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Impact of EU Law on International Company Law

Abstract: In the absence of harmonization, Member States’ conflict rules to determine the law applicable to companies and particularly the continuing cleft between the incorporation method and siege-réel approach cause difficulties for the internal market for companies by, sometimes, frustrating cross-border establishments. The right of establishment cannot be invoked to oppose the consequence of the real seat approach according to which a company cannot transfer its real seat to another Member State (outbound obstacles). The Cartesio decision of 16 December 2008 learns that in that respect the Daily Mail judgment of 1988 is still good law. However, according to Cartesio such a transfer of a company seat without change of the law applicable to the company must be distinguished from a cross-border conversion (Umwandlung), the company in that case being converted into a company law form of the host Member State. This article discusses reasons for this distinction and the conditions that could possibly still be imposed by the Member State of departure and the host Member State. However, inbound obstacles created by a Member State applying the real seat approach to an incoming company incorporated under the law of another Member State have, to a large extent, been removed as a consequence of the ECJ’s case law. The consequences of this case law for pseudo-foreign companies and for Member States’ freedom to apply local company rules to foreign companies are being discussed. In practice, cross-border movements of companies appear to have steadily increased triggering regulatory competition in the company law field between Member States. Finally, some comments are made on possible consequences of those developments for future EU harmonization of company law.