1. Corporate Mobility and the Costs of Regulation Marco Becht ECARES, Université Libre de Bruxelles and ECGI Colin Mayer Saïd Business School, University of Oxford and ECGI Hannes Wagner Saïd Business School, University of Oxford

2. Motivation Rulings by European Court of Justice (ECJ) establish freedom of incorporation in EU Deregulation of access to company law

3. Situation Pre-ECJ Rulings Most Member States enjoyed “monopoly” in the production of company law Entrepreneur with a project forced to purchase corporate contract of country (countries) where real activity takes place (= real seat principle) Member States regulate new company formation (minimum capital, procedures) Member States set fees (registration, notary)

4. Situation Post-ECJ Rulings Entrepreneur with a project can freely choose from EU15 (EU25) corporate contracts irrespective of where real activity takes place (= incorporation principle) Entrepreneur can choose regulation of new company formation (minimum capital, procedures) Entrepreneur can seek lowest fee (registration, notary)

5. Limitations “Lock-in” : Transfer of seat often requires winding up “old” company –BRITE S.E. pilot –planned 14 th Directive Branching can be difficult and costly –BRITE branching pilot –(possibly) reform of 11 th Directive –Registration agents offer partial solutions

6. Results Substantial mobility post-Centros Only observed for private Ltd not public companies Reason is to avoid minimum capital and cost of incorporation Countries are responding by adopting U.K. standard

7. Outline Empirical Methodology Mobility Rates –Pre- and post Centros –EU to UK, rest of the world to UK Robustness : clustering and agents Drivers of mobility What next?

8. German GmbH vs. German Ltd German GmbH –Directors live in Germany (majority, all) –Real activities conducted from Germany –GmbH under German company law German Limited –Directors live in Germany (majority, all) –Real activities conducted from Germany –Private Ltd under U.K. company law

9. Examples

10. Aktivplus Limited

11. Aktivplus Ltd in Germany German Trading Address German CEO Foreign Company Registration Number Munich Company Register German VAT Number

12. Aktivplus Ltd UK Address of German Go-Ahead Limited formation agent 8000+ German Ltd companies at this address

13. Aktivplus Ltd

14. Winterthaler Sonnenschutz und Rolladenbau Ltd

15. UK Address of German Limited24.de formation agent 1200+ German Ltd companies at this address

16. Winterthaler Sonnenschutz und Rolladenbau Ltd

17. Freebike Ltd

18. UK Address of HJC.nl formation agent 3600+ Dutch Ltd companies at this address

19. Example 3 : Freebike Ltd

20. Example 4 : Aloft Ltd

21. UK Trading Address of Hare Wilson Associates Chartered Accountants and Auditors 146+ companies at this address

22. Example 4 : Aloft Ltd

23. Definition of Foreign Ltd Majority or all directors reside outside the United Kingdom –German Ltd (or Plc) : Majority or all directors reside in Germany –Dutch Ltd (or Plc) : Majority or all directors reside in the Netherlands

24. All new firms with limited liability in the UK between 1997 and 2005 Data from Companies House via FAME –1.96 million new companies –3.74 million directors Compile database with incorporation dates, company type, registered office addresses, identity of directors and company secretaries and their home addresses Data

25. The ECJ Decisions Centros Ltd. : March 1999 –Danish company register refuses to register Danish Limited (branch of UK Ltd with real seat in Denmark) Überseering B.V. : November 2002 –German court refuses to deal with German B.V. (Dutch B.V. with real seat in Germany) Inspire Art Ltd. : September 2003 –Dutch register seeks to impose foreign company conditions on Dutch Limited company (branch of UK Ltd with real seat in the Netherlands)

26. Timeline Pre- Centros Period Interim Period Post- Überseering Period 199719981999200020012002200320042005 Centros ÜberseeringInspire Art

27. New Private Limited Companies Sum EU25

28. New Private Limited Companies – Average EU25 countries

29. New Private Limited Companies By Country – Ratio Post / Pre

30. New Private Limited Companies By Country – Sum Post

31. EU-Rest of the World

32. Formal Test “Differences-in-Differences” –Centros & EU : +92%

33. Why are companies incorporating in the UK? Minimum capital –capital constraints, risk aversion Time Number of Formalities Direct cost of incorporation

34. Robustness of Method Do we measure Aktivplus type mobility or more UK subsidiaries of EU firms? Robustness of Method : address clustering –Subsidiaries with real activities in U.K. have physical U.K. address –Most Foreign Limited companies have a “virtual address”

35. Percentage of EU Ltds registered by a known Agent

36. Branching Red-Tape Current branch registration requirements discourage use of Limited –official translation requirements etc. For large countries local agents are solving the problem –standard articles and standard translations No local agents for small countries –Market not large enough in small countries –De facto discrimination against small entrepreneurs in small countries wanting to use the Limited

37. Example

38. Caveats No evidence (yet) on survival for foreign Limited companies (requires Companies House data) Cannot rule out some “fly by night” motivation, using cross-border loopholes or information asymmetries in some cases for some countries

39. Open Questions Temporary phenomenon or here to stay? Is there a “branching gap”? Is the U.K. the only “recipient” of such mobility?

40. Certain Conclusion Much work to do for Registers, EBR, BRITE, Member States and the European Commission