Centros and the Cost of Branching
Free University of Brussels (VUB/ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management; European Corporate Governance Institute (ECGI)
Harvard Law School; LUISS Guido Carli University - Faculty of Law; European Corporate Governance Institute (ECGI)
Veronika Edit Korom
University of Economics and Business Administration
April 1, 2009
Journal of Corporate Law Studies, Vol. 9, Part 1, April 2009
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.
Number of Pages in PDF File: 29
Keywords: incorporation, costs of regulation, regulatory competition
JEL Classification: G38, K22Accepted Paper Series
Date posted: July 15, 2009
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