organisational purpose it serves.
For ongoing projects, particular attention must be paid to the lead time, the acquisition and capitalisation steps, and the desired governance structure. Depending on the structure, post-incorporation rules under company law, the specific requirements for a ‘Einheits-SE & Co. KG’ and tax implications may also be relevant. A holistic assessment is therefore required, taking into account company law, labour law and tax law.
As an alternative, the conversion of a corporation into a limited partnership (Kommanditgesellschaft – KG) may be considered in individual cases. Unlike an AG, GmbH and KGaA, a limited partnership is not, in principle, one of the legal forms directly covered by the German Co-Determination Act. For example, a company not subject to German co-determination law could be appointed as the general partner. However, such a conversion must be carefully structured from a tax perspective.
Whether this arrangement will remain unaffected by a future reform depends on the scope of that reform. Should the legislator wish to cover not only ‘shelf’ SEs but also, more generally, structures designed to limit corporate co-determination, alternative models could also come more into focus.
Outlook
The German Federal Government’s announcement is, for the time being, a political signal and does not yet constitute a change to the current legal situation. Until a concrete draft bill is available, the scope of application, the date of entry into force and any transitional provisions remain open.
Nevertheless, companies should not postpone addressing this issue until the legislative process has been completed. In the case of planned restructuring, it is advisable to assess not only the (shelf) SE but also alternative legal forms and their tax implications.
Practical advice: Companies should subject ongoing and planned SE projects to a structured legal review at short notice. The focus should be on the status of implementation, the economic purpose of the SE, workforce developments, possible transitional arrangements, and alternatives under corporate and tax law. Accelerated implementation may be advisable, but should not take place without a robust analysis of the future risk of change.
