Carsten Gerner-Beuerle

Federico Mucciarelli

Edmund Schuster

Mathias Siems

London School of Economics and Political Science

University of Modena and Reggio Emilia and SOAS University of London

London School of Economics and Political Science

Durham University and ECGI

Why Do Businesses Incorporate in other EU Member States ? An Empirical Analysis of the Role of Conflict of Laws Rules

27/11/2019

Research in law, political science and economics has taken a strong interest in the way companies strategically incorporate in foreign jurisdictions. However, the empirical research about corporate mobility in the EU has so far been limited in two respects: it has focussed on the analysis of foreign companies in the UK and it has mainly been concerned with differences in the costs of incorporation such as minimum capital requirements. This paper aims to fill these gaps. It is the first paper that presents data on incorporations of foreign businesses in the commercial registers of each EU Member State. It is also the first one to assess the impact of differences in the conflict of laws rules applicable to companies as they reflect the case law of the Court of Justice on the freedom of establishment. It finds that countries which have a clear-cut version of the ‘incorporation theory’ attract more incorporations than countries which have retained elements of the ‘real seat theory’. The paper also discusses the policy implications that follow from these findings for EU harmonisation in this field.

I. INTRODUCTION

Do companies make strategic decisions to incorporate in certain jurisdictions following a search for the most favourable legal rules?

This is likely to be the case as far as businesses choose a place of incorporation in order to reduce their tax bill.

 

As far as company law is concerned, a crucial question is how far firms can freely choose their place of incorporation regardless of the place where they have physical ties. Countries that follow the ‘incorporation theory’ recognise any company properly constituted according to the law of another country. Notably, this is the case in the US, with the result that many listed US companies choose Delaware as their place of incorporation.

By contrast, countries of the ‘real-seat theory’ seek to prevent the evasion of domestic law by requiring that a company is incorporated in the country of its headquarters.

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