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The European Company: Does It Create Rules for the Market or a Market for the Rules?

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Over recent years in Europe, the possibility of a market for ‘corporate incorporations’ – namely the freedom of European companies to choose their country for incorporation – has been blocked, partly by difficult economic conditions and partly by the operation of national level rules on the conflict of laws which limits the degree to which a company may choose the law that applies to it. National laws also differ widely over their attitude towards the movement of companies from one jurisdiction to another, and this legal uncertainty over the transfer of a company discourages investments in the private equity sector.

This situation has been improved by certain judgements of the European Court of Justice (ECJ) that have underscored, in the cases of √úberseering, Centros, Inspire Art and Sevic, the EU Treaty's principles of right of establishment and free movement of capital. In these cases, legal entities and human beings have been considered in the same way. This confirmed the ECJ's approach, originating from Articles 43 and 48 of the EC Treaty along with certain efforts of the EU legislator, that have tried to facilitate a mechanism of corporate entry and exit that will possibly encourage direct competition between the different corporate law systems provided by the European Member States. In line with this aim, the proposed Directive on Cross-border Transfers of the Registered Offices of Limited Liability Companies and the Directive on Cross-border Mergers (2005/56/EC) try to provide a common solution to the issue of re-incorporation.

In the European market for corporate control, where one size does not fit all, decentralised solutions can permit Member States to continue patterns of diversity, while regulatory arbitrage allows individual firms, for which the national model is inappropriate, to opt out. Moreover, in an area such as company law, where the configuration of the optimal rules is hotly debated, regulatory competition, when driven by the market from the bottom up together with harmonisation of the law implemented top down through Directives, can bring about a reform of European corporate law and at the same time build up a market for rules essential for economic growth.

Document Type: Research Article


Publication date: January 1, 2009

More about this publication?
  • The European Company Statute
    The European Company Statute (ECS) is one of the most important pieces of company legislation adopted so far by the European Union. Its aim is to regulate, on a voluntary basis, the internal functions of a business operating in more than two European countries at the same time. This book provides a comprehensive analysis of the history, structure, legal basis and likely impact of the ECS, examining its evolution over some 30 years of development and its chances for integrating diverse models of corporate governance across the European Economic Area. The book explores the implications of the ECS for employee participation at various levels in the European company, with country case studies drawn from Greece, Slovenia and the UK. It also analyses certain legal issues, including taxation and the position of companies located in countries without existing systems of employee board-level participation.
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