Cross-border transfer of a company’s seat Dr Tatjana Jevremović Petrović
Cross-border transfer of a company’s seat Dr Tatjana Jevremović Petrović Introduction Regulated by national laws of MS (exception: Statute for a SE) National differences Cross-border transfer of company’s seat was/is not completely possible Introduction Incentives for a company’s 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 company’s seat based on company law Relevance of company’s seat Possibility to transfer company’s 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 Company’s 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 company’s 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 incorporation/real seat Internal 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 Conditions for general meeting (similar for statutory changes - ⅔ 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 ¾ 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 company’s 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 company’s seat Usually thought that real seat countries don’t accept change of real seat and incorporation theory countries don’t 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 cross-border 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 crossborder 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 + cross-border merger Adoption of the Statute of SPE with possibility of transferring its registered office Reading materials Obligatory reading Dorresteijn/Monteiro/Teichmann/Werlauff “European Corporate Law” Further reading: http://ec.europa.eu/internal_market/company/seattransfer/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 Mörsdorf, „The legal mobility of companies within the European Union through cross-border 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 Justice’s Cartesio Judgment”, European Company Law, vol. 6, nr. 3, 2009.
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