Real Seat Research Articles

Freedom of Establishment, Cross-Border Transfer of the Company Seat and its Impact on Private International Law: Assessing Cartesio

This article (written in Dutch) explores the consequences of the ECJ decision in Cartesio by making the link between the cross-border transfer of the de facto head office and the identity-preserving company law change. In the first part (I-IV), the paper discusses the factual background as well as the different versions of the real seat and incorporation doctrine and concludes that the question at hand in Cartesio indeed relates to the cross-border transfer of the head office (and not the registered office). The second part of the paper (V) deals with the question whether and under what conditions, after Cartesio, companies have the right under the freedom of establishment to transfer their head office to another Member State while retaining their status as company governed by the law of their Member State of incorporation. Finally (VI), we investigate whether the opportunities offered by Cartesio for cross-border transfer of the company seat allows companies to convert themselves into a foreign company without interruption of their legal existence. We conclude that there still is a need for European regulation as was envisaged in the project for a Fourteenth Company Law Directive in order to tackle the impediments to the freedom of establishment this article has identified.

Corporate Mobility in Private International Law and European Community Law: Debunking Some Myths

This paper examines corporate mobility from a private international law perspective and a European Community law perspective. It considers the two important conflicts of laws theories: the incorporation theory and the real seat theory. It looks at the rationale behind these theories and the long-standing dichotomy between incorporation States and real seat States. The paper examines how the application of the incorporation theory and the real seat theory affect corporate mobility in a number of scenarios. The emphasis of the paper is on corporate mobility in the European Community context. The provisions of the EC Treaty furthering cross-border corporate movement and relevant secondary legislation are examined. The limitations of the current legislative framework are appraised and attempts to enact legislation dealing specifically with corporate mobility are evaluated. Important case law of the European Court of Justice is also assessed. Six cases are analysed: Daily Mail, Centros, Uberseering, Inspire Art, SEVIC and Cartesio. The effect of these cases on cross-border transfers of seat is considered. Also, general trends arising from the judgments are depicted and contrasted with entrenched assumptions under private international law. The paper concludes with an overall assessment of the extent to which obstacles to cross-border mobility have been eliminated as a result of Community law.

Emigration of Companies under the EC Treaty: Some Thoughts on the Opinion of the Advocate General in the Cartesio Case

Abstract: Since the ECJ has, in its jurisprudence, already guaranteed immigrating companies (within the meaning of Article 48) the right – seen from the perspective of the host Member State – to transfer their real seat, by acknowledging that the host Member State must recognize the company’s legal personality and allow it to continue to be subject to the company law of its home Member State, the time has come for the same right to be guaranteed to the emigrating companies (i.e., those that transfer their real seat) from the perspective of their home Member State, as well. An opportunity for such a right to be guaranteed to the companies is offered by the Cartesio case that is now pending before the ECJ. In his opinion delivered on 22 May 2008, the Advocate General states that Articles 43 EC and 48 EC preclude national rules of the home Member State which make it impossible for a company constituted under national law to transfer its operational headquarters to another Member State, while acknowledging at the same time that such absolutely prohibited rules include, among others, an order for the emigrating company to be dissolved. This article argues that the ECJ should also include among such absolutely prohibited rules an order concerning the change of law applicable to the emigrating company, since the said company should have the right to demand from its home state to be allowed to retain its current personal statute.

Real Seat in Retreat

Real Seat in Retreat

Global Taxation Governance after the 2002 UN Monterrey Conference

Over the past 10 years, global tax issues, such as inter-state tax competition, tax havens and the case for “global taxes”, have been receiving more attention than ever. During the preparation for the 2002 United Nations (UN) conference in Monterrey on Financing for Development, the UN considered international and domestic taxation as a vital component. The conference itself, however, did not yield many results on this point. In this context, some circles have made a case for an “International Tax Organization” (ITO). Our discussion of global taxation governance will be centred upon the ITO proposal. The most important argument put forward to support such a proposal is that it gives the South a real seat at the table in global tax governance. After having outlined the current architecture of global tax governance, four questions will be addressed. First, wherein lies the possible value-added of an ITO? Second, how has the idea thus far been received internationally? Third, what are the prospects for an ITO? Fourth, does the South really need an ITO to advance its fiscal interests? The paper analyses the political obstacles to the idea of an ITO, but also points at politically feasible alternative forms of South–South and North–South co-operation.

Where do firms incorporate? Deregulation and the cost of entry

We study how deregulation of corporate law affects the decision of entrepreneurs of where to incorporate. Recent rulings by the European Court of Justice (ECJ) have enabled entrepreneurs to select their country of incorporation independently of their real seat. We analyze foreign incorporations in the U.K., where incorporations of limited liability companies can be arranged at low cost. Using data for over 2 million companies from around the world incorporating in the U.K., we find a large increase in cross-country incorporations from E.U. Member States following the ECJ rulings. In line with regulatory cost theories, incorporations are primarily driven by minimum capital requirements and setup costs in home countries. We record widespread use of special incorporation agents to facilitate legal mobility across countries.

Where Do Firms Incorporate? Deregulation and the Cost of Entry

We study how deregulation of corporate law affects the decision of entrepreneurs of where to incorporate. Recent rulings by the European Court of Justice (ECJ) have enabled entrepreneurs to select their country of incorporation independently of their real seat. We analyze foreign incorporations in the U.K., where incorporations of limited liability companies can be arranged at low cost. Using data for over 2 million companies from around the world incorporating in the U.K., we find a large increase in cross-country incorporations from E.U. Member States following the ECJ rulings. In line with regulatory cost theories, incorporations are primarily driven by minimum capital requirements and setup costs in home countries. We record widespread use of special incorporation agents to facilitate legal mobility across countries.

What Do We Mean when We Say ’Folklore’? Cultural and Axiological Diversities as a Limit for a European Private Law

Cultural and axiological diversities between legal orders are considered to be a limit for the unification or harmonization of European private law. This assumption, as a starting point, is analysed in relation with three different cases or tests: same-sex marriages in family law, ?real seat theory? versus ?incorporation theory? in company law, and ?playing at killing people? against human dignity in constitutional law. The diagnosis confirms the hypothesis: legal divergences due to various cultural or axiological options result in restrictions on the free movement of persons, goods or services within the internal market. As European law often justifies these restrictions, they should be removed through ?reactive? harmonization. Nevertheless, the proportionality principle can exclude this possibility, simply because of the scope of some cultural or axiological differences. Finally, this understanding is applied to contractual law in order to show that there is no significant exception in this area. Accordingly, any attempt to unify contractual law must take into account the cultural and axiological diversities and try to minimize their effects, but also accept the implicit limits by implementing soft and more imaginative proposals.

The Mobility of Companies in Europe and the Organizational Freedom of Company Founders

Prologue: the mobility of a company law professor Klaus Hopt 's disciples have asked me to give a presentation in his honour on the topic of “mobility of companies in Europe”. To be honest, I would have preferred another subject which focuses much more on the person at the centre of this event. The topic would read: “The mobility of a company law professor in Europe”. There exist more than enough articles on the future of the “real seat theory” and the “incorporation theory” regarding the legal framework for enterprises after the famous ECJ decisions in Centros , Überseering and Inspire Art . Nobody seems to care about individuals. Yet in the case of Klaus Hopt we should have second thoughts: Is he a legal person? Of course he is – there is hardly another writer who has acquired so much practical and scientific experience in law and affiliated research areas. Does he have a registered office? I think so – it should be at the Max Planck Institute for Foreign and International Private Law in Hamburg. Can we attribute a siège réel to him? This is hard to say. Starting his academic career in Tübingen, he has moved his chair to Florence, to Berne, to Munich and to Hamburg. If he were a company, he would have been liquidated on this itinerary at least three times. Currently he teaches in Paris, in New York and in many other places. He travels around the world, giving university lectures, attending committee meetings and organising conferences. Is it possible to say – as the European Court of Justice put it in Daily Mail – that he owes his existence to the domestic legal order of only one specific Member State of the European Union? Or should we qualify him as a supranational entity, the human role model for the “European Company”, who is able to move from country to country without losing his identity, being able to communicate in many different languages, feeling at home in many different legal orders?

Transfer of Seat and Freedom of Establishment in European Company Law

One of the most debated issues in European company law regards the possibility of a cross border transfer of seat for European companies. The latest developments in this area have been brought about in the wake of the recent case law of the European Court of Justice (ECJ). Although mainly concerned with a correct implementation of the freedom of establishment, a number of rulings of the Court have in fact exercised a deep impact on the transferability of a corporate seat within the Community. In this respect, a vast literature agrees that the right of establishment is to be regarded as a milestone of European company law. The stakes at issue are of remarkable importance, since they affect not only all national corporate laws but also the centralised law-making capacity of the European institutions. While the Court of Justice approach seems to be more oriented towards the im plications of the incorporation doctrines, the adoption of the European Company Regulation1 appears to be a more flexible version of the real seat doctrine. This apparent lack of co-ordination results in confusion and uncertainty, and cannot be seen in a favourable way for the realisation of the single market, to which the free movement of companies is a fundamental component. The present essay tries to analyse and provide a key for the comprehension of the intricate knot of issues and interests influencing the cross border transfer of companies, taking account of how the subject is differently addressed and shaped by the underlying doctrinal framework, the European Company (SE) Regulation and the case law of the European Court of Justice. It then tries to reconcile the different positions to unity, and to suggest what is perceived by the author as the most effective solution for a correct affirmation of the right of free establishment. The implications of the ECJ case law, a strong defence of the freedom of establishment and a genuine state competition would lead in the last resort to a phenomenon of self-harmonisation which may possibly prove more effective and commercially valuable than the limited results achieved so far by the Company Law Directives and the European Company Regulation.

Free Choice in International Company Insolvency Law in Europe

Within the European Union, firms are now free under Articles 43 and 48 EC to choose a corporate form of their liking, regardless of the actual head office (real seat) of the company. However, they are not free to choose the applicable bankruptcy regime. Under Article 3(1), first sentence, of the European Insolvency Regulation (EIR), jurisdiction for main insolvency proceedings lies with the courts of the Member State in which the debtor has the centre of its main interests (COMI). The COMI standard is fuzzy and allows last-minute forum shopping by the management/shareholders of a distressed debtor, to the detriment, especially, of creditors who cannot (easily) adapt. Given the poor performance of the COMI standard, it seems worthwhile to explore the merits of an alternative approach that gives more room to freedom of choice in international company insolvency law in Europe. Various models of free choice are discussed: free choice of the applicable insolvency law, free choice of the applicable insolvency law insofar as it contains substantive — as opposed to procedural — provisions, free choice of the bankruptcy forum (‘unconstrained forum choice’) and free choice of the bankruptcy forum in combination with the company law applicable to a company (‘constrained forum choice’). This article shows that, on efficiency grounds, the last model is to be preferred. It would improve matters compared to the status quo, and it would also be easy to implement in practice by changing the wording of Article 3 EIR. Even though this solution is preferable as a policy option, it is not mandated by Articles 43 and 48 EC. However, these treaty provisions do not mandate the COMI standard either. European legislation is thus free to effect the desirable changes to the EIR.

Le rôle de l'État dans l'élaboration des choix énergétiques et le rôle plus spécifique des différentes institutions publiques en France

This paper surveys the role of the key governmental institutions in the making of energy policy in France. It shows that in spite of fairly extensive debate of the issues in both chambers of the French National Assembly since the mid-1970s, members of parliament have so far failed to make a significant impact on decision-making in the field of energy. Part of this is due to the strength of the Cabinet's influence over the National Assembly, and to its constitutional position as policy-maker. Moreover, in spite of a vast array of departmental branches and associated agencies directly under ministerial authority, the government's power may have been more formal than real. Much of the actual decision-making is made by experts employed by the large State or privately-owned corporations. This extensive network of closely connected energy-producing corporations appears to have been, and to remain, the real seat of power, in spite of recurrent hopes for, and attempts at, democratization.

The Legal Framework of Regulatory Competition Based on Company Mobility: EU and US Compared

The phenomenon of regulatory competition, if it exists at all, has at least two prerequisites: On the “supply-side” there must be incentives for corporate law-makers to tailor their products according to the needs of those who decide about the place of incorporation (or re-incorporation). On the “demand-side”, there must be a real and not only a theoretical possibility to choose the applicable corporate law by choosing the place of (re-)incorporation. Whether such a possibility is a real or theoretical one primarily depends on the costs of such a move compared to its benefits. For the decision about the place of the real seat of a company, “good” or “bad” corporate law is only one factor, very often a minor one among other legal and factual determinants such as corporate and other taxes, labor and environmental law, the accessibility of raw material and product markets or the existence of qualified work force. As long as the choice of a certain corporate law is linked to the choice of the real seat of the corporation, freedom to choose the applicable corporate law only exists on a theoretical level. Corporate law can only be chosen as part of a much larger bundle. If, however, companies are able to opt for a corporate seat that is independent from its real seat (and hence at relatively low costs), the freedom to choose the applicable corporate law becomes a real one and that way the second prerequisite for regulatory competition mentioned above will be fulfilled.

The 'Societas Europaea': A Network Economics Approach

This article applies network economics to a particular aspect of the statute of the Societas Europaea (SE). The statute allows companies that decide to use the SE form to choose between a two-tier organisational structure (supervisory organ and management organ) and a one-tier organisational structure (administrative organ). By applying the theory of network economics to company law, the article firstly shows that path dependency may arise in the choice of the adopted structure on the basis of the past national regulation. Secondly, the article shows that to overcome this path dependency the incorporation theory would be superior to the real seat theory as provided for by the statute of the SE.

The Societas Europaea: a Network Economics Approach

This article applies network economics to a particular aspect of the statute of the Societas Europaea (SE). The statute allows companies that decide to use the SE form to choose between a two-tier organisational structure (supervisory organ and management organ) and a one-tier organisational structure (administrative organ). By applying the theory of network economics to company law, the article firstly shows that path dependency may arise in the choice of the adopted structure on the basis of the past national regulation. Secondly, the article shows that to overcome this path dependency the incorporation theory would be superior to the real seat theory as provided for by the statute of the SE.

The Rules on Conflict of Laws in the European Takeover Directive

The rules on conflict of laws are the cornerstones of the new European Directive on Takeovers. The following article will critically, but overall positively evaluate their solutions by way of comparison with the scope and applicability of domestic takeover laws in Germany, France, the UK and the USA, concentrating in various manners on the real seat of the target, on the place of its listing or on the residence of the shareholders

The U.S. Concept of Granting Corporations Free Choice among State Corporate Law Regimes as a Model for the European Community

U.S. corporations are free to choose the state law governing their internal affairs, a concept that this Article will refer to as free choice. concept of free choice has long been the topic of intensive legal research. In particular, scholars have focused on the question of whether the freedom of corporations to choose between the laws of different states will lead to more efficient rules. In the European Community, the debate over free choice has, at least until recently, rarely inspired close scrutiny. This is unsurprising, given that the ability of corporations to choose the applicable corporate law regime has long faced a formidable obstacle in the so-called real seat doctrine. More recently, however, this situation has changed profoundly. Two decisions by the European Court of Justice (ECJ), Centros and Uberseering, have made it clear that the real seat rule, as traditionally applied by many Member States of the European Community, is incompatible with the Freedom of Establishment guaranteed by the Treaty establishing the European Community (EC Treaty). As a result of the demise of the real seat rule, the Community now faces the same question with which the United States has long been grappling: should free choice be the principle underlying corporate law, or should free choice give way to a uniform corporate law regime? This Article seeks to answer that question with respect to the European Community. It argues that free choice can be expected to yield greater benefits than the complete or partial harmonization of the corporate law regimes of Europe. Moreover, while European corporations may remain less mobile than their U.S. counterparts, the efficiency gains to be derived from free choice in Europe may well exceed those reaped in the United States [The original version of this paper was posted on SSRN on August 3, 2003, under the title The U.S. Concept of Granting Corporations Free Choice Among State Corporate Law Regimes as a Model for the European Community. This is the revised version of the paper as it appeared in the Yale Journal of International Law.]

The transfer of the company’s seat in European company law

After the Centros case in 1999, the Europe Court of Justice has again delivered a significant case dealing with the legal situation of EU companies establishing themselves in other Member States. In the Uberseering case of November 5, 2002, the Court considered incompatible with the Treaty freedoms, the German rule, based on the real seat doctrine, whereby foreign companies with a seat on the German territory were refused to appear in German courts unless they proceeded to re-incorporation. This was considered an outright negation of the freedom of establishment. Member states should allow companies that have been incorporated in other Member states to freely enter their territory, according to the rules under which they have been formed in their state of origin. The case constitutes another landmark on the road towards the more free circulation of companies in Europe. Whether it introduces the incorporation theory as the European rule, is open to doubt, as the Court has exclusively relied on the Treaty rules on free establishment. It seems that the Court has rather developed a new approach that could allow to bridge the differences between incorporation and real seat techniques.

The Transfer of the Company's Seat in European Company Law

After the Centros case in 1999, the Europe Court of Justice has again delivered a significant case dealing with the legal situation of EU companies establishing themselves in other Member States. In the Uberseering case of November 5, 2002, the Court considered incompatible with the Treaty freedoms, the German rule, based on the real seat doctrine, whereby foreign companies with a seat on the German territory were refused to appear in German courts unless they proceeded to re-incorporation. This was considered an outright negation of the freedom of establishment. Member states should allow companies that have been incorporated in other Member states to freely enter their territory, according to the rules under which they have been formed in their state of origin. The case constitutes another landmark on the road towards the more free circulation of companies in Europe. Whether it introduces the incorporation theory as the European rule, is open to doubt, as the Court has exclusively relied on the Treaty rules on free establishment. It seems that the Court has rather developed a new approach that could allow to bridge the differences between incorporation and real seat techniques.

FREEDOM OF ESTABLISHMENT FOR COMPANIES: A GREAT LEAP FORWARD

Freedom of establishment has been a promise not only to individuals, but also to companies, ever since the foundation of the EEC, and the relevant articles in the EEC Treaty have long been declared to have direct effect (Reyners v. Belgium [1974] E.C.R. 631). Yet until recently companies faced extra hurdles. A majority of the Member States applied the so-called “theory of the real seat” (for references see H. Xanthaki, “Centros: is this really the end for the theory of the siège réel?” (2001) 22 Company Lawyer 2). In essence, the theory is a rule of private international law that a company will be treated according to the law of its central place of management (the “real seat”), notwithstanding that it may have been incorporated in a different jurisdiction. In such a case, the company will not fulfil the formal requirements of registration in the jurisdiction of its real seat and will normally lack the quality of a legal person there. The aim of the theory is to preserve national company law as a policy instrument in areas such as corporate governance, by disallowing pseudo-foreign companies, i.e. companies set up to do business mainly or exclusively in one jurisdiction, but evading local regulation there by incorporating abroad. But the theory can strike beyond this goal, as the facts of Case C-208/00 Überseering BV v. Nordic Construction Company Baumanagement GmbH demonstrate.