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 arguably the most important single
judgment of the
European Court of Justice
("the ECJ") in years 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]
was 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
virtually no capital requirements, the cheapness and ease
of incorporation (no involvement of lawyers is required,
except on declaring the Form 12 declaration of compliance
on application for registration), no requirements for
employee participation etc.. By contrast, most Continental
companies require minimum actual initial paid-up capital
(in the case of Germany, min. 25,000 €), 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, an English-registered
company has a right of establishment anywhere in the EU,
and must not be prevented from exercising that right by the
imposition of restrictions as a so-called "pseudo-foreign"
company.
The
Inspire Art
judgment has now established that the "incorporation
principle" overrides, and the sole trader must now 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
is that many small- and medium-size Continental businesses
have started an "escape to England". The incorporation and
administration of foreign-owned and -operated companies may
fairly be described as a growth industry here, and various
Continental lawyers and others have, themselves, become
active in this new market, even becoming registered
at
Companies House
as on-line incorporators of companies, and dealing with the
on-line filing of documents relating to established
companies. As the tax implications of foreign-registered
companies also need to be carefully considered, there has
also been an increased demand for tax advice relating to
such companies.
The full implications of
Inspire Art
have yet to be felt and understood - for a discussion (in
English) from a German perspective, click
HERE
Continental Notaries are understandably very concerned
about how these developments will affect them, and various
EU countries are indeed responding 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.
Gregory
Taylor [Notary Public, Greater London]
E-mail :
CLICK HERE