Nationality of Corporations
Under Domestic Law: A
Comparative Perspective
Dr Matthias Pannier
Research Fellow in European Law
The Fourth Public Conference of the British Institute of International
and Comparative Law’s Investment Treaty Forum
Introduction
1)
Rival approaches in Private International Company
Law.
2)
Comparative overview (incorporation countries and
real seat countries).
3)
EU approach, influence of the freedom of
establishment and the free movement of capital.
4)
Impact of BITs on conflict of law rules.
5)
Treaty shopping and regulatory competition.
Rival approaches
Lex societatis:
The law regulating the internal
affairs of a company.
Connecting factors:
• Control.
• Incorporation.
• Real seat.
• Market place, listing.
Control Theory
Refers to the nationality of the persons
controlling the company.
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No clear distinction between legal status of
shareholders and of companies.
Widespread ownership of companies, change
of control.
Groups of companies: Braches and
subsidiaries.
Incorporation Theory (1)
•
Applies the law of the place where a company
has been incorporated.
Advantages:
• Certainty, unambiguous determination of lex
societatis.
• Private autonomy and mobility, company does
not lose its legal status just by expanding
business, transfer of company's seat across
border is possible.
Incorporation Theory (2)
Disadvantages:
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Pseudo-foreign corporations.
Founders can choose a law which gives less
protection to shareholders or creditors than the
law of the country where they actually do most
of their business (race to the bottom?).
Circumvention of national law.
Real Seat Theory (1)
•
Uses the seat as the connecting factor
determining the law applicable to the
company’s affairs.
Advantages:
• Anti – evasion.
• Protection of the home domestic market; law of
the state which is mostly affected by the
company.
• Prevents pseudo foreign companies.
Real Seat Theory (2)
Disadvantages:
• Determination of real seat difficult.
• Different terms and concepts in different
countries
“Real Seat” “Siege Reel” “Head Office”
“Central Management and Control” and the
common law “Residence”
• Anti-competitive – major inhibition on founding
and trading companies at will.
Market place – Listing
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City Code: offers for public companies resident
in the UK, the Channel Islands and the Isle of
Man (whether or not their shares are listed).
France: offers for public companies (French or
foreign) listed on a French stock exchange.
Germany: offers for public companies which
have their seat in Germany which are listed on
an EU/EEA stock exchange.
Austria: offers for public companies which
have their seat in Austria and are listed on an
Austrian stock exchange.
Comparative Overview (1)
Incorporation Countries
e.g. USA, Canada, UK, Ireland, many other
common law states, The Netherlands, Austria
since 2000, Denmark, Sweden, Finland,
Switzerland since 1987, Liechtenstein,
Hungary, Romania, China.
Comparative Overview
(2) England
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Henriques v Dutch West India Co (1728).
Existence, dissolution and capacity for rights
and obligations of a foreign company
incorporated under foreign law will be
recognized in England.
UK applies significant parts of its laws to all
foreign companies on basis of presence
(overseas companies).
Some independently on basis of public policy fraudulent trading, security interests
disclosure.
Comparative Overview
(3) The Netherlands
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Adopts Incorporation doctrine after Hague
Recognition Convention in 1959.
WetConflichtenrechtCorporaties (WCC) 1998
Art1(2).
Law on Pro Forma Companies 1998 ie
“tramps”.
Comparative Overview (4)
Traditionally Real Seat Countries
e.g.France, Germany, Belgium, Luxembourg,
Portugal, Spain, Poland, Greece, Turkey.
Comparative Overview (5)
France
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Traditionally: Law applicable to company is
that of real seat (siège social) “La direction
superieure et controle de la soc”. Art L210-3
Code de Commerce, Art 1837 Code Civil.
But law is ambiguous. Companies with “siège
social” in France are subject to French law; 3rd
persons may rely on “siège statutaire” (reg
seat) but companies may not invoke it against
3rd parties if real seat is not reg seat.
Only applies French law never applies foreign
law.
Comparative Overview
(6) Italy
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Private International law Code 1995, Article 25.
Italian law applies where the seat of
management and location of principle object is
in Italy. But otherwise asserts that companies
are governed by the law of the state where
their incorporation was completed.
But no reciprocity – a foreign company moving
in to Italy is not given the benefit of its
incorporation - must be reformed as an Italian
company. But an Italian company moving out
stays Italian.
Comparative Overview
(7) Germany
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Courts rigorously applied Real Seat Theory
(Sitztheorie).
Real seat = centre of management is the place
where the fundamental decisions of the board
are taken effectively carried out.
Reciprocal in sense that applies to foreign cos
seated in Germany and German cos seated
abroad.
German law uses a renvoi back.
Change after Überseering.
EU approach
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Recognition Convention 1968 based on Art
293 EC never entered into force.
Freedom of establishment Arts 43, 48 EC.
Case C-208/00 Überseering BV v Nordic Construction
Company Baumanagement GmbH (NCC) [2002] ECR
I-9919;
Inspire Art Case C-167/01 Kamer van de Koophandel
en Fabrieken voor Amsterdam v Inspire Art Ltd [2003]
ECR I-10155.
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Supranational company: Societas Europaea.
Art 7 SE-Statute: Registered office shall be located in
the same Member State as its head office.
Impact of BITs on conflict of law
rules
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Can BITs overrule national conflict of law
rules?
Do real seat countries even have to recognize
companies formed in accordance with the
rules of an incorporation country but having
their real seat in the real seat state (host
state)?
German Supreme Court (VIII ZR 155/02, BB
2003, 810, 812) on the American-German
Commerce Treaty of 1954; based on ECJ
Case C-208/00 Überseering.
Treaty shopping and
Regulatory Competition in
company law (1)
Economic theories
• State failure and market failure (Tiebout).
Legislators shall be disciplined by market
forces.
• Evolutionary market process and competition
(Hayek)
Instrument for creation and distribution of new
knowledge.
Treaty shopping and
Regulatory Competition in
company law (2)
US-American precedence:
• "race to the bottom“.
• "race to the top“.
• “vertical competition”.
European discussion:
• Opposition.
• Impossibility.
• Support from Centros, Überseering, Inspire
Art.
Final Remarks
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Objectives of Investment Treaties must be
reflected in nationality definitions of BITs.
Control: change of control, difficult to define
control in such cases.
Real Seat: Companies are restricted in their
mobility.
Incorporation: problems in the cases where
investors of the host state abuse this rule
(exception).
Flexibility rule based on mutual recognition.