Centros and European Company Law
Centros and European Company Law
Centros and European Company Law
In 1999, the (then) Court of Justice issued its decision the Centros case (C-212/97), which is without doubt the most influential judgment in the field of European company law.
In contrast to the United States, founders of companies were historically often not given free choice where to incorporate in Europe. Conflict of law rules were divided between the incorporation theory and the real seat theory. Under the latter, the law of the company’s real seat or head office governs its operations. If, for example a firm is incorporated in state A, but is actually based in state B, and if B is a real seat state, courts might apply B’s corporate law to the company. Because the company did not go through the incorporation procedure in B, the company might be treated as non-existent, or as a partnership between its shareholders. Consequently, founders and companies were deprived of the ability to choose the law most suitable to their purposes, and regulatory arbitrage in company was essentially impossible in the European Union. One might be tempted say that the real seat theory was intended to protect national laws from competing with each other.
All of this changed with Centros and a number of follow-up cases, most prominently Überseering (C-208/00, 2002) and Inspire Art (C-167/01, 2003). The court found, in particular, that national authorities could not deny the registration of a branch office of a “pseudo-foreign” firm incorporated within an EU or EEA country, they could not deny the legal personality of such a company, and they are not permitted to impose special disclosure requirements on such companies and impose a special types of liability on such companies. Actions by Member States to this effect were found to be compatible with the freedom of establishment as interpreted by the Court. The practical result is that Member States can no longer apply the real seat theory to firms incorporated in other EU and EEA members.
In the early years after the case, scholars began to analyse whether EU Company Law would see a “race to the top” or “race to the bottom” in company law, as it has been debated in the United States for many decades. While large and publicly traded firms seemed to take little notice of the debate in the early years, a considerable number of founders of new businesses from Continental European countries set up Private Limited Companies in the United Kingdom for the purpose of doing business in the founders home Member State. This trend seems to have abated at least in some Member States, but Centros has left Europe with a greater freedom of choice between different corporate laws, especially for small firms.
Centros has contributed to the internationalization of company law scholarship in Europe, and it has inspired scholarship written by ECGI Research Members in the following areas, among others:
- The effects of regulatory arbitrage and regulatory competition, e.g. whether EU company is undergoing a “race to the top” or “race to the bottom”;
- The merits and demerits of the legal capital system, most of all minimum capital, which arguably was one of the most important reasons for incorporating in another EU Member State;
- the ability of Member States to impose their own legal rules and doctrines on companies founded in another Member State;
- the interaction of company and insolvency law in cross-border cases;
- Possibilities for cross-border mobility of corporations, which Member States must permit under the freedom of establishment, and for which the Directive on Cross-Border Mergers (formerly Directive 2005/56/EC, now, art. 118 to 134 of the (codified) Company Law Directive 2017/1132/EU).
- Cultural, legal hurdles and practical hurdles that inhibit free choice of corporate law and corporate mobility;
- The effects of some Member States’ efforts to make their own company law less unattractive to avoid an exodus of companies to other states.
- The impact of Brexit on English Private Limited Companies with their real seat in Continental Europe.
This page is intended as a continuing resource section on this subject and will be updated when necessary. It contains papers of relevance and ECGI researchers that are knowledgeable on the topic.
For queries, or to suggest updates to the page please contact: Martin Gelter (firstname.lastname@example.org)
- Martin Gelter, Lécia Vicente: Abuse of Companies Through Choice of Incorporation?
- Martin Gelter: Centros and Defensive Regulatory Competition: Some Thoughts and a Glimpse at the Data
- Paolo Giudici, Peter Agstner: Startups and Company Law: The Competitive Pressure of Delaware on Italy (and Europe?)
- Anne-Lise Sibony: Centros and the Internal Market
- Carsten Gerner-Beuerle, Federico M. Mucciarelli, Edmund-Philipp Schuster, Mathias Siems: The Illusion of Motion: Corporate (Im-)mobility and the Failed Promise of Centros
- Jill Fisch, Steven Davidoff Solomon: Centros, California’s “Women on Boards” Statute and the Scope of Regulatory Competition
- Stefano Lombardo: Regulatory competition in European company law. Where do we stand twenty years after Centros?
- Horst Eidenmüller: Collateral Damage: Brexit's Negative Effects on Regulatory Competition and Legal Innovation in Private Law
- Carsten Gerner-Beuerle, Federico M. Mucciarelli, Edmund-Philipp Schuster & Mathias M. Siems: Why Do Businesses Incorporate in Other EU Member States? An Empirical Analysis of the Role of Conflict of Laws Rules
- John Armour, Holger Fleischer, Vanessa Jane Knapp, Martin Winner: Brexit and Corporate Citizenship
- Martin Gelter: Centros, the Freedom of Establishment for Companies, and the Court's Accidental Vision for Corporate Law.
- Christoph van der Elst & Erik Vermeulen: The Dutch Private Company: Successfully Relaunched?
- Stefano Lombardo: Some reflections on freedom of establishment of non-profit entities in the EU, and https://doi.org/10.1017/S1566752912001140
- Wolf-Georg Ringe: Corporate Mobility in the European Union – A Flash in the Pan? An Empirical Study on the Success of Lawmaking and Regulatory Competition, https://ssrn.com/abstract=2247323 and https://doi.org/10.1515/ecfr-2013-0230.
- Reiner Braun, Lars Hornuf, Horst G. M. Eidenmueller, Andreas Engert: Does Charter Competition Foster Entrepreneurship? A Difference-in-Difference Approach to European Company Law Reforms, at https://ssrn.com/abstract=1990189 and https://doi.org/10.1111/jcms.12003.
- John Armour, Wolf-Georg Ringe: European company law 1999–2010: Renaissance and crisis, (2011) 48 Common Market Law Review, Issue 1, pp. 125–174.
- Martin Gelter: Tilting the Balance Between Capital and Labor? The Effects of Regulatory Arbitrage in European Corporate Law on Employees and https://ir.lawnet.fordham.edu/ilj/vol33/iss3/3/
- Marco Becht, Luca Enriques & Veronika Korom: Centros and the Cost of Branching, https://ssrn.com/abstract=1433311 and https://doi.org/10.1080/14735970.2009.11421538.
- William Bratton, Joseph McCahery & Erik Vermeulen: How Does Corporate Mobility Affect Lawmaking? A Comparative Analysis and https://doi.org/10.5131/ajcl.2008.0010.
- Marco Becht, Colin Mayer & Hannes Wagner: Where Do Firms Incorporate? Deregulation and the Cost of Entry and https://doi.org/10.1016/j.jcorpfin.2008.04.002.
- Luca Enriques & Martin Gelter: How the Old World Encountered the New One: Regulatory Competition and Cooperation in European Corporate and Bankruptcy Law and https://ir.lawnet.fordham.edu/faculty_scholarship/319/.
- John Armour: Who Should Make Corporate Law? EC Legislation Versus Regulatory Competition and https://doi.org/10.1093/clp/58.1.369.
- Pierre Salmon: Political Yardstick Competition and corporate governance in the EU
- Gérard Hertig & Joseph McCahery: Company and Takeover Law Reforms in Europe: Misguided Harmonization Efforts or Regulatory Competition? and https://doi.org/10.1017/S1566752903001794.
- Eddy Wymeersch: The Transfer of the Company's Seat in European Company Law, (2003) 40 Common Market Law Review, Issue 3, pp. 661–695.
Policy papers, reports, viewpoints and speeches:
- EU Study on the Law Applicable to Companies (authors: Carsten Gerner-Beuerle, Federico Mucciarelli, Edmund Schuster & Mathias Siems): https://publications.europa.eu/en/publication-detail/-/publication/259a1dae-1a8c-11e7-808e-01aa75ed71a1/language-en
- 3rd Annual Conference of the Oxford Business Law Blog: Centros and European Company Law: Twenty Years of Living Dangerously, March 15, 2019: https://ecgi.global/content/centros-and-european-company-law-twenty-years-living-dangerously
- Project on Cross-Border Mobility in the EU at Maastricht University: https://www.maastrichtuniversity.nl/research/institutes/item/research/cross-border-corporate-mobility-eu
- Centros on Wikipedia: https://en.wikipedia.org/wiki/Centros_Ltd_v_Erhvervs-_og_Selskabsstyrelsen
- Discussion of the CJEU Case Law at https://www.worker-participation.eu/Company-Law-and-CG/ECJ-Case-Law
- Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (“Consolidated EU Company Law Directive”) (includes art. 118 to 134 on Cross-Border Merger).
- Proposal for “EU Company Law Package” (includes proposal for Cross-Border Conversions).
CJEU Case Law relevant to the Freedom of Establishment for Companies:
- Case 79/85, Segers v. Bestuur van de Bedrijfsvereniging voor Bank- en Verzekeringswezen, Groothandel en Vrije Beroepen, July 10, 1986, 1986 E.C.R. I-2375.
- Case 81/87, The Queen v. Treasury and Commissioners of Inland Revenue, Ex Parte Daily Mail and General Trust PLC, September 27, 1988, 1988 E.C.R. I-5483.
- Case C-55/94, Reinhard Gebhard v Consiglio dell'Ordine degli Avvocati e Procuratori di Milano, 1995 ECR 4165.
- Case C-212/97, Centros Ltd. v. Erhvervs- og Selskabsstyrelsen, 1999 E.C.R. I-1459.
- Case C-208/00, Überseering BV v. Nordic Construction Company Baumanagement GmbH, 2002 E.C.R. I-9919.
- Case C-167/01, Kamer van Koophandel en Fabrieken voor Amsterdam v. Inspire Art Ltd., 2003 E.C.R. I-10155.
- Case C-9/02, Hughes de Lasteyrie du Saillant v Ministère de l'Économie, des Finances et de l'Industrie, 2004 E.C.R. I-2409.
- Case C-411/03, SEVIC Systems AG, 2005 E.C.R. I-10805.
- Case C-196/04, Cadbury Schweppes plc, Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue  ECR I-7995.
- Case C-210/06, Cartesio Oktató és Szolgáltató bt., 2008 E.C.R. I-9641.
- Case C-378/10, VALE Építési kft.
- Case C-594/14, Simona Kornhaas v. Thomas Dithmar.
Blog posts and articles:
Prof. Martin Gelter