A European Delaware: The Nascent Regulatory Market in Europe
Corporate Finance & Capital Markets Law Review, Forthcoming
40 Pages Posted: 18 Feb 2009
Date Written: December 17, 2007
In continental Europe, the real seat ("siege reel") doctrine has historically been a strong barrier to a European market for corporate charters. Under the siege reel doctrine, a company is subjected to the corporate law of the country in which its "real seat" is located. In France, the real seat is the location of the company's principal place of business. Thus, unlike the siege statutaire approach applicable in the United States, in a legal system applying the real seat doctrine a company cannot freely select its state of incorporation; the applicable law governing the company's internal affairs arises from the location of the company's headquarters. In conjunction with obstacles to cross-border mergers and restrictions on the transfer of a company's headquarters, companies in Europe have historically been effectively captive in the state of their headquarters.
As we discuss in more detail in the first part of this article, as a result of recent jurisprudence of the European Court of Justice and certain EU directives (such as the Cross-Border Merger Directive), local protectionist legislation such as siege reel rules will, in the coming years, be less and less effective in preventing companies currently headquartered and incorporated in a given Member State from moving elsewhere in Europe. Importantly, the increased mobility of companies in Europe can often be accomplished in ways that are tax neutral. In countries where the foregoing European Court of Justice jurisprudence has been more publicized, companies have already begun to seek out more favorable corporate law regimes than those available in their home country. Thus, tens of thousands of German companies have recently moved their jurisdictional base to the U.K. to avoid minimum capital requirements and certain worker-representation provisions in German corporate law. In response to this flood, the German administration has sought to reform the corporate form of the GmbH in order to make it more competitive in comparison to foreign alternatives. Among the proposed reforms currently under debate by the Bundestag is the abandonment of the German siege reel rule ("Sitztheorie").
As we discuss in greater detail below, the legal framework for a market for regulation already exists in Europe today to an extent that has, in our view, not yet been fully appreciated. Under the ineluctable logic of the market, barring some important political shift at the French or European level, the regulatory regimes of some Member States will be preferred by corporations to those of others. As Delaware's example demonstrates, the results of this market selection are likely to have far reaching implications for decades to come.
Keywords: corporate charters, Delaware, Europe, France, real seat, siege reel, regulatory competition, market for corporate charters, race to the bottom, race to the top, European Company, Societas Europea, Freedom of Establishment, EU, Cross Border Merger Directive, Sevic, Inspire Art, Uberseering
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