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. Miami Houston 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 1 st Dir.68/151 2 nd Dir.77/91 3 rd Dir. 78/855 4 th Dir.78/660 6 th Dir. 82/891 7 th Dir.83/349 8 th Dir.84/ th Dir.89/ th Dir. 89/667 Dir. takeover bids Dir. modification of 1 st Dir. 68/151 Corporate Law Consensus Corporate Law Disagreement

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” corporate governance system - one-tier and/or “international” board composition Source: Adapted from information available at

Post-Centros Case Law:Incorporation Mobility UK Limited Centros ÜberseeringInspire 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? EU Legislative Measures The European Union ECJ Case-Law

EU Legislative Measures are Incomplete EU Legislative Measures ECJ Case-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 is still in the drafting stage ECJ moves faster ECJ in Sevic - Harmonization Directives are no precondition for corporate mobility

ECJ Case Law Is Interpreted (Too) Narrowly EU Legislative Measures ECJ Case-Law ECJ Case law has eliminated many restrictions to corporate mobility However, member states tend to favour a narrow 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! Case Law EU Legislation Post-Centros line of Reasoning: (1)Eliminate Tax Barriers (2)Transfer of Statutory Seat 14 th Directive (?) Restatement Approach - Proposal Professor Sonnenberger