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Articles 49 and 54 in the Treaty on
the Functioning of the European Union
grants persons and companies the right
to set up establishments and
to pursue economic activities within
the member states of the European Union.
But the articles are however complicated,
and the court of
justice has in many cases explained how
these articles are to be interpreted.
This lecture will give an overlook to the
current setup of secondary legislation,
presenting the different theories and
existing barriers in light of the most
recent court of justice decisions.
The movement of companies within
the European Union is safeguarded under
the freedom of establishment.
Articles 49 and
54 of the Treaty of the Functioning of
the European Union explicitly recognizes
freedom of establishment for companies.
However, they still do not
fully enjoy this freedom.
And a number of
obstacles still persist regarding
companies' cross-border mobility.
Even though we speak in this lecture about
EU company law, it is important never to
forget that the EU company law
system is not, at any rate not yet,
a self-supporting system in the way
of national company law systems.
You may compare the two systems
to a semi-detached house.
Independent but intrinsically linked.
EU law has a double function.
First through harmonization, it equalizes
the essentials of national laws
in order to facilitate creation of
the single market, with an equivalent
protection of shareholders, creditors and
third parties including society at large.
Second, EU law works not only by
harmonization rules but also through
the courts' doctrines on loyal
implementation and im, interpretation.
And on the rank of EU law as lex
superior and direct applicability.
This means that to the company law
directives and regulations must be
handed the role of the directly
applicable provisions of the treaty.
It is due to these functions, which create
a kind of container or framework for
national laws, that EU company law
can qualify presently as a system.
Remaining with the semi-detached house
picture, EU law elements are found both as
part of the structures as well as
throughout in the national house.
But EU law also has a third role, in the
scientific study of company law in Europe.
It tends to help us, Europe-wide,
to use language, definitions, and
systems that are more alike
than generations ago.
The scope of EU harmonization covers
protection of interest of shareholders and
others, the constitution and
maintenance of public limited liabilities
companies' capital, takeover bids,
branches disclosure, mergers and
divisions, minimum rules for
single member private limited liability
companies, shareholders' rights and
related areas such as financial
reporting and accounting.
But apart from harmonization, EU company
law has also focused on the definition of
specific EU company law forms,
such as the Statute for
the European Company, the Statute for
the European Cooperative Society,
the European Economic Interest Grouping,
the EEIG, and most recently, the proposed
private company statute, the SPE.
Those instruments are often
referred to as being a 29th regime,
to the extent that they introduce new
legal forms that do not harmonize,
modify, or substitute the existing
national legal forms, but
provide an additional
alternative legal form.
Because of the large number of regulations
and directives dealings with it,
EU company law is sometimes regarded
as not particularly user-friendly.
And it is also exposed to the risk of
inconsistencies, gaps or overlaps.
The company is free to establish itself,
through a primary establishment
in any member state.
And has the right to open up secondary
establishment in another member state.
This can be done regardless,
if this is done just to
take the advantage of the more favorable
legislation in the first state.
The transfer of the entire, or
parts of a company's establishment fall
outside the scope of
freedom of establishment.
And then national legislation determine
if the transfer is allowed or not.
The outcome of a transfer
varies widely because of
the differences in national law.
In some cases,
companies forced to wind up and
liquidate, while in other cases,
the transfer is allowed.
This shows that there is a need for
harmonization in the freedom of
establishment for companies.
Problem is related to the lack of a single
transfer regime across the member states,
and therefore throughout Europe,
to determine which company law is
applicable to a particular company,
we have two existing theories.
The real seat theory and
the incorporation theory.
On the one hand, the real seat theory,
like Portugal, Spain, Italy,
Germany and France, that provides that a
place where the company has its real seat,
its principle place of business,
will determine which comparable system is
applicable to the company relationships.
On the other hand, for the incorporation
theory, like the United Kingdom,
Sweden, Ireland, Denmark and
the Netherlands, the company and
its relationships are subjected
to the law of the country where
they have their registered office, and
in which they have been incorporated.
The greatest difference between
the two theories is their effect on
the cross-border transfer of the company's
seat, both from the home and
host state perspective.
The real-seat theory brings
some draconian limitations to
the cross-border transfer
of the real seat.
By making the company subject to
different national legal order each time
its real seat moves to another state.
The company have to register
when incorporating in
a state where it has its
central place of business.
Likewise, a company from
an incorporation state that wish to
move its administrative seat
to real seat state, may not be
recognized as a company in the whole state
without a solution in the whole state.
The incorporation theory allows
by accepting in its legal ordered
companies that are formed in other states
without requiring a reincorporation.
For the latter, it doesn't matter where
the company's real seat is located.
Once a company fulfills the formation
requirements in a state of corporation,
it is recognized everywhere but
always subject to the rules
of the incorporating state.
However, in a certain number
of incorporation states,
there are exceptions to protect
persons dealing with abroad companies,
carrying on business
in their jurisdiction.
As noted, the possibility of
a cross-border transfer depends on
the member state's
company's private rules.
Member states are free to decide on
the appropriate conflict of law rule and
it is clear that if the incorporation
theory dominated in the EU,
there would be more
freely moving companies.
Another question remains concerning
the regulatory competition, or
the Delaware Effect.
How are we to deal with issues relating
to a possible race to the bottom?
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