Cross-border transfer of a company’s seat

Cross-border transferCross-border transfer
of a company’s seatof a company’s seat
DrDr Marcelo Gomes FreireMarcelo Gomes Freire

IntroductionIntroduction
 Regulated by national laws of MS (exceptionRegulated by national laws of MS (exception::
Statute for a SE)Statute for a SE)
 National differencesNational differences
 Cross-border transfer of company’s seat wasCross-border transfer of company’s seat was/is/is
not completelynot completely possiblepossible

 Incentives for a company’s change of seatIncentives for a company’s change of seat
 Economic reasonsEconomic reasons
 Investment climate (state aid, investor protection...)Investment climate (state aid, investor protection...)
 Tax lawTax law
 Company Law issues (classes of shares, managementCompany Law issues (classes of shares, management
responsibilities and duties, employee representation, boardresponsibilities and duties, employee representation, board
structure...)structure...)
 Soft law issues: life standard for CEO, links for certainSoft law issues: life standard for CEO, links for certain
activities (fashion in Milan, financial services in London)activities (fashion in Milan, financial services in London)

 National law determines:National law determines:
 What is a seatWhat is a seat – concept of company’s seat based on– concept of company’s seat based on
company lawcompany law
 Relevance of company’s seatRelevance of company’s seat
 PossibilityPossibility toto transfer company’s seattransfer company’s seat
 Conditions for transferConditions for transfer
 Consequences of transferConsequences of transfer
 Proper law of a company (applicable law) –Proper law of a company (applicable law) – lexlex
societatissocietatis based on Private International Lawbased on Private International Law rulesrules
 Transfer of seat – change of applicable lawTransfer of seat – change of applicable law

 Applicable law =Applicable law = lex societatislex societatis
 Nationality of a companyNationality of a company
 Recognition of a foreign companyRecognition of a foreign company

NationalityNationality
 Nationality of company is a connection between aNationality of company is a connection between a
company and a state which determines rights andcompany and a state which determines rights and
obligations for a company.obligations for a company.
 Nationality is a political connectionNationality is a political connection
 Lex societatisLex societatis is a connection tois a connection to aa legal system (ruleslegal system (rules
which applywhich apply to statutory issues of the companyto statutory issues of the company))
 Usually used for tax purposes, also for enjoyingUsually used for tax purposes, also for enjoying certaincertain
rights (reserved for domestic companies) – ex: cautiorights (reserved for domestic companies) – ex: cautio
judicatum solvi in procedural matters, application ofjudicatum solvi in procedural matters, application of
international contracts...international contracts...

NationalityNationality
 Every state determines unilaterally companiesEvery state determines unilaterally companies
with domestic nationalitywith domestic nationality
 Positive/negative conflict of lawsPositive/negative conflict of laws
 Sometimes nationality is used to determine lexSometimes nationality is used to determine lex
societatis (indirect application of criteria) – ex:societatis (indirect application of criteria) – ex:
Spain, Belgium, GreeceSpain, Belgium, Greece

Determination of nationalityDetermination of nationality
 Real seatReal seat
 Place of incorporationPlace of incorporation
 Centre of exploitationCentre of exploitation
 Place from where company is being controlledPlace from where company is being controlled

 Centre of exploitationCentre of exploitation
 Where main activities of company are being conductedWhere main activities of company are being conducted
 Suitable for mine, agricultural activitiesSuitable for mine, agricultural activities
 Unsuitable for companies who provide servicesUnsuitable for companies who provide services
 Technical issue, factual not legal issueTechnical issue, factual not legal issue
 Can be in several placesCan be in several places
 It can change afterIt can change after certain activity is completedcertain activity is completed
 Developed countries conduct businessDeveloped countries conduct business activitiesactivities in thirdin third
world countriesworld countries
 Usually additional criteria after real seat criteriaUsually additional criteria after real seat criteria

 Control theoryControl theory
 AAppliedpplied particularyparticulary in war timesin war times
 Nationality of a companyNationality of a company based on nationality of personsbased on nationality of persons
who control the companywho control the company
 ProblemsProblems concern:concern: definition of control (persons, capital,definition of control (persons, capital,
management)management)
 Sometimes impossible to determineSometimes impossible to determine
 Different for different company formsDifferent for different company forms
 UncertainUncertain
 Applied in France and England during WApplied in France and England during WW IIW II

EU nationalityEU nationality
 Nationality of the EU – nationals of MSNationality of the EU – nationals of MS
 Individuals are considered nationals of MS andIndividuals are considered nationals of MS and
of the EUof the EU
 Certain rights according to this nationality: directCertain rights according to this nationality: direct
active and passive right to vote for MEPs, right to beactive and passive right to vote for MEPs, right to be
employed in certain EU Institutions, rights to adressemployed in certain EU Institutions, rights to adress
EU OmbudsmanEU Ombudsman
 Companies are regulated in art. 54 and 49 TFU (exCompanies are regulated in art. 54 and 49 TFU (ex
art. 48 and 43)art. 48 and 43)

EU nationalityEU nationality
 Criteria to determine nationality of a companyCriteria to determine nationality of a company
for Community purpose – recognition offor Community purpose – recognition of
companies from MS (art. 54)companies from MS (art. 54)
 Art. 48: companies or firms formed inArt. 48: companies or firms formed in
accordance with the law of a MS and havingaccordance with the law of a MS and having
their registered office, central administration ortheir registered office, central administration or
principal place of business within theprincipal place of business within the
Community shall ... be treated in the same wayCommunity shall ... be treated in the same way
as natural persons who are nationals of MSas natural persons who are nationals of MS

Change of nationalityChange of nationality
 Change of real seat or incorporationChange of real seat or incorporation
 If company changes its nationality by changingIf company changes its nationality by changing
real seat or place of incoporation this changereal seat or place of incoporation this change
must be accepted by all interested states.must be accepted by all interested states.
 Usually was prohibitedUsually was prohibited

Company’s seatCompany’s seat
 Registered officeRegistered office
 Seat of incorporation (where company wasSeat of incorporation (where company was
founded/incorporated)founded/incorporated)
 Statutory seat (articles of association or statute define whereStatutory seat (articles of association or statute define where
the seat is located)the seat is located)
 Real seat – centre of management and control of aReal seat – centre of management and control of a
company, centre of its activitiescompany, centre of its activities
 = head office= head office
 Seat of exploitation – place where company’s activities haveSeat of exploitation – place where company’s activities have
been conductedbeen conducted
 domicile in UK = registered in the UKdomicile in UK = registered in the UK
 French term siege social = statutory or real seatFrench term siege social = statutory or real seat

Applicable lawApplicable law
 Lex societatisLex societatis is the law which regulates all statutory issues ofis the law which regulates all statutory issues of
a company:a company:
 foundation – setting up,foundation – setting up,
 validity,validity,
 Functioning/structure andFunctioning/structure and
 the end – winding upthe end – winding up
 Usually it is not applicable to tort responsibility, insolvencyUsually it is not applicable to tort responsibility, insolvency
proceedings and business activitiesproceedings and business activities
 Sometimes special rules apply –Sometimes special rules apply – lex fori, lex rei sitae, lex locilex fori, lex rei sitae, lex loci
delictidelicti or public interest provisions will apply (exception ofor public interest provisions will apply (exception of
general application of lex societatis on all statutory issues)general application of lex societatis on all statutory issues)

Criteria to determine applicable lawCriteria to determine applicable law
 Real seatReal seat
 France, Germany, Portugal (direct criteria) Belgium, Greece, SpainFrance, Germany, Portugal (direct criteria) Belgium, Greece, Spain
(indirect – nationality)(indirect – nationality)
 Franch law: real seat (not fictive), serious relationship with the country (notFranch law: real seat (not fictive), serious relationship with the country (not
intended for circumvention)intended for circumvention)
 Belgium, Luxembourg: place of principal establishmentBelgium, Luxembourg: place of principal establishment
 German law: statutory seat=real seat (place where everyday decisions areGerman law: statutory seat=real seat (place where everyday decisions are
being made)being made)
 Applicable law – law of the country where company has its real seatApplicable law – law of the country where company has its real seat
 Usually unilateral rule (only for domestic companies)Usually unilateral rule (only for domestic companies)
 For foreign companies foreign criteria usually is applied (closestFor foreign companies foreign criteria usually is applied (closest
conextion)conextion)
 Cumulation with foundation criteria (Spain – real and registered seat,Cumulation with foundation criteria (Spain – real and registered seat,
Germany – real seat and foundation)Germany – real seat and foundation)

Criteria to determine applicable lawCriteria to determine applicable law
 Incorporation – place where company isIncorporation – place where company is
foundedfounded/incorporated/incorporated
 Similar application in all countSimilar application in all countrries which apply this criteriaies which apply this criteria
(unlike real seat criteria – different concept of seat, as well as(unlike real seat criteria – different concept of seat, as well as
application of seat to determine applicable law)application of seat to determine applicable law)
 Legal certainty and protection of third partiesLegal certainty and protection of third parties
 UK, Ireland,UK, Ireland, NetherlandsNetherlands, Italy (modified with real seat – also, Italy (modified with real seat – also
application of Italian law), Denmark , Sweden, Finlandapplication of Italian law), Denmark , Sweden, Finland
(registration theory)(registration theory)
 Swiss law – incorporation, if not applicable place whereSwiss law – incorporation, if not applicable place where
company is factually organizedcompany is factually organized
 Hungary – incorporation, if not statutory seat, if not real seat.Hungary – incorporation, if not statutory seat, if not real seat.

Advantages and disadvantages of theAdvantages and disadvantages of the
application of incorporation/real seatapplication of incorporation/real seat
 Internal relationship within company betterInternal relationship within company better
protected under incorporation theory, externalprotected under incorporation theory, external
relations under real seat theoryrelations under real seat theory
 Incorporation theory – liberal economies, realIncorporation theory – liberal economies, real
seat –seat – economieseconomies controlled by Statecontrolled by State
 Change of real seat – easy and possible underChange of real seat – easy and possible under
incorporation theoryincorporation theory
 Circumvention of law and pseudo-foreignCircumvention of law and pseudo-foreign
companies impossible under real seat theorycompanies impossible under real seat theory

Transfer of the real seatTransfer of the real seat
 Irrelevant for incorporation theory countriesIrrelevant for incorporation theory countries
 For real seat countries every change of real seatFor real seat countries every change of real seat
results in the change of applicable lawresults in the change of applicable law
 TransferTransfer isis possiblepossible only when all interestedonly when all interested
countries (emigration/immigration) allow andcountries (emigration/immigration) allow and
accept all consequences of the operationaccept all consequences of the operation
 AllAll consequencesconsequences depend from the point of viewdepend from the point of view
of all interested States (from and to country)of all interested States (from and to country)

Transfer of a real seat – ConsequencesTransfer of a real seat – Consequences
relevant to countryrelevant to country fromfrom where seat has beenwhere seat has been
transferedtransfered
 Transfer is not allowed (Germany, AustriaTransfer is not allowed (Germany, Austria))
 Company is being dissolvedCompany is being dissolved (before(before CartesioCartesio))
 AArgumentrguments:s:
 company cannot live without legal systemcompany cannot live without legal system which established legalwhich established legal
personality (cannot survive its own legal system)personality (cannot survive its own legal system)
 it serves theit serves the protection of employeeprotection of employees and creditorss and creditors
 legal traditionlegal tradition
 After liquidation tax has to be paidAfter liquidation tax has to be paid (liquidation tax, reserves)(liquidation tax, reserves)
 New establishment in other StateNew establishment in other State
 Important consequences for members and third partiesImportant consequences for members and third parties
involved (creditors, employees...)involved (creditors, employees...)

 Transfer is allowed – tendency in modernTransfer is allowed – tendency in modern
Company Law and based on Community lawCompany Law and based on Community law
 Change of applicable lawChange of applicable law
 Tax payment (in France equivalent to liquidation tax)Tax payment (in France equivalent to liquidation tax)
 The most important limitation to the transfer of seat, alsoThe most important limitation to the transfer of seat, also
in incorporation countries (tax determined on thein incorporation countries (tax determined on the
domicile criteria – Daily Mail)domicile criteria – Daily Mail)

 Change of shareholders’/members’ rightsChange of shareholders’/members’ rights
 Conditions for general meeting (similar for statutory changes - of⅔Conditions for general meeting (similar for statutory changes - of⅔
all voting rights, rights of minority members – payment in cash)all voting rights, rights of minority members – payment in cash)
 Employee protection – especially where representation inEmployee protection – especially where representation in
company organs is adoptedcompany organs is adopted
 Creditors – debts not affected by the change of applicableCreditors – debts not affected by the change of applicable
law, although practical problems (foreign debtor)law, although practical problems (foreign debtor)
 Publication of the operationPublication of the operation
 SecuritiesSecurities
 Realisation of debts before fallen dueRealisation of debts before fallen due

 PortugalPortugal
 ¾ majority decision by capital, registration of the¾ majority decision by capital, registration of the
transfer and acceptance of the transfer intransfer and acceptance of the transfer in
immigration country.immigration country.
 Change implies change of applicable law with legalChange implies change of applicable law with legal
continuity in other countrycontinuity in other country
 MODEL RULEMODEL RULE

relevant to countryrelevant to country wherewhere seat has beenseat has been
 Transfer is not allowed (Germany, AustriaTransfer is not allowed (Germany, Austria
beforebefore CentrosCentros andand UberseeringUberseering))
 New establishmentNew establishment
 If there is no new establishment company is treatedIf there is no new establishment company is treated
as partnership not having legal personality, oras partnership not having legal personality, or
company with limited liability in foundation – nocompany with limited liability in foundation – no
continuitycontinuity with previous companywith previous company

 Transfer is allowed – accepted in majority of EU realTransfer is allowed – accepted in majority of EU real
seat countries (interest of immigration county notseat countries (interest of immigration county not
compromised)compromised)
 If all conditions of this country are met: formalities, companyIf all conditions of this country are met: formalities, company
statutes must be in accordance with imperative law rules ofstatutes must be in accordance with imperative law rules of
the new countrythe new country
 Change of applicable lawChange of applicable law
 Company must accept one of the existing forms ofCompany must accept one of the existing forms of
companies in that law and other imperative rulescompanies in that law and other imperative rules
 Tax payment – formally limits free transfer of seat (TaxTax payment – formally limits free transfer of seat (Tax
neutrality is precondition for free transfer)neutrality is precondition for free transfer)

 PortugalPortugal
 Free transfer with change of applicable law and legalFree transfer with change of applicable law and legal
continuity if company is registered, emigrationcontinuity if company is registered, emigration
country accepts this transfer and company’s statutescountry accepts this transfer and company’s statutes
are in accordance of its law. If not, members haveare in accordance of its law. If not, members have
unlimited liabilityunlimited liability
 MODEL RULEMODEL RULE

relevant to third countriesrelevant to third countries
 Accepted if in accordance with all the lawsAccepted if in accordance with all the laws
concernedconcerned
 ““solidarity of the real seat theories”solidarity of the real seat theories”

Transfer of the registered seatTransfer of the registered seat
 Results in the change of applicable lawResults in the change of applicable law
 In most incorporation theory countries notIn most incorporation theory countries not
allowed (UK, Netherlands)allowed (UK, Netherlands)
 Italian law allows change of statutory seat inItalian law allows change of statutory seat in
another county if all the laws concerned thatanother county if all the laws concerned that
allow – MODEL RULEallow – MODEL RULE
 Free change of registered seat from and toFree change of registered seat from and to
country and applicable law adopted in Swiss lawcountry and applicable law adopted in Swiss law

Conclusion on free tranfer ofConclusion on free tranfer of
company’s seatcompany’s seat
 Usually thought that real seat countries don’tUsually thought that real seat countries don’t
accept change of real seat and incorporationaccept change of real seat and incorporation
theory countries don’t allow change of registeredtheory countries don’t allow change of registered
office as a consequence of criteria applied.office as a consequence of criteria applied.
 Impossible due to company law rules or adoptedImpossible due to company law rules or adopted
decisions by national courts.decisions by national courts.

Community law and transfer of seatCommunity law and transfer of seat
 Right of establishment – art. 49 (ex art 43)Right of establishment – art. 49 (ex art 43)
 Restrictions on the freedom of establishment of nationals of a MSRestrictions on the freedom of establishment of nationals of a MS
in the territory of another MS shall be prohibited...in the territory of another MS shall be prohibited...
 Freedom of establishment shall include ... the right to set up andFreedom of establishment shall include ... the right to set up and
manage undertakings.manage undertakings.
 General prohibition of discrimination, based on nationality, basedGeneral prohibition of discrimination, based on nationality, based
on art. 18 (ex art. 12)on art. 18 (ex art. 12)
 Recognition based on art. 54:Recognition based on art. 54:
 If all conditions fromIf all conditions from art.art. 54 (ex. Art 48) are met, company must be54 (ex. Art 48) are met, company must be
recognized in another MS irrespectively of the theory adoptedrecognized in another MS irrespectively of the theory adopted
 Consequences based on Treaty reading and interpretation:Consequences based on Treaty reading and interpretation:
freedom of change of the real seatfreedom of change of the real seat toto another MSanother MS

Community law and transfer of seatCommunity law and transfer of seat
 Treaty of Rome – need for a Convention for mutualTreaty of Rome – need for a Convention for mutual
recognition of companies, transfer of seat and cross-borderrecognition of companies, transfer of seat and cross-border
mergers in order tomergers in order to facilitatefacilitate this operation (art. 293)this operation (art. 293)
 Unofficial proposal for a XIVth Company Law DirectiveUnofficial proposal for a XIVth Company Law Directive
on the change of registered office with a change ofon the change of registered office with a change of
applicable law – 1997applicable law – 1997
 Change of registered and real seat of SE in the Statute forChange of registered and real seat of SE in the Statute for
the European Company (2001)the European Company (2001)
 Impact assessment – no action scenario adopted 2007Impact assessment – no action scenario adopted 2007
 Cartesio Case – transferCartesio Case – transfer fromfrom the county not allowedthe county not allowed underunder
certain circumstancescertain circumstances..
 Further limits introduces by interpretation inFurther limits introduces by interpretation in ValeVale judgement –judgement –
cross-border conversioncross-border conversion
 New incentives in the Report of the Reflection groupNew incentives in the Report of the Reflection group
 Action Plan 2012 – targeted consultations to improve cross-Action Plan 2012 – targeted consultations to improve cross-
border transfer of registered officeborder transfer of registered office

Community law and transfer of seat –Community law and transfer of seat –
Current possibilitiesCurrent possibilities
 Transformation under the form of SE (if allTransformation under the form of SE (if all
conditions for SE are met)conditions for SE are met)
 Foundation of a subsidiary + cross-borderFoundation of a subsidiary + cross-border
mergermerger
 Adoption of the Statute of SPE with possibilityAdoption of the Statute of SPE with possibility
of transferring its registered officeof transferring its registered office

Reading materialsReading materials
 Obligatory readingObligatory reading
 Dorresteijn/Monteiro/Teichmann/WerlauffDorresteijn/Monteiro/Teichmann/Werlauff
“European Corporate Law”“European Corporate Law”
 Further reading:Further reading:
 http://ec.europa.eu/internal_market/company/seat-http://ec.europa.eu/internal_market/company/seat-
transfer/index_en.htmtransfer/index_en.htm
 Impact assessment on the Directive on the cross-borderImpact assessment on the Directive on the cross-border
transfer of registered office, European Commission, 2007transfer of registered office, European Commission, 2007..

Further readingFurther reading
 Andenas, M. »Editorial: Cross border establishment in the EU«, Company Lawyer, 27(2), 2006Andenas, M. »Editorial: Cross border establishment in the EU«, Company Lawyer, 27(2), 2006
 Bartman, S. „Editorial: Real Seat in Retreat“,Bartman, S. „Editorial: Real Seat in Retreat“, European Company LawEuropean Company Law, Volume 5, Issue 4, August 2008, Volume 5, Issue 4, August 2008
 Bisacre, J. »The migration of Companies Within the EU and the Proposed 14th Company Law Directive«,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, 2001International and Comparative Corporatae Law Journal, vol. 3, issue 2, 2001
 Bratton, W., Mc Cahery, J., Vermeulen, E. »How Does Corporate Mobility Affect Lawmaking?«, AmericalBratton, W., Mc Cahery, J., Vermeulen, E. »How Does Corporate Mobility Affect Lawmaking?«, Americal
Journal of Comparative Law, vol. 57, 2009Journal of Comparative Law, vol. 57, 2009
 Prentice « The Incorporation Theory – the UK”, European Business Law Review 6/03Prentice « 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 deRajak, 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«,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.European Business Law Review, January/February 2000.
 Werlauff, E. »The Main seat criterion in a new disguise – An acceptable version of the classic main seatWerlauff, E. »The Main seat criterion in a new disguise – An acceptable version of the classic main seat
criterion?«, European Business Law Review, January/February 2001criterion?«, European Business Law Review, January/February 2001
 Wymeersch »The transfer of the company's seat in EU Company Law«, Common Market Law Review 3/03Wymeersch »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, 2007Wymeersch, E. »Is a Directive on Corporate Mobility Needed?«, EBOLR, 8, 2007
 Thomas Biermeyer,Thomas Biermeyer, „„Shaping the space of cross-border conversions in the EU. Between right and autonomy:Shaping the space of cross-border conversions in the EU. Between right and autonomy:
Vale”,Vale”, Common Market Law ReviewCommon Market Law Review, vol. 50, 2013., vol. 50, 2013.
 Justin Borg-Barthet,Justin Borg-Barthet, „„Free at last? Choice of corporate law in the EU following the judgment in Vale”,Free at last? Choice of corporate law in the EU following the judgment in Vale”,
International and Comparative Law QuarterlyInternational and Comparative Law Quarterly, vol. 62, nr. 2, 2013., vol. 62, nr. 2, 2013.
 Oliver Mörsdorf, „The legal mobility of companies within the European Union through cross-borderOliver Mörsdorf, „The legal mobility of companies within the European Union through cross-border
conversion“,conversion“, Common Market Law Reivew,Common Market Law Reivew, vol. 49, nr. 2, 2012.vol. 49, nr. 2, 2012.

Further readingFurther reading
 Marek Szydlo,Marek Szydlo, „The Right of Companies to Cross-Border Conversion under the TFEU Rules on Freedom of„The Right of Companies to Cross-Border Conversion under the TFEU Rules on Freedom of
Establishment“,Establishment“, European Company and Financial Law ReviewEuropean Company and Financial Law Review 3/20103/2010..
 Gert-Jan Vossestein,Gert-Jan Vossestein, „„Cross-BorderTransfer of Seat and Conversion of Companies under the EC TreatyCross-BorderTransfer of Seat and Conversion of Companies under the EC Treaty
Provisions on Freedom of Establishment: Some Considerations on the Court of Justice’sProvisions on Freedom of Establishment: Some Considerations on the Court of Justice’s CartesioCartesio Judgment”,Judgment”,
European Company Law,European Company Law, vol. 6, nr. 3, 2009.vol. 6, nr. 3, 2009.

Cross-border transfer of a company’s seat

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