Cross-border

transfer of a
companys seat
Dr Tatjana Jevremovi
Petrovi

Introduction

Regulated by national laws of MS

(exception: Statute for a SE)
National differences
Cross-border transfer of companys
seat was/is not completely possible

Introduction

Incentives for a companys change of seat

Economic reasons
Investment climate (state aid, investor
protection...)
Tax law
Company Law issues (classes of shares,
management responsibilities and duties,
employee representation, board structure...)
Soft law issues: life standard for CEO, links for
certain activities (fashion in Milan, financial
services in London)

Introduction

National law determines:

What is a seat concept of companys seat

based on company law
Relevance of companys seat
Possibility to transfer companys seat
Conditions for transfer
Consequences of transfer

Proper law of a company (applicable law)

lex societatis based on Private
International Law rules
Transfer of seat change of applicable law

Introduction

Applicable law = lex societatis

Nationality of a company
Recognition of a foreign company

Nationality

Nationality of company is a connection between

a company and a state which determines rights
and obligations for a company.

Nationality is a political connection

Lex societatis is a connection to a legal system

(rules which apply to statutory issues of the
company)
Usually used for tax purposes, also for enjoying
certain rights (reserved for domestic
companies) ex: cautio judicatum solvi in
procedural matters, application of international
contracts...

Nationality

Every state determines unilaterally

companies with domestic nationality

Positive/negative conflict of laws

Sometimes nationality is used to

determine lex societatis (indirect
application of criteria) ex: Spain,
Belgium, Greece

Determination of
nationality

Real seat
Place of incorporation
Centre of exploitation
Place from where company is being
controlled

Determination of
nationality

Centre of exploitation

Where main activities of company are being

conducted
Suitable for mine, agricultural activities
Unsuitable for companies who provide services
Technical issue, factual not legal issue
Can be in several places
It can change after certain activity is completed
Developed countries conduct business activities in
third world countries
Usually additional criteria after real seat criteria

Determination of
nationality

Control theory

Applied particulary in war times

Nationality of a company based on nationality
of persons who control the company
Problems concern: definition of control
(persons, capital, management)
Sometimes impossible to determine
Different for different company forms
Uncertain
Applied in France and England during WW II

EU nationality

Nationality of the EU nationals of MS

Individuals are considered nationals of
MS and of the EU
Certain rights according to this
nationality: direct active and passive right
to vote for MEPs, right to be employed in
certain EU Institutions, rights to adress
EU Ombudsman
Companies are regulated in art. 54 and 49
TFU (ex art. 48 and 43)

EU nationality

Criteria to determine nationality of a

company for Community purpose
recognition of companies from MS (art.
54)
Art. 48: companies or firms formed in
accordance with the law of a MS and
having their registered office, central
administration or principal place of
business within the Community shall ... be
treated in the same way as natural
persons who are nationals of MS

Change of nationality

Change of real seat or incorporation

If company changes its nationality
by changing real seat or place of
incoporation this change must be
accepted by all interested states.
Usually was prohibited

Companys seat

Registered office
Seat of incorporation (where company was
founded/incorporated)
Statutory seat (articles of association or statute
define where the seat is located)
Real seat centre of management and control
of a company, centre of its activities

= head office

Seat of exploitation place where companys

activities have been conducted

domicile in UK = registered in the UK

French term siege social = statutory or real
seat

Applicable law

Lex societatis is the law which regulates all

statutory issues of a company:

foundation setting up,

validity,
Functioning/structure and
the end winding up
Usually it is not applicable to tort responsibility,
insolvency proceedings and business activities

Sometimes special rules apply lex fori, lex rei

sitae, lex loci delicti or public interest provisions
will apply (exception of general application of lex
societatis on all statutory issues)

Criteria to determine
applicable law

Real seat

France, Germany, Portugal (direct criteria) Belgium,

Greece, Spain (indirect nationality)

Franch law: real seat (not fictive), serious relationship with

the country (not intended for circumvention)
Belgium, Luxembourg: place of principal establishment
German law: statutory seat=real seat (place where everyday
decisions are being made)

Applicable law law of the country where company has its

real seat
Usually unilateral rule (only for domestic companies)
For foreign companies foreign criteria usually is applied
(closest conextion)
Cumulation with foundation criteria (Spain real and
registered seat, Germany real seat and foundation)

Criteria to determine
applicable law

Incorporation place where company is

founded/incorporated

Similar application in all countries which apply this

criteria (unlike real seat criteria different concept of
seat, as well as application of seat to determine
applicable law)
Legal certainty and protection of third parties
UK, Ireland, Netherlands, Italy (modified with real seat
also application of Italian law), Denmark , Sweden,
Finland (registration theory)
Swiss law incorporation, if not applicable place
where company is factually organized
Hungary incorporation, if not statutory seat, if not
real seat.

Advantages and
disadvantages of the
application of
Internal
incorporation/real
seat
relationship within company
better

protected under incorporation theory,

external relations under real seat theory
Incorporation theory liberal economies,
real seat economies controlled by State
Change of real seat easy and possible
under incorporation theory
Circumvention of law and pseudo-foreign
companies impossible under real seat
theory

Transfer of the real seat

Irrelevant for incorporation theory countries

For real seat countries every change of real
seat results in the change of applicable law
Transfer is possible only when all interested
countries (emigration/immigration) allow and
accept all consequences of the operation
All consequences depend from the point of
view of all interested States (from and to
country)

Transfer of a real seat

Consequences relevant to country
from where seat has been
transfered

Transfer is not allowed (Germany, Austria)

Company is being dissolved (before Cartesio)

Arguments:

company cannot live without legal system which

established legal personality (cannot survive its own
legal system)
it serves the protection of employees and creditors
legal tradition

After liquidation tax has to be paid (liquidation

tax, reserves)
New establishment in other State
Important consequences for members and
third parties involved (creditors, employees...)

Transfer of a real seat

Consequences relevant to country
from where seat has been
transfered
Transfer is allowed tendency in
modern Company Law and based on
Community law
Change of applicable law
Tax payment (in France equivalent to
liquidation tax)

The most important limitation to the

transfer of seat, also in incorporation
countries (tax determined on the domicile
criteria Daily Mail)

Transfer of a real seat

Consequences relevant to country
from where seat has been
transfered
Change of shareholders/members rights
Change of shareholders/members rights

Conditions for general meeting (similar for statutory

changes - of all voting rights, rights of minority
members payment in cash)

Employee protection especially where

representation in company organs is adopted
Creditors debts not affected by the change of
applicable law, although practical problems
(foreign debtor)

Publication of the operation

Securities
Realisation of debts before fallen due

Transfer of a real seat

Consequences relevant to country
from where seat has been
transfered
Portugal
majority decision by capital,
registration of the transfer and
acceptance of the transfer in
immigration country.
Change implies change of applicable law
with legal continuity in other country

MODEL RULE

Transfer of a real seat

Consequences relevant to country
where seat has been transfered
Transfer is not allowed (Germany,
Austria before Centros and
Uberseering)
New establishment
If there is no new establishment
company is treated as partnership not
having legal personality, or company
with limited liability in foundation no
continuity with previous company

Transfer of a real seat

Consequences relevant to country
where seat has been transfered

Transfer is allowed accepted in majority of

EU real seat countries (interest of
immigration county not compromised)

If all conditions of this country are met:

formalities, company statutes must be in
accordance with imperative law rules of the new
country
Change of applicable law
Company must accept one of the existing forms of
companies in that law and other imperative rules
Tax payment formally limits free transfer of seat
(Tax neutrality is precondition for free transfer)

Transfer of a real seat

Consequences relevant to country
where seat has been transfered
Portugal

Free transfer with change of applicable

law and legal continuity if company is
registered, emigration country accepts
this transfer and companys statutes are
in accordance of its law. If not,
members have unlimited liability

MODEL RULE

Transfer of a real seat

Consequences relevant to third
countries
Accepted if in accordance with all
the laws concerned
solidarity of the real seat theories

Transfer of the
registered seat

Results in the change of applicable law

In most incorporation theory countries
not allowed (UK, Netherlands)
Italian law allows change of statutory
seat in another county if all the laws
concerned that allow MODEL RULE
Free change of registered seat from
and to country and applicable law
adopted in Swiss law

Conclusion on free tranfer

of companys seat

Usually thought that real seat

countries dont accept change of real
seat and incorporation theory
countries dont allow change of
registered office as a consequence of
criteria applied.
Impossible due to company law rules
or adopted decisions by national
courts.

Community law and

transfer of seat

Right of establishment art. 49 (ex art 43)

Recognition based on art. 54:

Restrictions on the freedom of establishment of nationals

of a MS in the territory of another MS shall be prohibited...
Freedom of establishment shall include ... the right to set
up and manage undertakings.
General prohibition of discrimination, based on nationality,
based on art. 18 (ex art. 12)

If all conditions from art. 54 (ex. Art 48) are met, company
must be recognized in another MS irrespectively of the
theory adopted

Consequences based on Treaty reading and

interpretation: freedom of change of the real seat
to another MS

Community law and

transfer of seat

Treaty of Rome need for a Convention for mutual

recognition of companies, transfer of seat and crossborder mergers in order to facilitate this operation
(art. 293)
Unofficial proposal for a XIVth Company Law
Directive on the change of registered office with a
change of applicable law 1997
Change of registered and real seat of SE in the
Statute for the European Company (2001)
Impact assessment no action scenario adopted
2007
Cartesio Case transfer from the county not allowed
under certain circumstances.

Further limits introduces by interpretation in Vale

judgement cross-border conversion

New incentives in the Report of the Reflection group

Action Plan 2012 targeted consultations to improve
cross-border transfer of registered office

Community law and

transfer of seat Current
possibilities

Transformation under the form of SE

(if all conditions for SE are met)
Foundation of a subsidiary + crossborder merger
Adoption of the Statute of SPE with
possibility of transferring its
registered office

Reading materials

Obligatory reading

Dorresteijn/Monteiro/Teichmann/Werlau
ff European Corporate Law

Further reading:

http://ec.europa.eu/internal_market/company/s
eat-transfer/index_en.htm
Impact assessment on the Directive on the
cross-border transfer of registered office,
European Commission, 2007.

Further reading

Andenas, M. Editorial: Cross border establishment in the EU, Company Lawyer, 27(2), 2006
Bartman, S. Editorial: Real Seat in Retreat, European Company Law, Volume 5, Issue 4,
August 2008
Bisacre, J. The migration of Companies Within the EU and the Proposed 14th Company Law
Directive, International and Comparative Corporatae Law Journal, vol. 3, issue 2, 2001
Bratton, W., Mc Cahery, J., Vermeulen, E. How Does Corporate Mobility Affect Lawmaking?,
Americal Journal of Comparative Law, vol. 57, 2009
Prentice The Incorporation Theory the UK, European Business Law Review 6/03
Rajak, H. Proposal for a 14th European and Council Directive on the Transfer of the
Registered Office or de facto Head Office of a Company from One Member State to Another
With a Change in Applicable Law, European Business Law Review, January/February 2000.
Werlauff, E. The Main seat criterion in a new disguise An acceptable version of the classic
main seat criterion?, European Business Law Review, January/February 2001
Wymeersch The transfer of the company's seat in EU Company Law, Common Market Law
Review 3/03
Wymeersch, E. Is a Directive on Corporate Mobility Needed?, EBOLR, 8, 2007
Thomas Biermeyer, Shaping the space of cross-border conversions in the EU. Between right
and autonomy: Vale, Common Market Law Review, vol. 50, 2013.
Justin Borg-Barthet, Free at last? Choice of corporate law in the EU following the judgment in
Vale, International and Comparative Law Quarterly , vol. 62, nr. 2, 2013.
Oliver Mrsdorf, The legal mobility of companies within the European Union through crossborder conversion, Common Market Law Reivew, vol. 49, nr. 2, 2012.

Further reading

Marek Szydlo, The Right of Companies to Cross-Border Conversion under the TFEU
Rules on Freedom of Establishment, European Company and Financial Law Review
3/2010.
Gert-Jan Vossestein, Cross-BorderTransfer of Seat and Conversion of Companies
under the EC Treaty Provisions on Freedom of Establishment: Some Considerations
on the Court of Justices Cartesio Judgment, European Company Law, vol. 6, nr. 3,
2009.