Right of

establishment
Doc dr Tatjana Jevremovi
Petrovi

Introduction

Free movement of goods, capital,

services and persons
Cross-border or inter-State element
All national elements exclusive
competence of national law

Right of establishment

Art. 43 (now art. 49) ...restrictions on the

freedom of establishment of a national of a MS in
the territory of another MS shall be prohibited.
Such prohibition shall also apply to restrictions
on the setting-up of agencies, branches or
subsidiaries by nationals of any MS established
in the territory of any MS. Freedom of
establishment shall include the right ... to set up
and manage undertakings, in particular
companies or firms ... under the conditions laid
down for its own nationals by the law of the
country where such establishment is effected ...

Content of the right of

establishment

Economicaly described by ECJ:

...concept of establishment involves the
actual pursuit of an economic activity
through a fixed establishment in another
MS for an indefinite period
For companies right of establishment
means non discrimination in another
country (treatment in the same way as
domestic company), right for the
company to do business in another
country.

Content and scope of the

the right of establishment

Discriminate-based reading of the Treaty

provisions (non discrimination)

Restriction-based reading of the Treaty

Non discrimination of the foreign company in

other MS compared to domestic companies
restrictions for domestic companies in
connection to another MS usually connected
to situation of home country when company
wants to leave

Direct effect of the right of establishment?

Right of establishment

Four factors test (Gebhard Case) restrictions to

the right of establishment:

National measures liable to hinder or make less

attractive the exercise of fundamental freedoms
guaranteed by the Treaty must fulfill four conditions:

Must be applied in a non-discriminatory manner

Must be justified by imperative requirements in the general
interest
Must be suitable for securing the attainment of the objective
which they pursue
Must not go beyond what is necessary in order to attain it.

Right to apply national provisions when

discriminatory measures are allowed, on the
grounds of public policy, public security or public
health (special provisions for foreign companies)

Right of establishment

Right of primary establishment

right to set up and manage undertakings

Change of primary establishment

Cross-border transfer of companys real seat (not

registered seat)
Cross-border merger from the point of view of acquired
company, different forms of concentration

Problem of direct effect of this right (exist only

from the host State point of view)

Right of secondary establishment

Setting up branches, subsidiaries or agencies in

another MS
Cross-border merger from the point of view of the
acquiring company
Practical irrelevance of place of secondary
establishment after Centros

Primary/secondary
establishment

After Centros based on legal (not

factual) character of relationship
between place of primary secondary establishment:
holding/governing company
controlled company in external
relations
Place of primary/secondary
establishment right of
primary/secondary establishment

Segers Case C-79/85

Mr. Segers, national of Netherlands took

over UK company, registered in the UK.
Later founded subsidiary in Netherlands and
there performed all activities of the primary
establishment
Primary concern: the fact that company
didnt perform any of its activities in the
place of the registered seat, and performed
all activities trough a branch in Netherlands.
Questions for the ECJ

Daily Mail Case 81/87

UK company Daily Mail, registered

in this country, wanted to change its
residence (real seat) to the
Netherlands for tax purpose. This
right was denied, or tax had to be
payed. Residence in the UK relevant
for tax payments.
Relevant First question to the ECJ

Centros Case C-212/97

Danish couple founded a company in the

UK, with a registed office in the UK.
Share capital was 100 GBP (unpaid)
Danish couple were residents of Denmark
and wanted to register a branch in
Denmark in order to perform all its
buisiness through this branch.
Registration was refused on the grounds
that it is factualy primary establishment
therefore minimum capital has to be paid.

Uberseering Case C208/00

Company formed in Netherlands, afterward

acquired by two German nationals, residing
in Germany.
Uberseering wanted to sue other company
for not fulfilling some contractual
obligations, but was denied on the ground
that it doesnt have a legal capacity, because
it moved its real seat to Germany, and under
German law it cannot be considered as being
a legal person, if not reincorporated again.

Insipire Art Case C167/01

Company formed under UK law, having

sole director with a domicile in the
Hague, and also a branch in the
Netherlands.
Netherlands Law on the Formally
Foreign companies with provisions
introducing responsibility of directors,
specification in the register that a
company is formally foreign, and certain
minimum capital requirements.

Sevic Case C-411/03

Established in Germany, wanted to

acquire a company from Luxembourg
as a way of cross-border merger.
Operation was denied by preventing
registration on the grounds as not
beeing possible under German law,
which regulates only domestic
mergers.

Cartesio Case C-210/06

Hungarian company, formed under

Hungarian law with its real seat
there, and having Hungarian
nationals for its owners and
managers wanted to move its real
seat out of Hungary, to Italy, but still
to be regulated by Hungarian law.
Transfer was denied.

Vale Case C-378/10

Cross-border transfer of a companys seat

governed by Italian law to Hungary
Removed from Italian register 13 Feb
2006
Change in the applicable law and its
reincorporation as a company governed by
Hungarian law which claims to be the
universal successor to the Italian company
Application for Hungarian registration
19 Jan 2007
Ruling on the extent of a host Member

Problems

Direct effect of the right of establishment

Inbound/outbound establishment
Future application of real seat doctrine
Company law issues (creditor protection, employee
participation)
Competition and efficiency vs. Protection of interest of certain
persons (ECJ in fact gives primacy to efficiency)
Regulatory competition or Delaware effect

Circumvention of laws (fraus legis) pro forma foreign

companies

Race to the top/race to the bottom

Competition vs. Harmonization
Regulatory competition after Centros case

What instruments are possible to prevent circumvention of laws?

Application of the provisions of one legal system unconsistent

(different lex societatis lex concursus)

Reading materials

Obligatory reading

Dorresteijn/Monteiro/Teichmann/Werlauff European Corporate Law

Further reading

Catherine Barnard The Substantive Law of the EU: The Four Freedoms, OUP, 2010.
F. Burrows, Free movement in European Community Law , Clarendon Press, Oxford,
1987.
Anne Looijestijn-Clearie , Centros Ltd A complete U-turn in the right of
establishment for companies", International and Comparative Law Quarterly , vol. 49,
July 2000.
Luca Cerioni, The Barriers to the International Mobility of Companies within the
European Community: A Re-reading of the Case Law", The Journal of Business Law ,
January 1999.
Veronika Korom, Peter Metzinger, Freedom of Establishment for Companies: the
European Court of Justice confirms and refines its Daily Mail Decision in the Cartesio
Case C-210/06, European Company and Financial Law Review , nr. 1, 2009.
Manuel Garcia-Riestra, The Transfer of Seat of the European Company v Free
Establishment Case-Law, European Business Law Review , nr. 6, 2004.
Werner Ebke, The European Conflict-of-Corporate-Laws Revolution: berseering,
Inspire Art and Beyond, European Business Law Review , nr. 1, 2005.
Justin Borg-Barthet, European private international law of companies after
Cartesio, International and Comparative Law Quarterly , vol. 58, nr. 4, 2009.
Robert Drury, The Delaware Syndrome: European Fears and Reactions, Journal of
Business Law, November, 2005.