Centros and the Cost of Branching

Authors: Becht, Marco; Enriques, Luca; Korom, Veronika

Source: Journal of Corporate Law Studies, Volume 9, Number 1, April 2009 , pp. 171-199(29)

Publisher: Hart Publishing

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Abstract:

Following the Centros, Überseering and Inspire Art decisions of the European Court of Justice (ECJ), a thriving market for incorporations has developed in the European Union. Round-trip incorporation is competing with domestic incorporation. Entrepreneurs can set up a shell company in any EU jurisdiction and branch back to their home country to operate a business. The UK Limited Company (UK Limited) is a popular choice in many countries because it is rapidly and cheaply available online with minimum formalities. We have developed a taxonomy for measuring the cost of Limited round-trip incorporation. The cost of setting up a UK Limited is directly observable in the market while the cost of branching is not. We have run field experiments to measure the cost of branching. Our analysis reveals that despite the ECJ rulings, branching remains costly or impractical in many cases. Incorporation agents play an essential role in overcoming the limitations to branching.

Document Type: Research article

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