Freedom of Choice in European Corporate Law

Abstract

U.S. corporations are free to choose the state law governing their internal affairs, a concept that this Article will refer to as free choice. The concept of free choice has long been the topic of intensive legal research. In particular, scholars have focused on the question of whether the freedom of corporations to choose between the laws of different states will lead to more efficient rules.

In the European Community, the debate over free choice has, at least until recently, rarely inspired close scrutiny. This is unsurprising, given that the ability of corporations to choose the applicable corporate law regime has long faced a formidable obstacle in the so-called real seat doctrine. More recently, however, this situation has changed profoundly. Two decisions by the European Court of Justice (ECJ), Centros and Überseering, have made it clear that the real seat rule, as traditionally applied by many Member States of the European Community, is incompatible with the Freedom of Establishment guaranteed by the Treaty establishing the European Community (EC Treaty).

As a result of the demise of the real seat rule, the Community now faces the same question with which the United States has long been grappling: should free choice be the principle underlying corporate law, or should free choice give way to a uniform corporate law regime? This Article seeks to answer that question with respect to the European Community. It argues that free choice can be expected to yield greater benefits than the complete or partial harmonization of the corporate law regimes of Europe. Moreover, while European corporations may remain less mobile than their U.S. counterparts, the efficiency gains to be derived from free choice in Europe may well exceed those reaped in the United States

[The original version of this paper was posted on SSRN on August 3, 2003, under the title "The U.S. Concept of Granting Corporations Free Choice Among State Corporate Law Regimes as a Model for the European Community. This is the revised version of the paper as it appeared in the Yale Journal of International Law.]

Keywords: Centros, regulatory competition, race to the bottom, race to the top, corporate law, European Community, Uberseering

JEL Classification: G30, H70, H71, K22