Understanding Corporate Mobility in the EU

Towards the Foundations of a European ‘Internal Affairs Doctrine’

Joseph A. McCahery and Erik P.M. Vermeulen

Berlin, 27 and 28 June 2007

The History of Corporate Mobility in the EU

Non-Mobility Equilibrium

-Different History, Culture, Language

-Real Seat Doctrine Prevails

-‘Pseudo-foreign’ companies

-NO Brussels Convention on mutual recognition (1968)

1973

The Lisbon-Agenda... How To Get There?

Comparison with the United States: The Internal Affairs Rule

(Judge-Made and Codified in Restatement)

Delaware Inc.

MiamiHouston

Detroit

Minneapolis

Los Angeles

EU Harmonizing Company Laws 1970s and 1980s

Mandatory approach

Facilitating approach

Corporate Law Not Fully Harmonized; Mobility Not Fully Realized

1st Generation 2nd Generation 3rd Generation 4th Generation

1st Dir. 68/1512nd Dir. 77/91

3rd Dir. 78/8554th Dir. 78/6606th Dir. 82/8917th Dir. 83/3498th Dir. 84/253

11th Dir. 89/66612th Dir. 89/667

Dir. takeover bidsDir. modification of 1st Dir. 68/151

Corp

ora

te L

aw

C

onse

nsu

sC

orp

ora

te L

aw

D

isagre

em

ent

Costs

EU-Level Business Forms - The Societas Europaea

European

Corporate Governance

- Employee Participation- Capital Requirements- Reference to National Company Law

- Cross-border Restructuring- European Expansion and Acceptance

- Board Composition- One-tier System

“Registration Agents”

“Foratis AG begins trading in SEs”

The SE in Practice - More Mobility?

“Popular” in countries with rigid companies laws and

widespread participation rights

Mostly established by conversion

No change of registered office and seat of administration

“More effective” corporategovernance system - one-tier and/or“international” board composition

Source: Adapted from information available at www.seeurope-network.org

Post-Centros Case Law:Incorporation Mobility

UK LimitedUK Limited

1997 1998 1999 2000 2001 2002 2003 2004 2005

Centros Überseering

Inspire Art

Approx. 20,000

Registration Agents

(1) ‘Round-trippers’(2) Costs (not the

law)(3) Reform National

Corporate Laws(4) Disclosure Issues

with UK Limited(5) Financing

Problems(6) First Bankruptcies

The Future?

Source: Adapted from Becht, et al, Where Do Firms Incorporate?

Does Europe Offer the Right Framework?

Corporate Mobility?

EULegislativeMeasures

The European Union

ECJCase-Law

EU Legislative Measures are Incomplete

EULegislativeMeasures

ECJCase-Law

Directive 2005/56/EC on Cross-Border Mergers of Limited Liability Companies does not cover

all types of companies

Fourteenth directive on seat transfer isstill in the drafting stage

ECJ moves faster

ECJ in Sevic - Harmonization Directivesare no precondition for corporate mobility

ECJ Case Law Is Interpreted (Too) Narrowly

EULegislativeMeasures

ECJCase-Law

ECJ Case law has eliminated many restrictions to corporate mobility

However, member states tend to favour anarrow and strict interpretation of

the judgments

Non-mobility equilibrium still prevails

More case law needed to eliminate “all”restrictions

One More Thing ....Tax reasons are the main mobility “drivers” or “blockers”

Will the European Court of Justice “reverse” the Daily Mail decision?

And extend its decision in Lasteyrie du Saillant to legal entities?

Conclusion

ECJ Case Law and EU Legislative Measures Complement Each Other

Thank you!

e.p.m.vermeulen@uvt.nl

Case Law EU LegislationPost-Centros line of Reasoning:

(1) Eliminate Tax Barriers

(2) Transfer of Statutory Seat

14th Directive (?)

RestatementApproach - Proposal Professor Sonnenberger