EU


E.C.J. JUDGMENT OF 30 SEP. 2003 :

AN
INSPIRED ESCAPE TO ENGLAND ?


AN ARTICLE BY GREGORY TAYLOR


Inspire Art (Case C-167/01) is one of the most important judgments of the European Court of Justice ("the ECJ") relating to company law, with direct implications not only for those involved in running companies, but also for those involved in the formation and registration of companies (on the Continent, a traditional preserve of Notaries).

[For the full text of the
Inspire Art judgment, click HERE ] 


Inspire Art Limited [which, following the registration of its change of name in Oct. 2005, is now called Zonnedaal Nederland Limited] is an English-registered company, Co. Reg. No. 4042637, incorporated in 2000, with its registered office in England, and whose trading activity, administration and ownership were, and always had been, all based in The Netherlands.


It may be assumed that an English company was chosen as the business vehicle because of the speed and ease with which companies can be formed here, with no capital requirements, the cheapness and ease of incorporation (no involvement of lawyers is required), no requirements for employee participation etc.. By contrast, most Continental companies require minimum actual initial paid-up capital, employee participation under certain circumstances, and - what is relevant for Notaries - Notarial involvement in their formation and registration.



Most Continental jurisdictions had applied the rule that the structure and constitution of a (foreign) company is determined by where, in reality, the company trades and its administration is based (the so-called "seat principle"), rather than where it was incorporated (the so-called "incorporation principle"). So if a German trader in Germany had set up an English-registered company trading solely in Germany, German law required compliance with the formalities of German company law under the "seat principle" – an English-registered company not being in a form recognised by German law, the trader would not have the benefit of limited liability, and would otherwise be treated as a unincorporated trader under, and subject to, German law. 


The ECJ held that, as a legal person, a company incorporated in one EU Member State has a right of establishment in all other EU Member States, and that it must not be prevented from exercising that right by the imposition of restrictions as a so-called "pseudo-foreign" company. 


The Inspire Art judgment established that the "incorporation principle" overrides, and in the above example, the sole trader must be allowed to have his English-registered company recognised as a "true" foreign company in Germany, with all the benefits of limited liability, nominal share capital etc. ; as with all companies, foreign or otherwise, its existence and place of business must nevertheless be registered at the local Commercial Registry. 


The immediate result of Inspire Art was that various small- and medium-size Continental businesses started an "escape to England", but the full implications of Inspire Art have yet to be fully felt and understood - for a discussion (in English) from a German perspective, click HERE
Other EU countries have responded to the challenge by creating their own 1-€ company structures. What is clear, however, is that the ECJ is actively and increasingly deciding in favour of the freedoms of movement and establishment of legal and natural persons throughout the EU, and this will significantly contribute to the fall of legal and de facto obstacles to business and trade within the European single market.