Corporations in European Private International Law – From
Case-Law to Codification?
Professor Dr. Jan von Hein, Albert-Ludwigs-University, Freiburg (Germany)

I. INTRODUCTION .......................................................................................................................................... 1
II. THE COMPETITION OF LEGAL ORDERS IN THE EUROPEAN UNION ............................................................... 4
1. THE US MODEL .................................................................................................................................................. 4
2. HORIZONTAL COMPETITION AMONG THE EU MEMBER STATES .................................................................................... 7
3. VERTICAL COMPETITION: EUROPEAN CORPORATIONS VIS-A-VIS DOMESTIC TYPES ............................................................ 7
4. TRANSATLANTIC COMPETITION BETWEEN THE EU AND THE USA .................................................................................. 9III. THE ECJ’S TURN TO THE THEORY OF INCORPORATION AT THE END OF THE 20TH CENTURY ....................... 10
1. DAILY MAIL ...................................................................................................................................................... 10
2. CENTROS, ÜBERSEERING AND INSPIRE ART ............................................................................................................. 10
IV. THE GERMAN COUNCIL’S PROPOSAL FOR CODIFYING A EUROPEAN PIL OF CORPORATIONS .................... 12
V. THE RECENT CASE-LAW OF THE COURT OF JUSTICE .................................................................................. 14
1. CARTESIO ......................................................................................................................................................... 14
2. NATIONAL GRID INDUS ....................................................................................................................................... 15
3. VALE ............................................................................................................................................................... 16
4. CONCLUSION .................................................................................................................................................... 18
VI. OUTLOOK: THE CURRENT PROSPECTS FOR CODIFYING THE PIL OF CORPORATIONS IN THE EU ................. 19

I. Introduction
Determining the law applicable to companies is one of the most widely debated andpractically important challenges for private international law as a tool for regional economic
integration. Any federal or semi-federal system is confronted with the question as to whether
the legal existence and capacity of a company are determined by the place of its incorporation(incorporation theory) or by the location of its actual administrative office (real seat theory).
While the legal systems of common law countries traditionally follow the incorporation
theory, particularly in the United States of America (USA), the majority of continental
European countries prefer the connection to the real seat. 1 Under the pressure of the case lawof the Court of Justice of the European Union (CJEU, before the Treaty of Lisbon known as
the European Court of Justice, ECJ), however, even EU Member States which traditionallyadhered to the real seat theory found themselves compelled to switch to the incorporation
1 Germany, France, Italy; but not Switzerland, Denmark or the Netherlands, for a comprehensive survey, see

Behrens, Connecting Factors for the determination of the proper law of companies, Festschrift für Ulrich
Magnus (2014) 353, 362–366.

1

theory at the beginning of the 21st century, at least with regard to companies registered inother Member States of the EU or the European Economic Area (EEA) (see infra III). This
shift from the real seat theory to the theory of incorporation must be seen in the wider context
of a proper allocation of legislative competences in the field of company law. Allowing thefounders of a company to select the law applicable to their company without the requirementof any real economic activity in the chosen state has the potential to trigger a competition forcorporate charters between legal orders, a phenomenon that is well-known in the USA – theso-called “Delaware effect” – and that has been debated intensely in Europe as well (see infraII).
Since the Member States conferred upon the European Union a specific competence as
regards private international law (PIL) in 1997, 2 no less than sixteen regulations have been
passed in many legal fields, such as choice of law on contracts, torts, divorce andsuccessions. 3 Despite this growing Europeanization of PIL, however, a general regulation
concerning the law applicable to companies is so far missing. Scattered provisions concerning
particular questions can only be found in sectorally limited directives 4 and in regulations on
supranational types of companies, such as the Societas Europaea, the European Stock
Corporation. 5 The resulting lack of clear conflicts rules may lead to legal uncertainty andhigher transaction costs in cross-border cases, thus impeding the achievement of full regional
economic integration. Hence, the idea of codifying the law applicable to companies in the EU
has gained considerable support in recent years. Already in 2006, the German Council for
Private International Law, a select group of law professors advising the Federal Ministry ofJustice, presented a proposal for European legislation in the field of international company
law. 6 At the EU level, the European Council stressed, in its 2010 Stockholm Programme, that
2 Art. 61(c) in conjunction with Art. 65(b) of the Treaty of Amsterdam (today: Art. 81(1) and (2)(c) of theTreaty of Lisbon).
3 For a current survey, see Jan von Hein/Giesela Rühl, Towards a European Code on Private International
Law?, in: European Parliament: Directorate-General for Internal Policies, Policy Department C (Hrsg.), CrossBorder Activities in the EU – Making Life Easier for Citizens, Brüssel 2015, S. 8–53 (available at
http://www.europarl.europa.eu/RegData/etudes/STUD/2015/510003/IPOL_STU(2015)510003_EN.pdf);
alsoforthcoming as: Giesela Rühl/Jan von Hein, Towards a European Code on Private International Law?, RabelsZ
79 (2015).
4 E.g. the Merger Directive, Dir 2005/56 O.J. L 310/1, or the Takeover Directive, Dir 2004/25 O.J. L 142/12.
5 Reg 2157/2001 O.J. L 294/10.
6 Sonnenberger/Bauer, RIW Supplement 1 to journal No. 4/2006, pp. 1–24: published in English translation
in: Sonnenberger (ed.), Vorschläge und Berichte zur Reform des europäischen und deutschen internationalen
Gesellschaftsrechts, 2007, pp. 65–76, with an explanatory memorandum by Sonnenberger and Bauer; for a
detailed analysis of the proposal, see Kieninger, The Law Applicable to Corporations in the EC, RabelsZ 73(2009), 607 ff.; Sonnenberger, Etat de droit, construction européenne et droit des sociétés, Rev. crit. dr. int. pr.
102 (2013), 101 ff.; Zimmer, The Proposal of the Deutscher Rat für Internationales Privatrecht, in:
Basedow/Baum/Nishitani (Hrsg.), Japanese and European Private International Law in Comparative Perspective,
2008, S. 209 ff.; see also Borg-Barthet, A New Approach to the Governing Law of Companies in the EU: A

2

“[t]here is a need to explore whether common rules determining the law applicable to mattersof company law […] could be devised” and invited the Commission to “consider whether
there is a need to take measures in these areas, and, where appropriate, to put forward
proposals in this respect”. 7 In its response to the Stockholm Programme, the Commission
announced to present a Green Paper on the applicable law relating to companies, associations
and other legal persons before the end of 2014, 8 which so far, however, has not seen the lightof day. Finally, the European Parliament, in a Resolution of 2012, has taken „the view thatconflict-of-law issues also need to be tackled in the field of company law and that an
academic proposal in this field [i.e. the proposal made by the German Council for Private
International Law] could serve as a starting point for further work on conflict-of-law ruleswith regard to companies' cross-border operations”. 9 This European development is in stark
contrast with the current situation in the USA: Although there have been occasional calls forfederal legislation on corporate law, American conflict of laws in this area is still a matter
governed almost exclusively by state law. 10
In this paper, I will first give a very concise survey on the question as to whether, seen incomparison with the United States, a competition of legal orders is a realistic perspective in
the European Union; moreover, I will distinguish between various types of competition thatare of importance for devising adequate conflicts rules in this area (see infra II). I will thengive an overview on the ECJ’s case-law that gave rise to the legislative proposal presented by
the German Council (see infra III). After a brief sketch of this proposal’s main features (seeinfra IV), I will analyse the subsequent jurisprudence of the CJEU and evaluate the proposal
in the light of these recent developments (see infra V). Finally, I will give an outlook on thecurrent prospects for codifying international company law in the EU (see infra VI).

Legislative Proposal, J. Priv. Int. L. 6 (2010) 589, 611. The Federal Ministry of Justice prepared a legislative
draft
on
the
basis
of
this
proposal(2008;
availableat
http://www.rwi.uzh.ch/oe/stiftungsrecht/rechtsentwicklungen/Referentenentwurf-IGR_120417.pdf), which was,however, shelved because of trade union’s fears that it might have a negative impact on workers‘ codetermination, see further Bollacher RIW 2008, 200; Clausnitzer NZG 2008, 321; Kindler Status: Recht 2/2008,
68; Köster ZRP 2008, 214; Leuering NZG 2008, 73; Rotheimer NZG 2008, 181; C. Schneider BB 2008, 566; R.
Wagner/B. Timm IPRax 2008, 81.
7 European Council, The Stockholm Programme – An Open and Secure Europe Serving and Protecting
Citizens, OJ 2010 C 115/1, 16.
8 Communication from the Commission to the European Parliament, the Council, the European Economic
and Social Committee and the Committee of the Regions, Delivering an area of freedom, security and justice forEurope's citizens, Action Plan Implementing the Stockholm Programme, COM (2010) 171 final, p. 26.
9 European Parliament, Resolution of 14 June 2012 on the future of European company law(2012/2669(RSP)).
10 See Hay/Borchers/Symeonides, Conflict of Laws, 5th ed., 2010, pp. 1394–1400.

3

II. The Competition of Legal Orders in the European Union
1. The US ModelFirstly, I will turn to the question as to whether the ECJ’s famous Centros decision 11 and its
progeny 12 have sparked an American-style competition for corporate charters within the EU
and whether this may lead to the so-called "Delaware" effect that is familiar from the US
experience, i.e. a quasi-monopolistic position of one member state of the Union as an offerorof corporate charters. 13 This type of competition may be called "horizontal" competition. 14 In
so far, the doctrinal dispute between the incorporation and the real seat theories reflects thegeneral tension between party autonomy, which leads to the free choice of the place ofincorporation, on the one hand, and the protection of third parties (e.g. creditors, minority
shareholders), which the real seat theory emphasizes, on the other. 15 Under the real seat
theory, the connection to the actual place of the head office allows the application of domestic
company law and its underlying social values to so-called pseudo-foreign or letterbox
companies. Thus, corporations immigrating into a country by transferring their real seat
without registering there have traditionally been punished by the loss of their legal capacity.
At a more technical level, the conflict between the incorporation and the real seat theories
mirrors the functional complementarity between a liberal approach to international (orinterlocal) company law, on the one hand, and a supplemental control of companies by aliquid capital market and the accompanying regulation by supervisory and stock exchange law
on the other. The United States and the United Kingdom developed liquid capital markets at acomparatively early stage in history, i.e. the late 19th and early 20th century; in the light ofthe market as an efficient mechanism for corporate control, these countries have traditionallybeen liberal towards questions of organizational law. In Germany, on the contrary, a basicallymandatory protection of shareholders, creditors (minimum capital) and employees has beenfavoured, which has been secured, in terms of conflict of laws, against the dangers of
emigration and circumvention by the real seat theory. To a certain degree, this strong

11 ECJ 9 March 1999 – C-212/97 (Centros Ltd v. Erhvervs- og Selskabsstyrelsen), [1999] ECR I-1459.
12 ECJ 5 November 2001 – C-208/00 (Überseering BV v. Nordic Construction Company BaumanagementGmbH), [2002] ECR I-9919; 30 September 2003 – C-167/01 (Kamer van Koophandel en Fabrieken voor
Amsterdam v. Inspire Art Ltd.), [2003] ECR I-10155.
13 See infra III.
14 See, e.g., Roe, 21 Ox. Rev. Econ. Pol’y 232, 241 (2005).
15 Cf. Marc-Philippe Weller, Companies in Private International Law – A German and European
Perspective, in: Jürgen Basedow/Knut Benjamin Pißler (eds.) Private International Law in Mainland China,
Taiwand and Europe, Tübingen 2014, p. 363, 370 et seq.

4emphasis on organizational safeguards reflected the less developed state of German capital
markets during the 20th century which resulted in a lack of external corporate control.
In the USA, the regulation of the internal affairs of a corporation has traditionally been left tothe laws of the various States. Until the beginning of the 21st century, federal legislation
concentrated upon securities regulation and mainly resorted to disclosure as the preferredmode of intervention into corporate affairs, leaving substantive regulation of corporate
governance to a horizontal competition among the states, a competition that Delaware has
won by a decisive margin. 16 The reasons for Delaware’s competitive edge are well-known
and mainly attributed to its juridical and administrative infrastructure. 17 Delaware is the only
American state which still adheres to a strict separation between common law courts in the
narrow sense and courts of equity, on the other hand. 18 The Delaware court of chancery is ahighly specialized court in corporate matters which provides lawyers with an unrivalled
wealth of legal precedents and which has the important advantage of sitting without a jury thatmight be prone to succumbing to populist anti-business sentiments. 19 The selection of judges
as well as the procedures of corporate legislation in Delaware are mainly determined by the
local bar association, an influence which ensures a regulatory climate friendly to corporations
and, above all, their management which is, for practical purposes, the relevant decision-makerwith regard to reincorporations. 20 Apart from that, the tiny state’s heavy economic
dependence on franchise taxes acts as a de facto insurance that the legislation will not strayfar from business interests. 21 Moreover, Delaware’s long-standing preeminent role in the race
for corporate charters gives rise to important network effects: Delaware law is taught incorporations courses in all American universities, the pertinent literature is abundant, andlawyers in New York or Washington may give advice not only on their own law, but
frequently on that of Delaware as well. 22

16 See the up-to-date figures given by Veasey/Di Guglielmo, 158 U. Pa. L. Rev. 1399, 1403 (2005); cf. also
Bebchuk/Hamdani, 112 Yale L.J. 553, 567 (2002).
17 See, e.g., Gilson, Regulatory Competition and Subsidiarity in Corporate Governance in a Transatlantic
Perspective, presentation, 12th July 2004, http://www.ecgi.org/tcgd/launch/gilson_speech.php: "At least for thelast twenty years or so, the critical advantage of Delaware has been the quality of its Chancery Court […]."
18 See Quillen/Hanrahan, 18 Del. J. Corp. L. 819 (1993).
19 Art. IV § 10 Del. Const.: "The Chancellor and the Vice-Chancellor or Vice-Chancellors shall hold the
Court of Chancery. One of them, respectively, shall sit alone in that court. […]"; on this advantage, see, e.g.,
Fisch, 68 U. Cin. L. Rev. 1061, 1077 (2000); Massey, 17 Del. J. Corp. L. 683, 704 (1992).
20 The classic analysis is Macey/Miller, Toward an Interest-Group Theory of Delaware Corporate Law, 65
Tex. L. Rev. 469 (1987); see also Coffee, 8 Cardozo L. Rev. 759, 762–764 (1987).
21 Romano, The Genius of American Corporate Law (Washington D.C. 1993) 37 et seq.
22 On network effects in particular see Bebchuk/Hamdani, 112 Yale L.J. 553, 586–88 (2002); Kamar, 98
Colum. L. Rev. 1908, 1911, 1923 et seq. (2002).

5

Nevertheless, the debate is not settled whether this result is benign or malignant from a public
policy perspective: Does competition lead to a race to the top or rather a race to the bottom? A
general consensus on the pertinent data and their proper interpretation is still lacking. 23
Moreover, when one takes a closer look at recent developments in American legislation, one
finds that there is a second dimension of competition that is increasingly gaining attention,
namely the competition between Delaware and the federal regulatory authorities forestablishing the rules of corporate governance, 24 a type of competition that has been called"vertical competition" in the American literature. 25 This paradigm shift has been inspired by
the Sarbanes-Oxley Act of 2002 ("SOX") which has led to a hitherto unprecedented
federalization of American corporate governance. 26 The spectacular bankruptcies of big
American corporations such as Enron and WorldCom in the years 2001 and 2002 led to theenactment of "the most far-reaching reform of American business practices since the time ofFranklin Roosevelt". 27 The Sarbanes-Oxley Act cut deep into regulatory terrain previously
occupied by the American states. 28 Among other things, the Act made the establishment ofaudit committees mandatory and tightened the necessary degree of independence thatmembers of such a committee had to possess, irrespective of the fact that board committees
and their composition had traditionally been regarded as a matter of state law. 29 In short, theSarbanes-Oxley Act led to a federalization of key features of American corporate governance,
a development that has continued under the Dodd-Frank-Act passed in 2010, which, inter alia,

23 For a comprehensive overview of the literature on this subject see Bebchuk/Cohen/Ferrell, Does the

Evidence Favor State Competition in Corporate Law?, 90 Cal. L. Rev. 1775 (2002); see also the controversy
between Daines, Does Delaware law improve firm value? 62 J. Fin. Econ 525 (2001) (answering the question in
the affirmative) and Subramanian, The Disappearing Delaware Effect, 20 J. L. Econ. & Org. 32 (2004) (partly
rejecting, partly qualifying the aforementioned study’s results).
24 See infra V.
25 See, e.g., Jones, 29 J. Corp. L. 625, 634 et seq. (2004)
26 Public Company Accounting Reform and Investor Protection (Sarbanes-Oxley) Act, Pub. L. No. 107-294,
116 Stat. 745 (2002) (codified as amended in scattered sections of 15, 18 U.S.C.); see infra IV.
27 President George W. Bush, "President Nominates Congressman Chris Cox as SEC Chairman", June 2,
2005, http://www.whitehouse.gov/news/releases/2005/06/20050602-4.html.
28 See Bainbridge, REGULATION (Spring 2003) 26 (warning against a "creeping federalization of corporatelaw"); Johnson/Sides, 30 Wm. Mitchell L. Rev. 1149, 1150 (2004) ("unprecedented federal inroads into the areaof corporate governance"); Loewenstein, 57 SMU L. Rev. 353 (2004) (diagnosing a "quiet transformation of
corporate law […] characterized by a significant and continuing shift of lawmaking prerogative from statelegislatures to the federal government"); Veasey/Di Guglielmo, 153 U. Pa. L. Rev. 1399, 1504 (2005)("significant intrusion into internal corporate affairs"); similarly, but with qualifications, Seligman, 80 Notre
Dame L. Rev. 1159 (2005) ("modest revolution in corporate governance").
29 Sect. 301 SOX, codified in sect. 10A(m)(2) Securities and Exchange Act and the accompanying SEC
Rules; on this point, see Branson, 48 Vill. L. Rev. 989, 1006 (2003): "Boards and board committees including
their appointment and composition, are matters of state corporate law"; Thompson, Del. J. Corp. L. 29 (2004)
779, 791 (same); on the historical development Seligman, 80 Notre Dame L. Rev. 1159, 1167 et seq. (2005);
Romano, 114 Yale L. J. 1521, 1551 (2005) (criticizing that Congress did not discuss the aspect of legislative
authority).

6

codified the so-called “say-on-pay” rule on the remuneration of board members. 30 Thus, thetraditional model of a "horizontal" competition between Delaware and other American states
must be regarded as oversimplified today. As the Sarbanes-Oxley and the Dodd-Frank Act
have shown, Delaware's main rivals in the field of corporate regulation are not the otherstates, but the federal legislature and the SEC.

2. Horizontal Competition among the EU Member States
In the EU, the Court of Justice's turn to the theory of incorporation (Centros) has allowed
founders of a company to select the applicable law without the need to establish a head office("real seat") in the chosen jurisdiction. Although this has opened up the possibility of ahorizontal competition between the Member States, various institutional and economic
reasons prevent the emergence of a European Delaware. 31 From a political and social point ofview, Europeans are more inclined to favour stakeholder interests. France and Germany,
however, modernised their laws concerning limited companies because the legislators fearedthat more and more founders of companies would rather opt for the English equivalent, theLimited, which is much cheaper to set up than its continental counterparts. In German law, forexample, a simplified model of the traditional German limited (the “GmbH”) was introduced,
the so-called “Unternehmergesellschaft” or “entrepreneurial company”. Its most attractive
feature is that it dispenses with the requirement of having to put down 25.000 € of minimum
capital that is characteristic of the GmbH. Recent empirical data even point to a considerable
decline in the cross-border establishment of pseudo-foreign corporations as a result of such
reforms. 32

3. Vertical Competition: European Corporations vis-à-vis Domestic Types
In the EU as well, “vertical competition” between regulations (and regulators) at the European
level, on the one hand, and the domestic level, on the other, plays an increasingly importantrole. In so far, two different dimensions of vertical competition must be distinguished: Until
recently, the central pressure exerted by the EU on corporate regulation has been weaker thanin the US because there was no single regulator of European capital markets comparable to
the American SEC. Under the impression of the financial crisis of 2008, however, the EU
30 Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111–203, H.R. 4173); cf. Tobias

Siefer, Zwei Jahre nach Dodd-Frank – Erfahrungen mit dem Aktionärsvotum über die Vorstandsvergütung inden USA, NZG 2013, 691.
31 See Luca Enriques, EC Company Law and the Fears of a European Delaware, EBLR 2004, 1259–1274;
Tobias Tröger, Choice of Jurisdiction in European Corporate Law – Perspectives of European Corporate
Governance, EBOR 6 (2005) 3–64;
32 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, ECFR 2013, 230–267.

7created the European Securities and Markets Authority (ESMA), which aims to strengthen the
supervision of European Capital Markets and to foster convergence between the approaches
pursued by national regulators. Although ESMA is still a less powerful authority than theSEC, one may argue that a stronger European framework for financial supervision makes aliberal attitude towards party autonomy in international company law more acceptable,
leading to a convergence with the US model in this regard.
Apart from that, there is another form of “vertical" competition in the EU that is less common
in the US. 33 Supranational forms of companies such as the Societas Europaea (SE) 34 create
the possibility of choosing between European and domestic types of companies, such theGerman Aktiengesellschaft (AG). The SE is a European public limited company and was thus
created for big enterprises; its minimum capital amounts to 120.000 €. The SE is a successparticularly in Germany mainly for three reasons: 35(1) the possibility to freeze workers' co-determination at a status quo level, 36(2) the facilitation of cross-border restructuring such as mergers or transfers of seat, and(3) the reputational gains associated with a European corporate "label". It seems that mergers
between companies from different Member States face less psychological obstacles if theresulting new company is not regarded as a “French” or “German” company, for example, butrather as a genuinely supranational, European “corporate citizen”. 37
In addition, German stock corporations transforming themselves into an SE may opt for the
one-tier system of corporate governance known in the US rather than for the traditional twotier system peculiar of German law. Thus, the European variant of the stock corporation offers
significant competitve advantages over its German counterpart.
With regard to smaller, private companies, several proposals have been presented anddiscussed at the European level in recent years as well, such as the Societas Privata Europea

33 See Lars Klöhn, Supranationale Rechtsformen und vertikaler Wettbewerb der Gesetzgeber im
europäischen Gesellschaftsrecht, RabelsZ 76 (2012) 276–315.
34 Council Regulation (EC) No. 2157/2001 of 8 October 2001 on the Statute for a European company (SE),OJ L 294, 10.11.2001, p. 1–21.
35 See Oechsler, in: Goette/Habersack (eds.), Münchener Kommentar zum Aktiengesetz, 3rd. ed 2012,
Vorbemerkung zu Art. 1 SE-VO, paras. 7-10.
36 See von Hein, Between a Rock and a Hard Place – German Codetermination under Pressure, Kyoto
Journal of Law and Politics vol. 3(2), May 2007, p. 1, 9.
37 MüKo-AktG/Oechsler (supra note 35), Vorbemerkung zu Art. 1 SE-VO, para. 7.

8

(SPE), 38 a kind of European limited private limited liability company, and the Societas Unius
Personae, a special type of single-member private limited liability company. 39 So far,however, these legislative actions have not been completed.
It should be noted that the choice of law rules found in current EU regulations and legislative
proposals on supranational companies differ considerably: Whereas the SE Statute is stillbased on the real seat theory (Article 7 of this Statute), demanding that the registered office ofan SE shall be located in the same Member State as its central administration, the SUP
Proposal deliberately omits such a requirement. Recital 12 of the said proposal emphasizes
that “[t]o enable business to enjoy the full benefits of the internal market, Member Statesshould not require the registered office of an SUP and its central administration to be in thesame Member State”. 40 This divergence illustrates that European legislative policy still seems
to lack a coherent approach to this vital question of international company law.

4. Transatlantic Competition between the EU and the USA
Finally, one may look at competition between legal orders from a transatlantic perspective. Aslong as a significant number of European companies were listed on American stock
exchanges (NYSE, Nasdaq), it was a rational regulatory strategy for the EU to impose
American-style stringent requirements on the corporate governance of EU corporations inorder to dissuade US regulators from applying their own laws extraterritorially. 41 Currently,
however, a listing in the US has become largely unattractive for European companies, thus
alleviating the pressure for additional EU regulation in this regard. 42

38 The Commission presented a proposal for a Council Regulation on the Statute for a European privatecompany in 2008, COM(2008) 396; on the subsequent developments, see Astrid Roesener, Das Warten auf
Aktion: Der Aktionsplan zum Europäischen Gesellschaftsrecht und die Societas Privata Europaea, NZG 2013,
241.
39 SUP Proposal, COM(2014) 212 final.
40 This has been criticized by Hartmut Wicke, Societas Unius Personae – SUP: eine äußerst wacklige
Angelegenheit, ZIP 2014, 1414, 1416 et seq.
41 On the extraterritorial application of US capital markets law see von Hein, Die Rezeption USamerikanischen Gesellschaftsrechts in Deutschland, 2008, pp. 313–354.
42 At the moment, only three German stock corporations are listed on the NYSE (SAP, Fresenius Medical
Care and the Deutsche Bank), see Désiree Backhaus, Siemens US-Delisting: Nur noch drei Dax-Firmen an
NYSE notiert, http://www.finance-magazin.de (30 January 2014).

9

III. The ECJ’s turn to the Theory of Incorporation at the End of the 20th
Century
1. Daily Mail
The starting point of the ECJ’s jurisprudence on international company law was the “Daily
Mail” case of 1988. 43 The Daily Mail and General Trust PLC wanted to move its central
administration from England to the Netherlands with the intention to avoid British taxation.
From a choice of law perspective, transferring Daily Mail’s seat did not cause a threat to thecompany’s existence because both England and the Netherlands follow the theory ofincorporation. Nevertheless, Daily Mail required the British tax authorities’ consent in orderto cease to be resident in the United Kingdom. When that consent was denied, Daily Mail
claimed that its freedom of establishment had been infringed. The ECJ, however, ruled that
freedom of establishment does not confer on a company the right – against its state ofincorporation – to transfer its real seat to another Member State. In this regard, the Court
emphasized that “it should be borne in mind that, unlike natural persons, companies are
creatures of the law and, in the present state of Community law, creatures of national law.
They exist only by virtue of the varying national legislation which determines theirincorporation and functioning.“ 442. Centros, Überseering and Inspire Art
In first reactions to the Daily Mail decision, most academic commentators took the view that
the ECJ had endorsed the freedom of domestic legislators and courts to follow either the realseat theory or the incorporation theory. 45 In this regard, it was frequently overlooked that
Daily Mail solely concerned the question which rights a company had against the state underwhose laws it had been founded (the “home state”), but not the question whether the host state
could refuse to recognize a foreign company as being legally existent. From 1999, thejurisprudence of the ECJ clarified the latter point in three decisions, Centros, Überseering andInspire Art. 46
The Centros Ltd. was a private limited company registered in England and Wales, without
pursuing any real economic activity there. The founders of this typical letterbox company
applied to the Danish Trade and Companies Board to register a branch in Denmark. The
43 ECJ, 27.9.1988, Case C-81/87 (The Queen ./. Daily Mail), E.C.R. 1988, 5483.
44 ECJ, 27.9.1988, Case C-81/87 (The Queen ./. Daily Mail), E.C.R. 1988, 5483, para. 19.
45 Halbhuber, C. M. L. Rev. 38 (2001), 1385, 1390–1395.
46 ECJ Case C-212/97 – Centros [1999] ECR I-1459; ECJ Case C-208/00 –Überseering [2002] ECR I-9919;

ECJ Case C-167/01 – Inspire Art [2003] ECR I-10159.

10

Board refused, arguing that Centros was in fact seeking to establish a principal establishment
in Denmark, thus trying to circumvent Danish minimum capital requirements. The ECJ,
however, classified the founders’ legal tactics not as an abuse of rights, but as a realization of
the freedom of establishment. In this regard, the Court argued that denying a registration of aletterbox company’s branch “is not such as to attain the objective of protecting creditors [...].
[I]f the company concerned had conducted business in the United Kingdom, its branch would
have been registered in Denmark, even though Danish creditors might have been equally
exposed to risk.“ 47 Moreover, the Court pointed out that under European legislation on
disclosure requirements, creditors would have to be informed of the fact that they were
dealing with an English rather than a Danish company. 48 The registration of a branch could
only be denied if it could be established that the company’s founders were actually trying to
defraud creditors in Denmark. 49
After Centros, it was controversial whether, in cases involving the transfer of a company’s
center of administration, the ECJ’s judgment merely forced Member States to recognize
migrating companies as having legal capacity, but allowed them to apply the host state’s law
on other matters, or whether the host state was actually required to apply the law of the stateof incorporation to the company as a whole. At first, the 2nd Senate of the German Federal
Court of Justice tried to maintain the real seat theory, with the result that a foreign corporationtransferring its real seat to Germany was re-characterized under German law as a partnershipwith the capacity to sue and be sued. 50 However, this modified real seat theory took away theprivilege of limited liability from the migrating company and therefore still significantly
restricted its freedom of establishment. In the Überseering case, the ECJ clarified that“[w]here a company formed in accordance with the law of a Member State (A) in which it has
its registered office exercises its freedom of establishment in another Member State (B),
Articles 43 EC and 48 EC require Member State B to recognise the legal capacity and,
consequently, the capacity to be a party to legal proceedings which the company enjoys under
the law of its State of incorporation (A).” 51 Moreover, the Court distinguished Centros andÜberseering from the earlier precedent of Daily Mail: Whereas Daily Mail concerned thelegal relationship between a company and its home state, the state of incorporation, Centros

47 ECJ Case C-212/97 – Centros [1999] ECR I-1459, para. 35.
48 ECJ Case C-212/97 – Centros [1999] ECR I-1459, para. 36.
49 ECJ Case C-212/97 – Centros [1999] ECR I-1459, para. 38
50 BGH 1 July 2002, BGHZ 151, 204.
51 ECJ, 5.11.2002, Case C-208/00, –Überseering [2002] ECR I-9919 (emphasis added)11and Überseering dealt with the recognition by the host Member State of a company
incorporated under the law of another Member State. 52
Finally, the ECJ made clear, in the Inspire Art case, that a special connection of mandatory
provisions in order to protect minority shareholders, creditors and stakeholders (employees) is
not absolutely excluded in the individual case, but that comprehensive defence laws against‘pseudo-foreign’ companies are not compatible with the freedom of establishment. 53 In thisregard, the ECJ again heavily relied on the argument that potential creditors of a letterbox
company “are put on sufficient notice that it is covered by legislation other than that
regulating the formation […] of limited liability companies [...]” in the host state. 54

IV. The German Council’s Proposal for codifying a European PIL of
Corporations
As the German Council’s Proposal of 2006 (in the following: German Council’s Proposal –GCP) was a direct response to the Centros trilogy of cases, it comes as no surprise that, as a
general rule, it subjects companies to the law of the state in whose public register they are
entered (Article 2(1) GCP). It is not possible to examine all the details of the GCP here.
Nevertheless, three features of the GCP deserve to be highlighted: Firstly, the clear preference
for a traditional, multilateral conflicts rule instead of a mere principle of recognition;
secondly, the deliberate omission of any requirement of real economic activity in the state
where the registered office is located; thirdly, the universal application of the proposed
conflicts rules also vis-à-vis third states.
From a doctrinal point of view, it was – and still is – controversial whether the Centros trilogy
had to be interpreted within a unilateralist framework, leaving choice of law issues to the lawof the state of incorporation, but forcing other Member States to accept the results of applying
this law under a European principle of recognition or whether the ECJ had derived amultilateral “hidden conflicts rule” from the EC Treaty. 55 The practical implications of this
distinction are important: Under the recognition approach as outlined in the Überseering case,the new jurisprudence merely created legal obligations for the host Member State of a

52 ECJ, 5.11.2002, Case C-208/00, – Überseering [2002] ECR I-9919 paras. 61–73.
53 ECJ, 30.9.2003, Case C-167/01 – Inspire Art, E.C.R. 2003, I-10155.
54 ECJ, 30.9.2003, Case C-167/01 – Inspire Art, E.C.R. 2003, I-10155, para. 135.
55 See von Hein, in: Säcker/Rixecker/Oetker (eds.), Münchener Kommentar zum BGB, 6th ed. 2015, Art. 3

EGBGB para. 110, with further references; Weller (supra note 15), pp. 373–378, who argues in favour of a„hidden conflicts rule“ which should, however, be limited to inbound situations and to EU/EEA-companies.

12

migrating company, whereas the state of incorporation remained free to adopt either the realseat theory or the theory of incorporation for companies created under its own laws. Thus,
European international company law would be characterized by the distinction between“inbound” and “outbound” cases. Under the assumption of a multilateral “hidden conflictsrule”, on the contrary, the new case-law would also have ramifications for the state ofincorporation itself, limiting its powers to dissolve a company if it transfers its centre ofadministration to another Member State. In its legislative proposal of 2006, the German
Council did not decide this issue under primary EU law, but recommended a traditional,
multilateral conflicts rule based on the theory of incorporation (Article 2(1) GCP). Pursuant tothis rule, even the home Member State of a company would have to tolerate a company’stransfer of seat. 56 In so far, the GCP is in line with other EU secondary legislation which has
refrained from adopting the principle of recognition as a new choice-of-law approach.
Secondly, the GCP – in contrast, for example, with the SE statute (see supra II. 3) – does not
require a coincidence between the actual seat and the place of registration. 57 The drafters
point out explicitly that “it is irrelevant whether this [the place of registration] is actually theprincipal place of business or whether that place is in fact located in the state in which the(second) registration of a branch was entered.” 58 Moreover, Article 7(1) 1st sentence GCP
would allow companies to relocate their place of registration to another Member State without
having to transfer their actual seat as well. This is remarkable because similar attempts atsecondary EU legislation (14th Directive) have so far not been successful. 59 The protection of
fundamental political, social and economic values of the host state are left to provisions on
mandatory rules (Article 9 GCP) and public policy (Article 10 GCP).
Finally, the GCP is framed as a loi uniforme, i.e, that it is not limited to intra-EU cases. 60
Under the current case-law, the transition to the incorporation theory also affects companies
registered in contracting states of the European Economic Area (EEA), which have to betreated in the same way as companies registered in Member States of the EU. 61 Likewise, theincorporation theory applies by virtue of bilateral conventions concluded with important trade

56 See Kieninger, RabelsZ 73 (2009) 606, 620 et seq.
57 Sonnenberger/Bauer (supra note 6), p. 83.
58 Sonnenberger/Bauer (supra note 6), p. 82.
59 See Zimmer (supra note 6), p. 215; on the proposal for a 14th directive, see von Hein, in:Säcker/Rixecker/Oetker (eds.), Münchener Kommentar zum BGB, 6th ed. 2015, Art. 3 EGBGB para. 113, withfurther references.
60 See Kieninger, RabelsZ 73 (2009) 606, 621 et seq.; Zimmer (supra note 6), p. 211.
61 BGH 19 September 2005, BGHZ 164, 148 concerning Liechtenstein.

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partners, particularly the United States. 62 However, at least in Germany, the real seat theory is
still applied to companies registered in third countries such as Switzerland which have notentered into bilateral conventions on this matter. 63 In contrast, the GCP provides for acomprehensive codification of the incorporation theory also in relations with third states. Thisapproach is in line with existing EU legislation in other fields, such as contracts or torts,
because both the Rome I and II Regulations claim universal application (Article 2 Rome I,
Article 3 Rome II). 64 Moreover, a coherent and unified approach to international company
law facilitates decision-making. 65
In the following, I will briefly present the case-law of the ECJ after 2006 and evaluate the
GCP in light of these subsequent developments.

V. The Recent Case-Law of the Court of Justice
1. Cartesio
As I have already stated, one of the most hotly debated issues in European international
company law was the question how Centros could be reconciled with Daily Mail, i.e. whethera migrating company could also rely on the freedom of establishment against the state where
it is registered or whether the case-law of the ECJ merely created obligations of recognition
for the host Member State. This question has been answered by the Court in another trilogy ofcases, Cartesio, National Grid Indus and Vale. 66
In the Cartesio decision, the ECJ essentially reaffirms – contrary to the opinion of the
Advocate General 67 and wide-spread expectations of practitioners and academics 68 – thedecision in Daily Mail. Cartesio was a company registered in Hungary. It applied to the
Regional Court in Hungary for registering the transfer of its actual seat to Italy in thecommercial register. This application was rejected because Hungarian law did not allow a
company incorporated in Hungary to transfer its centre of administration to another Member
States while continuing to be subject to Hungarian law. In its judgment, the Court reaffirmed
62 BGH 29 January 2003, BGHZ 153, 353 regarding Art XXV(5) of the German-American Treaty of

Friendship.
63 BGH 27 October 2008, BGHZ 178, 192, ‘Horse Racing Track’64 See von Hein, in Rauscher (ed.), Europäisches Zivilprozess- und Kollisionsrecht, 2011, Article 2 Rome I
paras. 1 et seq.
65 Zimmer (supra note 6), p. 211.
66 ECJ Case C-210/06 – Cartesio [2009] ECR I-9641; CJEU Case C-371/10 , National Grid Indus, [2011]
ECR I-12273; CJEU Case 378/10 – VALE, ECLI:EU:C:2012:440.
67 GA Poiares Maduro, Opinion of 22. 3. 2008 – Case C-210/06 – Cartesio.
68 Cf. Kieninger, RabelsZ 73 (2009) 606, 616: „quite unexpectedly“.

14the basic argument of Daily Mail that companies are creatures which derive their existencefrom the laws of the Member State in which they are registered and that, accordingly, thisstate has the power to define the connecting factor required of a company, even if this meansthat the legal existence of a company is terminated because of a transfer of its actual seat. 69 In
so far, the Court argued that “the question whether Article 43 EC applies to a company whichseeks to rely on the fundamental freedom enshrined in that article – like the question whether
a natural person is a national of a Member State, hence entitled to enjoy that freedom – is apreliminary matter which, as Community law now stands, can only be resolved by theapplicable national law”. 70 Yet it is submitted that drawing a normative parallel between thelaw governing a company's existence and the nationality of a natural person in this respect isflawed. 71 A Member State that deprived natural persons of their citizenship merely because
they have moved to another Member State would evidently violate their freedom of
establishment. 72
The Court emphasized, however, that it did not intend to confer any kind of “immunity fromthe rules of the EC Treaty on freedom of establishment” on the state of incorporation. 73 In
particular, the Member State of incorporation must not prevent a “company from converting
itself into a company governed by the law of the other [host] Member State, to the extent that
it is permitted under that law to do so”. 74 This caveat gave rise to new legal uncertainties:
First, it was questionable which degree of freedom the state of incorporation actually enjoyedwith regard to preventing a transfer of a company’s actual seat to another Member State.
Secondly, the Cartesio judgment threw up the question as to whether it obliges the host
Member State to accept a foreign company’s transformation into a new legal person
incorporated under the laws of the latter state.

2. National Grid Indus
The first of these questions was answered in the Case National Grid Indus, 75 which involved
problems of cross-border taxation and was based on almost the reverse fact pattern that had
given rise to the earlier Daily Mail decision. National Grid, a Dutch company registered in the
69 ECJ Case C-210/06 – Cartesio [2009] ECR I-9641, paras. 109–110.
70 ECJ Case C-210/06 – Cartesio [2009] ECR I-9641, para. 109.
71 Behrens, Festschrift Ulrich Magnus (2014) 353, 356: „[T]he ‚nationality‘ […] of a company is not in
itself an indication of the law governing the company. It is rather the other way round: The ‚nationality‘ […] of acompany depends on the proper law of the company as determined by the relevant determinate connecting factor
used in conflict of laws (choice of law) rules.”72 Zimmer/Naendrup, NJW 2009, 545, 546.
73 ECJ Case C-210/06 – Cartesio [2009] ECR I-9641, para. 112.
74 ECJ Case C-210/06 – Cartesio [2009] ECR I-9641, para. 112.
75 CJEU Case C-371/10 – National Grid Indus, [2011] ECR I-12273.

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Netherlands, wanted to transfer its actual seat to the United Kingdom. As both countries
follow the theory of incorporation, this would have been perfectly fine from a choice of law
point of view. The Netherlands, however, insisted on the company paying taxes on currency
gains made in the Netherlands before allowing a transfer of seat. Contrary to Daily Mail, theCourt decided that the company’s home state had violated its freedom of establishment in thiscase. “[S]ince the transfer by National Grid Indus of its place of effective management to theUnited Kingdom did not affect its status of a company incorporated under Netherlands law,”
the Court argued, “the transfer did not affect that company’s possibility of relying on Article
49 TFEU” even against the state of its incorporation. 76 Thus, distinguishing Daily Mail from
National Grid seems to turn on a subtle technicality: A Member State that strikes a company
off the register in case of a transfer of seat may do so without violating its freedom of
establishment; the state, may, so to speak, kill its own creature of law. If, however, the state ofincorporation considers the migrating company as being still legally existent, it must refrainfrom erecting financial obstacles to the company’s freedom of establishment. It is doubtful
whether this line of reasoning is compatible with the principle of proportionality because,
metaphorically speaking, it favours a kind of corporate “death penalty” over the mere
payment of a fine under applicable tax laws. 77

3. ValeAfter Cartesio, there had been further uncertainty as to whether a company incorporated
under the law of Member State (A) that wished to transfer its registered office to Member
State (B) and to reincorporate there as a company governed by the host state’s law could relyon the freedom of establishment against the designated host state in order to allow such a
conversion. The CJEU had the opportunity to clarify the issue in a case concerning an Italiancompany, VALE, which wanted to transfer its registered office to Hungary and thereby toconvert itself into a Hungarian company. 78 It had been argued that such a conversion of an
existing company under the host state’s law should be treated in the same way as an originalincorporation of a newly founded company in the host state, i.e. that Member States remained
free to accept or deny such an inbound conversion under their domestic international company
law. 79 The CJEU, however, pointed out that “the expression ‘to the extent that it is permitted
under that law to do so’, in paragraph 112 of Cartesio, cannot be understood as seeking to
76 CJEU Case C-371/10 , National Grid Indus, [2011] ECR I-12273, para. 32.
77 Cf. Jung, Festschrift Ivo Schwander (2011) 463, 570 et seq.
78 CJEU Case 378/10 – VALE., ECLI:EU:C:2012:440.
79

Thus the Hungarian, German, British and Irish governments in CJEU Case C-378/10 – VALE,
ECLI:EU:C:2012:440, para. 25.

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remove, from the outset, the legislation of the host Member State on company conversions
from the scope of the provisions of the [TFEU] governing the freedom of establishment, but
as reflecting the mere consideration that a company established in accordance with nationallaw exists only on the basis of the national legislation which ‘permits’ the incorporation of thecompany, provided the conditions laid down to that effect are satisfied”. 80 This means that thehost Member State is entitled to determine the national law applicable to cross-borderconversions and thus to apply the provisions of its national law to such operations, but
remains subject to the principles of equivalence and effectiveness in this regard. 81
Moreover, the CJEU denied that a company enjoyed a right to transfer its registered office toanother Member State if it did not intend to pursue any real economic activity in the hoststate. The court emphasized “that the concept of establishment within the meaning of theTreaty provisions on the freedom of establishment involves the actual pursuit of an economic
activity through a fixed establishment in the host Member State for an indefinite period.
Consequently, it presupposes actual establishment of the company concerned in that State andthe pursuit of genuine economic activity there.” 82 This restriction is all the more remarkableas the Court refused to require a genuine economic activity as a precondition for a valid
incorporation in the Centros case (see supra III.2); Centros was a typical letterbox company
that did not pursue any economic activity in the UK. The two cases may be reconciled only if
one is prepared to adopt a strictly formal distinction between the setting up of a company(“primary” freedom of establishment) and the subsequent transfer of its statutory seat or theregistration of a branch (“secondary” freedom of establishment”). 83 Whereas the CJEU
requires a genuine economic link between the company’s branch and its host state in thesecond scenario, it dispenses with such a requirement in a case involving “primary” freedomof establishment, leaving the question to the international company law of the state ofincorporation. Again, it is possible to make such a formal distinction, but from a normative
point of view, it is highly debatable whether cases that are very similar from a functional andeconomic point of view should be treated differently. 84 If one conceives of the theory ofincorporation as a functional equivalent to party autonomy, it should be noted that neither

80 CJEU Case C-378/10 – VALE, ECLI:EU:C:2012:440, para. 32..
81 CJEU Case C-378/10 – VALE, ECLI:EU:C:2012:440, para. 62.
82 CJEU Case C-378/10 – VALE, ECLI:EU:C:2012:440, para. 34, relying on Case C-196/04 Cadbury Schweppes

and Cadbury Schweppes Overseas [2006] ECR I-7995, para. 54.
83 BGH NZG 2011, 1114 para. 20 et seq.; Karsten Engsig Sørensen, The Fight against Letterbox Companies

in the Internal Market, C.M.L. Rev. 52 (2015) 85, 89–94.
84 See Jung, Festschrift Ivo Schwander (2011) 563, 567; Thomale, EuZW 2011, 1290, 1292; MüKo/von Hein
Art. 3 EGBGB para. 112.

17

Article 3 of the Rome I Regulation on contracts nor Article 14 of the Rome II Regulation on
torts distinguish between ex ante and ex post party autonomy in this regard; in both scenarios,
no genuine link to the chosen law is required.

4. Conclusion
The CJEU's doctrinal basis for the theory of incorporation is a normative parallel between thelaw governing a company's existence and the nationality of a natural person. This reasoning isflawed because it results in a unilateralist approach to the conflict of laws that is out of stepwith existing Regulations on European private international law (e.g. Rome I and II) thatfavour a multilateral approach. Although the Court's unilateralist method is tempered by aprinciple of recognition imposed on host Member States, it leads to problematic consequences
in cases involving an emigration of companies from the state under whose law they have been
established (Cartesio and VALE). Instead, the theory of incorporation should rather beconceived as a specific expression of the general principle of party autonomy that is one of
the cornerstones of EU private international law, in particular Rome I and II. Moreover, theincreased Europeanization of capital market supervision in the EU contributes to an efficient
corporate governance and thus leaves more room for party autonomy in international
company law.
Currently, the CJEU only allows for a transfer of a company’s statutory seat if a genuine link
can be established between the company's activities and its new state of residence (VALE),
whereas such a requirement is not imposed if a company is newly founded in a state withwhich there is no significant economic connection. Following the model of the Rome I and II
Regulations on ex-ante and ex-post party autonomy, however, such a requirement ought to bedispensed with in both scenarios. The protection of fundamental political, social andeconomic values of the host state should rather be left to provisions on mandatory rules andpublic policy.
At the moment, the theory of incorporation is limited to companies incorporated under the lawof a Member State of the EU or the European Economic Area (EEA). In line with the concept
of universal application commonly adopted by EU private international law, this restriction
should be abolished as well.
Thus, on all three points, the German Council’s Proposal on the law applicable to companies
goes well beyond the current case-law of the CJEU. The Proposal would establish multilateral
conflicts rules in international company law, enshrine party autonomy as a general principle
18

in this legal field without any requirement of a “genuine link” and have universal application
to companies registered in third states as well. Thus, the enactment of the German Council’s
Proposal at the EU level would not only be an important contribution to re-integratinginternational company law into the normative framework of existing EU legislation on privateinternational law, it would also bring about real benefits for legal practice.

VI. Outlook: The Current Prospects for Codifying the PIL of
Corporations in the EU
In sum, adopting the German Council's proposal for an EU Regulation on the law applicable
to companies would be a major step forward for European private international law. The
European Commission has already taken first steps for further legislation. In order to fulfil thepromises set out in the 2010 action plan to implement the Stockholm Programme (see supra I)– and to implement the European Parliament Resolution of 2012 (see supra I), theCommission released a call for tenders relating to a study on the law applicable to companies
in 2014. 85 It is to be expected that the resulting study will form the basis for a long envisioned
Green Paper, which in turn will lay the foundation for a European Regulation on the law
applicable to companies.

85 Open call for Tender of 6 August 2014 JUST/2014/JCOO/PR/CIVI/0051: Study on the law applicable tocompanies with the aim of a possible harmonization of conflict of law rules on the matter, 2014/S 149-267126,
JUST/A/4/MB/ARES(2014)2599553

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