Governmental and Legal Environment

Implications of the jurisdiction of the European Court of Justice (ECJ) on German Corporate Law, especially regarding the ECJ-case Daily Mail, Centros, Überseering, and Inspire Art


Research Paper (undergraduate), 2007

15 Pages, Grade: 1,1


Excerpt


CONTENTS

I. Question 1
A. Task
B. Introduction
C. Initial Situation: Seat theory vs incorporation theory
D. Cases
Daily Mail
Centros
Überseering
Inspire Art
E. Implications of ECJ on German Corporate law
Germany as „move-in“ country
F. Is there still room for an application of the so called seat theory in Germany?
Germany as „move out state“
Future perspectives of the seat theory

II. Question 2
A. Task
B. Introduction
C. Effects of ECJ on the use of foreign legal forms 7
Effects on law and incorporation
Effects on company codetermination
Effects on the aspects of tax law
Effect on the Capital market
Effects on the minority rights
Conclusion
D. How did the German legislator try to react by reforming the GmbH

III. Question 3
A. Task
B. Advantages and disadvantages of the competition legal forms within EU
C. Conclusion

IV. Appendix
A. Bibliographies
Books
Journal Articles / Newspaper Publications

I. Question 1

A. Task

What are the implications of the jurisdiction of the European Court of Justice (ECJ) on German Corporate Law, especially regarding the ECJ-case Daily Mail, Centros, Überseering, and Inspire Art? Please explain in detail whether there is still room for an application of the so-called seat theory (Sitztheorie) under the German law.

B. Introduction

With four decisions Daily Mail, Centros[1], Überseering[2] and Inspire Art[3], the ECJ has changed the national corporate law, and has shown that European law is regulated from Luxemburg. With his decisions, the ECJ had intervened in national law and tried to establish a European corporate law. In order to understand, the implications of the ECJ jurisdiction on the German Corporate Law, and especially the so-called German seat, one has to understand the basics of European legislation and jurisdiction in corporate law.

C. Initial Situation: Seat theory vs incorporation theory

In German corporate law is based on the seat-theory. But more and more foreign corporations can be found in the domestic legal system. These are corporations, which were founded abroad. So their registered seat is abroad, but their administrative seat is however frequently in the inland[4]. Reasons for that constellation are often the evasion of founding regulations, in particular the evasion of minimum capital regulations. The national private law of a country, particularly its corporate law, has to answer the question, which corporate law has to be applied on the foreign corporation.

This question is answered differently by the member states of the EU, whereby a distinction between incorporation and seat theory is made[5].

Countries, which act upon the incorporation theory, accept foreign corporations and apply on those corporations the corporate law of the respective foundation state. If the EC state however follows the seat theory, the applicable regulations are according to the administration seat of a company.

In Germany the seat theory has been used so far. In the case that a foreign corporation had located its administrative seat in Germany, the applicable law was the German law. Due to the fact, foreign incorporated companies did not meet the required criteria of Germany, which resulted in the formation of a company, like f.e. the registering in the German Commercial Code and so the foundation was denied.

The consequence was the denial of the “Rechts-und Parteifähigkeit” of the corporations. But the decision of the ECJ has changed the situation.

D. Cases

In the cases, regarding the freedom of establishment within Europe, four judgements are relevant. In these cases the question, which national corporation law can or has to be applied is answered. Thereby a distinction between states which follow the incorporation theory and states which follow the seat theory has to be made. Moreover a distinction of between cases of corporations that origin from EC countries and want to move their administration seat into a foreign EC country and corporations which want to move out of a country which believes in the seat theory has to be made. Before 1999, EC Member States were divided on the issue of the relevant connecting factor in company law matters. The United Kingdom, the Netherlands and the Nordic states followed the so-called incorporation theory, according to which the applicable law is determined by the place of incorporation. In practice, this approach enables founders to choose the company law system which they think is best tailored to their needs. It also allows the real seat of a company to be moved to another jurisdiction without triggering a change of the applicable law. Contrastingly, Germany, Austria, France, Belgium, Luxemburg, Portugal and Greece adhered to the so-called real seat theory. Under this approach, the applicable law is defined by the place of the company's central administration. This means that founders have no choice but to establish the company according to the law of the state in which they want to place its central administration.

Daily Mail

In the case Daily Mail, a British corporation, wanted to keep its constitutional seat in the UK, who follows the incorporation theory, but wanted to move its administration seat into the Netherlands. Therefore the UK ministry of finance had to approve it, but it was denied. The ECJ decided, according to article 43 and article 48 EG, that a corporation is not allowed to keep its constitutional seat whereas the management of the company will be moved into a foreign country. Because of the reason of arising problems, concerning the different national corporation laws, which are not solved by the regulation for freedom of establishment.

Centros

Centros was a case with a corporation founded in the UK, which wanted to move its administration seat towards Denmark. This was denied due to the fact that the justice missed business operations in the UK. In its Centros judgment, the ECJ decided that a commercial registrar in Denmark could not refuse the registration of a Danish branch of a limited company, incorporated under English law, although the company had its real seat in Denmark. The ECJ held that Centros ltd. made legitimate use of its freedom of establishment when founding a Danish branch[6]. A restriction and narrowing of the freedom of establishment was not justified, also not for stringency purposes of public interest.

Überseering

Unlike to the previous cases Überseering dealt with the recognition of a corporation founded under the law of a different member state of the EC. Überseering BV was a company founded under Dutch law. On account of a transfer of all its shares to two Germans, its real seat had been transferred to Germany. There, Überseering tried to bring an action for payment of a contractual claim. Interestingly, because of the circumstances of the case, German courts were the only possible forum for that claim. The BGH denied Überseering's legal capacity to bring a claim in a German court by denying the “Rechts and Parteifähigkeit” of that company. The ECJ Court decided that due to Art. 43, 48 German laws must recognize a foreign company as it was founded provided that it was lawfully incorporated according to the laws of another EU Member State. According to the ECJ, the freedom of establishment demands, that a member state of the EC, also if following the seat theory, has to accept a corporation founded under the law of another EC member state. But the ECJ avoided deciding on a principal judgment for the EC members: seat theory vs incorporation theory.

Inspire Art

Inspire Art concerned English limited company whose sole activities were carried out in the Netherlands. Dutch law followed the incorporation theory, but with certain limits. But corporations doing business in the Netherlands must comply with certain compulsory rules, e.g. rules on minimum capital[7]. If they do not comply, the directors are personally liable for the company's debts. The ECJ held that the application of these rules to companies incorporated under the laws of another EC-Member State violated the freedom of establishment[8]. Again, the Court saw no abuse in the fact that incorporation under English law rather than under Dutch law had been sought solely in order to circumvent the latter's stricter rules on minimum capital.

E. Implications of ECJ on German Corporate law

The results of the ECJ cases are, that Germany has to accept corporations from EC member states with their respective corporate laws system. The only acceptation of that rule can be made on the base of the “Gebhard-Formula[9]

For a foreign legal form, two premises have to be fulfilled, to receive the legal capacity in Germany.

1. The corporation must achieve the legal incorporation in the EC state in which it moves in.
2. The move out of a EC member state of a corporation must be admitted by the state.

In Germany which follows the seat theory one has to distinguish between "move in" and "move out" cases of corporations. Thereby the ECJ jurisdiction had different implications.

Germany as „move-in“ country

The Überseering judgment detected, that the application of the seat theory violated the freedom of establishment, because corporations must be accepted with the legal body and law of the country they were founded in. The Inspire Art decisions approved this and by doing so the national law system in the different countries were limited by their capacity to act.

So the seat theory can not be applied on move-in cases any more. Furthermore the respective EC state, in which a corporation wants to move, is according to article 43 and 48 EG not allowed, to impose any restriction on the move in corporation, except of the Gebard-formular[10]. With his decision the ECJ has overruled German corporate law and Germany must accept movements of foreign corporation bodies.

[...]


[1] EuGHE I 1999, 1459 = NJW 1999, 2027 (Centros)

[2] EuGHE I 2002, 9919 = NJW 2002, 3614 (Überssering)

[3] EuGH, NRW 2003, 3313 = WM 2003, 2042 = ZIP 2003, 1885 (Inspire Art)

[4] Weller, DStR 2003, 1800, 1800

[5] Staudinger/Großfeld, IntGesR, Rn. 20

[6] ECJ judgment 10.07.1986 Rs. C79/85 – Segers, Slg. 1986, I 2375

[7] Kieninger, Eva-Maria, German Law Journal No. 4

[8] Weller, DStR 2003, 1800, 1801

[9] Gebhard-formula, also known as four criteria test destinguish as acception of the ECJ jurisdiction: applied in a non-discriminatorymanner; are justified by imperative requirements of the public interest; secure the attainment of their objective; and are not disproportionate in their effect.

[10] Prinz/Freeden, der Konzern 2004,, 318, 319, Zimmer NJW 2003, 3585, 3591

Excerpt out of 15 pages

Details

Title
Governmental and Legal Environment
Subtitle
Implications of the jurisdiction of the European Court of Justice (ECJ) on German Corporate Law, especially regarding the ECJ-case Daily Mail, Centros, Überseering, and Inspire Art
College
Heilbronn Business School  (HBS)
Grade
1,1
Author
Year
2007
Pages
15
Catalog Number
V88091
ISBN (eBook)
9783638023634
ISBN (Book)
9783638925334
File size
405 KB
Language
English
Notes
Implications of the jurisdiction of the European Court of Justice (ECJ) on German Corporate Law, especially regarding the ECJ-case Daily Mail, Centros, Überseering, and Inspire Art Effect of ECJ jurisdiction on the use of foreign legal forms in Germany, especially the use of a British Limited. Reacting of German legislator.
Keywords
Governmental, Legal, Environment
Quote paper
Stephan Weber (Author), 2007, Governmental and Legal Environment, Munich, GRIN Verlag, https://www.grin.com/document/88091

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