Movement of Companies Within the European Union

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European Court of justice decisions on movement of companies within the European Union appears to be inclined towards the incorporation theory over the real seat doctrine. Nonetheless, failure to acknowledge this formally and controversies over particular case laws may still leave the matter open to debate.

In essence, the EU fosters creation of a common market through the movement of people, goods and companies. However, companies are particularly difficult to deal with because of their inherent characteristics. First, they can be prevalent in several member states at a time. Furthermore, some may be incorporated in one country but be administered in another (McEleavy, 2003, 525). Questions on legal recognition and choice of laws to apply from member states come into play. Additionally some companies may wish to move to different member states and similar decisions must be made on laws to be applied (Corburn & Chertok, 2005, 870).

The major themes arising out of ECJ case laws can either fall within the real seat doctrine or the incorporation theory. In the latter, a company has the right to select the law that will be applied to its respective case because it is a legal entity. The country where it was incorporated will be the one that will dictate the laws to be applied. Conversely, the real seat theory holds that companies should be governed only by the laws of the countries where shareholders, directors, promoters and office holders are found; in other words, where their central administration is located (Elbert, 2003, p 51).

Case laws indicate that there appears to be a controversy between Article 48 and 49 of the EC Treaty and the real seat doctrine. In the former article, it is stated that companies will be subjected to the same treatment as real persons if they have been registered and administered in that member state. This means that even if a business was formed and registered in country A but it grows and thrives in country B more than in A, country B will not recognise it as a legal entity unless it is dissolved and reincorporated in country B. These kinds of themes favour countries like the UK which adhere to the incorporation principle and may actually complicate free movement of firms (Gerner-Beuerle & Schilig, 2009, K22).

Examination of the way the ECJ has/ has not upheld justifications for restrictions on freedom of establishment of companies between member states

In the European Commission versus France case, the ECJ found that France was discriminating against member states by considering the seats of respective corporations before deciding on the nature of treatment to be accorded. This clearly impedes movement of companies within the EU. With regard to the freedom of establishment the European Court decided in the Daily mail case that the latter firm (which was established in the UK) could be free to move to another member state even though the UK argued that the Daily mail was doing so in order to circumvent tax laws (Hansen, 2009, 105). However, the court asserted that it needed to look for ways of evading these rules.

On March 9^th 1999, the Court presided over the Centros Ltd v Erhvervs [1999] 1 1459 case where the Centros- a Danish owned company was incorporated in the United Kingdom and then failed to conduct business there instead choosing to do so in Denmark by establishing a branch. The latter country denied it a right of establishment asserting that its intention was to create a principle office not a branch and this would cause it to evade capital requirements. The Court once again supported the corporation stating that denying it a right to establish itself in Denmark was restrictive and discriminatory (Xanthaki, 2001, 64).

On November 5^th 2002, the ECJ presided over Uberseering v Nordic Construction [2002] No. ECR 1-99919. Here a Netherlands incorporated firm called Uberseering contracted business to Nordic which is German based. It sued the latter for poor implementation of the contract and was denied hearing based on its lack of recognition as a legal entity (Gildea, 2004, 107). The ECJ held that this was in contravention to the freedom of establishment although it mostly dealt with legal standings and not company operations (European Court of Justice, 2002, 1-09919). The ruling indicates that the real seat theory may not hold water anymore and that harmonisation of country laws with EU treaties needs to be done so as to eliminate this clash.

References

European Court of Justice (2002). Judgement of the court in Uberseering BV v Nordic Construction Company. European Court Reports, 1-09919.

Gerner-Beuerle, C. & Schilig, M. (2009). The mysteries of freedom of establishment after Cartesio. SSRN working paper, K22.

McEleavy, P. (2003). Current developments in international law, ICLQ, 52, 521-534.

Hansen, S. (2009). The free movement of companies. Stockholm: Stockholm institute of Scandinavian law.

Xanthaki, H. (2001). Centros- is this really the end for the theory of siege reel. Company law journal, 22(1), 2-8.

Elbert, S. (2003). EU-company law and the freedom of establishment. International company & commercial law review, 14(5), 51.

Corburn, T. & Chertok, S. (2005). Jurisdictional competition in the EC. Express papers, 870.

Gildea, A. (2004). Uberseering – a European company passport. Brooklyn International law journal, 5(23), 107.

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Movement of Companies Within the European Union

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