COMPANY LAW (1st class)

When dealing with European Company Law, we taking into account, we finding ourselves within a
State which is a Member of the European Union, so when you deal with Companies, you have 2 level
to find:

National Law level: all member state has their company law system

European Law Level

The national level is partly determined by the European Law, and so whenever you want to conduct
a reform of this national system you are dealing with , you need to look at the European Material
that exist in order to see whether your freedom as a national legislature is constraint or not.

Company law is not entirely regulated by European law, therefore there is field of company law that
remain untouched by European law.

e.g Luxembourg is trying to keep its Company Law

You have to deal with this national level and the European Level

- Since we live in a competitive World, we make a general comparison between the context
the European Company Law as here in Luxembourg as compared to the reality in the United
States.
- Why the United States, as it always perceive as big competitor.

What the term European Company Law would tell in terms of DOCUMENTS (hard law to be
considered)

Basic concepts of the main Companies:

- The factor of Harmonisation exist because Company by its natural nature and can be
involved in Natural commerce, the basic form of companies, developed many years ago.

LEVEL OF NATIONAL LAW:

We always have statutes regulating basic form of Companies:

A Company is mainly a Contract whereby the Person involved (The contractual Parties)
called the shareholders or the associate or the Members undertake to put something
together in common and the something that is put in common is called Contribution and the
contribution , it will derived some profit that will be shared among the Shareholders.
So the aim is to make profit, the contribution is going to bring you a profit at the end of the
Year.
So when you are a shareholder in a Company, you always taking a risk, that your shares at
the end of the year will either bring you a profit or a loss. The positive risk is that you will get
a profit (dividend at the end of the year in exchange of the contribution you made within the
company.
There is always a risk, lets say a LIMITED LIABILITY COMPANY, the negative risk will be at its
maximum, so its risk of losing your contribution. So for e.g you bought shares for $100 in a
company, so definitely the value of the shares will be affected by the good or bad
management of the company. If the company is losing money, mean value of shares will be
going down, so the shares you bought $100 will be worth $60, while you lost $40. Now if you
in a Limited Liability Company, all you can lose is the $100 that you have invested and not
more than that and that is the principle of Limited Liability, that is, your liability for the
obligations of the company is limited to the contribution you made at the beginning.

The difference with an unlimited liability company, is if you find yourself in an Unlimited, if
the company is doing so bad and you lose more than your contribution, the creditors of the
company, after seizing all that have to be seized, will go after you to pay the difference, so
your liability is unlimited.

So, you have this basic difference to be made between Companies on one hand, former
companies when you aim at distributing profit among shareholders.

-Need make difference between Profit and NON profit orientated. A good example in EU
Law is the Cooperative Society or Company is a bit like Public Limited Liability Company.
The Cooperative Society is a companywhich is going to make a profit, but the profit is not so
much, to be distributed among the shareholders but to allow the members to make
savings.
For e.g people living in the same street will join their forces together and form a
cooperative society and buy a fuel daily for their heating system together.

WHY THEY JOIN TOGETHER IN A COOPERATIVE SOCIETY:

Because if they join together as a common entity, they will be able to get a better price
reductions, because they buying more together than what they would have buy as an
individual.

So cooperative society is a bit fashionable today , that’s why we have so much of bank
organising themselves in terms of cooperative society and many based their publicity on the
fact that they are competitive and they not making shareholder rich but to make them save
money. That’s an example one has to mention, the fact that you would not be a non
profitable organisation doesn’t mean at all, you would not be economically speaking. Eg
Hospitals in Europe (promote public health) but their economic input is high, eg providing
job, University in the states, and that’s why the European Union is to some extent also
interested in Non profit organisation even though at the beginning the original Treaty , the
definition was quite narrow still to some extent.
Normally the European Community is only interested with Companies because in 1957, they
think that will only bring economic activity. That’s why we have some European Law dealing
with Cooperative society which is something we will see.
TO NOTE: Eventually there is some work which is done at the moment at the level of
European Union to develop some REGULATIONS concerning the European foundation, which
not there yet…

We focussing on Companies, not non profit organisation even though some institutions can
be considered by European Law.
Companies are mainly a Contract whereby the Person involved (The contractual Parties)
called the shareholders or the associate or the Members undertake to put something
together in common and the something that is put in common is called Contribution and
the contribution , it will derived some profit that will be shared among the Shareholders.
It can be limited liability and unlimited liability and there is an additional concept that is
very important for Companies and that legal personalities.

Companies as they can be limited liability and unlimited liability, they can have legal
personality or No legal personality. So it depends very much on the legal system.

Luxembourg law is influenced by Belgium law and France law. There also influence coming
from Germany and Switzerland but at the basis it is in the French family.

French: Most legal form is Legal Personality

So what is legal Personality?

-That the capacity for the entity, that, the company itself to incur rights and obligations in its
own name and own account.
- When a company does enter into a contract with a Third party, it has legal personality, the
contract bind the Company to the Third Party, does not bind the shareholder to the Third
party, there is the corporate veil between the shareholders and the Third party that is being
interposed there, because the Company itself is a PERSON is a legal person in the same
sense as Physical person.
-The legal personality of a company is to start with the same personality of a physical
person. So there is a parallel to be made between the legal personality or physical person.

EXAMPLE:
A company generally cannot adopt Children, cannot marry, or most of the family law sector
is CLOSED to company law. Now we have sector, where there is evolution of mentality,
before they could not incur criminal liability (aspect of intent, that was considered
unthinkable for companies, because they are fictitious entities) and thus cant be criminally
liable. When people was hearing criminal law was thinking of prison, jail etc.. and thus think
how can put a company in jail, inflict death penalty on a fictitious entity.

Now with time, people start think about it and say now because of the difference in nature,
we could not extend criminal liability, we need to adopt the punishment, and there is also an
economic person why a legal person should be criminally liable because in main cases there
is more means than a physical person in order to face a the necessary damages following the
recognition of criminal liability.
 Sanctions that are adopted instead of prison are:
-criminal fine
-Possibility to close the company, even to dissolved it

So companies on contract can be limited or unlimited, have legal entity or not.

In Luxembourg, or Belgium and France most commercial companies have legal entities only
few exceptions.

Germany: tend be less generous toward legal entity ( you have to equate / make a parallel
between limited liability and legal liability, meaning for a Company to have legal liability,
generally the rules applicable is that it must offer LIMITED LIABILITY.

- A Company without limited liability will not be considered as a legal person, then considered
UNDIVIDED PROPERTY, mean that all the contribution that was made by shareholders
formed a bundle of assets, but the shareholders remains undivided owners of those assets
and there is no emergence of a legal entity.( easily to organised)- German: Proper hand
system, it introduces legal certainty.
- System in France; Civil code- Undivided property- less developed, develop more in context of
family arrangement- No one is force to stay in Undivided property and can dissolved anytime
you want. People are not so at ease to develop companies that are non legal entities, that’s
why the system in France is giving legal personality to many more companies, whereas in
Germany you have an equation between limited liability- legal liability.

The 2 original types of company:

-General Partnership: was developed alongside a custom, making a difference between civil and
common law, that the principle of solidarity ( Commercial law) between merchants, ie, if you as
more than one person incurred obligations, 2 merchants incurring an obligation, this 3rd Party can
sue anyone of you for the totality of the claim.( claim from any of the partners)- and in Civil law, if as
2 students, you buy a car together and you buy it from someone who don’t know anything from the
law, with minimum contract, buying a car ( merchant) both are obligated to pay the price of the car,
if one default, the one who suffer the loss will be the seller, both you liable pay 50%, so if one
doesn’t pay, seller will suffer

So when see the principle solidarity was to give confidence to people. It is an unlimited liability
company between shareholders and they will be liable for the obligations of the company 100%. It’s
also called (closely held). If member of general partnership, if someone wants join or sell shares, you
will have your say.

In French Law, the general partnership has a legal entity. But in German law unlimited liability, so its
not a legal entity so divided, so the German system more logical
- Limited Partnership: We have the word partnership in it. It’s a combination between a general
partnership and the presence of some shareholders who are considered as limited partners that
benefit from limited liability, so you have 2 type shareholders some like general partners with
UNLIMITED LIABILITY and other LIMITED partners with LIMITED LIABILITY.

A limited partnership is not fashionable as make a difference between shareholders who just want
invest their money and others who interested in the venture and want to control.

LIMITED PARTNERSHIP into 2 forms:

Simple form

Public limited company (partnership limited by shares) - what is the interest: allows you to issue
transferable (can sell your shares any time without consent of shareholders and others) and
negotiable shares- listed on the Stock Market. In fact the Limited Partnership was the ancestor of
Public Limited Liability.

(Big company live in constant fear of being taken over on the stock market. Can offer a shareholder,
sell share at a Premium, then shareholder tempted to that investor).

PUBLIC LIMITED LIABILITY- 2 main elements:

- Limited liability for everyone ( all shareholders involved in public limited liability)- It was invested
for an industrial revolution- rail roads, public buildings etc.. 19Th Century: needed huge investment,
to attract money, need to attract investment from small people also, and small people didn’t want
invest like that risk, thus wanted limited liability.( A privilege given by state for you in exchange to
follow and there is always a risk of abuse of Public Limited liability.( Concession system)

The main economic issue in Germany is based on Small Medium Size Enterprise, are usually not
listed on the stock market, as imply some cost, and risk of taking over by investors.

The SME’s want to benefit from limited liability, for that you needed a concession from the state and
needed to accept the transfer of shares… so it’s GERMANY who created the PRIVATE LIMITED
COMPANY. Shares issued in Private Limited, you need to have consent of your Co shareholders, so
it’s less demanding that General Partnership, rules made most flexible, that what we have in most
Member States

Cooperative society which you will find in most Member State as well was invented in the UK during
industrial revolution. Those people who was too people to face everyday necessity form cooperative
society to buy food , so they develop self help companies so as ameliorate their quality of life.

Dealing with Company Law, we see that appearing in European Law, and most important and
dealt with is PUBLIC LIMITED LIABILITY Company as may invite investment from the public and
perceive more susceptible having effect on commerce, PRINCIPLE OF SUBSIDIARITY, concern with
what concern more than member states.
If you have too many differences between the 2 Member State in law, the parties in the other
member state might not trust the company coming from the other member state and that why
European Company law was develop inorder to harmonize, the difference that might exist.

Another company, is Private limited company but at a lesser extent

Treaty of dealing with Freedom of establishment

Then we have some Regulations (more centred on different forms of companies)

COMPANY LAW ( 1 LECTURE 2ND PART)

Start with column on right hand side on the table on Moodle which deal with Judicial Decisions.
This is a big part of the European Company Law that was developed by the European Justice of
European Court Union dealing with FREEDOM OF ESTABLISHMENT.

Those European Instruments, typical European Instruments that you will see at work when talking
about the European Company Law are:

DIRECTIVES & REGULATIONS and also RECOMMENDATIONS that is a bit less relevant.

Recommendations are more soft law, more for documentation, we will see that the 2nd stage of the
class. We shall focus on those documents and see what are the main areas of Company Law
regulated by the European Union either in form of DIRECTIVES, so non directly applicable but
Member States has to comply with whenever they do consider a change in Company Law. And now
also in the field of European Law, a few REGULATIONS that we will look at and those are easily
detected because they are in the field of the so called field of European Entity.

We have in European Law, a few Entities, and few legal persons that were created by European
Regulations and who do certain things, legal personality that is extended to the whole territory of
the European Union. So it has to be:

-Member of the Union, European Economic Space. If you are that situation, you can have access to
the European Entities and we shall see why those European Entities were developed because this
is a specificity of the European Law.

The consequences of the Brexit in the field of EU Company Law raised all kinds of questions quite
interesting to look at. These are questions that need to be looked at, and this is a scenario of the
European Law that is being developed as no one has left the EU since it creation.

So of course, the UK had to develop its Company Law in conformity with the existing European
Company Law. Now leaving the EU, everyone has in mind, the beginning of control of their Company
Law, but hey won’t have access to mobility. Normally, they should have mobility that was what was
developed by the Court of Justice of the European Union and based on some case, many of those
cases concern the UK as UK was not the main beneficiary of Freedom of Establishment in the
European Union.

WHAT IS EUROPEAN COMPANY AND HOW CAN THIS BE DESCRIBED IN FEW

WORDS:
People use 2 expressions to summarize EU Company Law:

1. Mutual recognition
2. Freedom of Establishment that would apply to companies or firms as all that are defined by
the Treaty, right now called as the Treaty of Functioning of the European Union that was in
the 1957 known as the Treaty of the European Community before 2007 and was Article 43
 &48 which is know known as the TFEU Article 49 & Article 54, and that the main provisions
that we will be looking at when dealing with European Company Law.

Article 49 of TFEU:
Within the framework of the provisions set out below, restrictions on the freedom of
establishment of nationals of a Member State in the territory of another Member State
shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of
agencies, branches or subsidiaries by nationals of any Member State established in the
territory of any Member State.
Freedom of establishment shall include the right to take up and pursue activities as self-
employed persons and to set up and manage undertakings, in particular companies or
firms within the meaning of the second paragraph of Article 54, under the conditions laid
down for its own nationals by the law of the country where such establishment is
effected, subject to the provisions of the Chapter relating to capital.

Article 54 of TFEU:
Companies or firms formed in accordance with the law of a Member State and having their
registered office, central administration or principal place of business within the Union
shall, for the purposes of this Chapter, be treated in the same way as natural persons who
are nationals of Member States.
"Companies or firms" means companies or firms constituted under civil or commercial law,
including cooperative societies, and other legal persons governed by public or private law,
save for those which are non-profit-making.

WHY THOSE ARTICLES? TFEU Article 49 & Article 54

Because one of them is telling about Freedom of Establishment as applying also to Companies and
then the other one contain also a definition of what is considered as to be a COMPANY or FIRM in
terms of European Company Law.

So Article 54 TFEU, gives the summary definition of Company and paragraph 2 show an exception
being made and that is “NON- PROFIT MAKING”, which still reflecting the spirit in the 1957, as that
time people did not conceive the economic importance of the non profit organisations but however,
already in the definition we are talking about COOPERATIVE SOCIETIES which are non profitable
organs.

So the definition in the Treaty was drafted in ways that was broad enough to embrace all kinds of
Company law system that can find within the European Company Law system.

The first definition of a company can be seen in TFEU Article 54... “Civil or Commercial...”

CIVIL OR COMMERCIAL, first difference that we may or may not have in the Member State, for
instance Luxembourg, Belgium, France where the basic difference of Civil Law coming from the Civil
Code and Commercial Law, concerning commercial relations (Principle of Solidarity). This difference
is based on the NATURE of the activities, that within those companies.

So, Commercial Companies are there to conduct activities that been long in definition “Commercial
activities”
1st Article of the Commercial code, most common, example is buying and resell is to be considered
as commercial activities if you engaging into two activities. Banking and Insurance is considered per
se as Commercial activities. So, what is considered Commercial and non commercial and is not
always easy to be differentiated, because sometimes BUY & SELL etc…

So, if you are forming a company, to buy and resell on a regular basis, you emerging as a company in
a commercial activity and so in principle you will recourse to form a Commercial Company and the
form given are the Rules being used for commercial activity.

Now, if you engaging in an activity that is considered non commercial for example attorney,
accountant, doctor and those activities, you are not allowed to be considered as a Merchant. That
means that there are several means that are developed.

The Civil activities, for instance if you want to conduct an activity as a lawyer, you are considered as
a person, you may not do it, using a PRIVATE LIMITED LIABILITY or PUBLIC LIMITED LIABILITY
Company. That’s why in Luxembourg, they have specialised in 4 Companies of ATTORNEYS ( special
type of company)

In Belgium, it does not have the same Company Code. You can do it in form of Commercial Company
but in that case, you will have to refer to yourself as a Civil Company that took the form of a
Commercial Company and so it’s visible, and some people know immediately it’s a civil company, but
that for using the existing form of a commercial company.

-The system that we have in Luxembourg, specialized types of Company is the one that have in
France “les societies d’exercise professionels”, which are designed attorneys and different forms of
firms as they can’t have recourse defined in Commercial code. Some countries can have the
differences in civil and commercial activities, like LUX & France but others don’t have, for example
the UK doesn’t have.

Some Member States may even change vision in passing Netherlands, until the 90’s had civil code
inspired from the French Law. They had the difference civil and commercial activities but in 1992
they issue totally new version of their civil code, the result of this still called Civil Code, there is NOW
no difference that is made between Commercial and Civil.

So, the Treaty had to take into account the possibility that some Member States make a difference
between civil and commercial law and that’s why ARTICLE 54 TFEU 2nd paragraph, say “ can be
EITHER Civil or Commercial” ( Lucrative Intent)- making a company in hope of making some profits,
you can share between shareholders. That’s the mistake some people do, at the basic of company
law exam when asking them to make the difference between a Civil and Commercial Company.

SOME TELL ONLY COMMERCIAL COMPANY ARE LUCRATIVE. SO WELL,NO.

I mean if you a doctor or lawyer, engaging in a non profit making activity and also its just that there
is this difference that historically existed between CIVIL and COMMERCIAL activities, that is taking
into account by some legal system.
So another element of Article 54 TFEU, Paragraph 2, “ entities governed by public or private law”, so
that also an aspect of definition abroad so that you can have a difference that tend to be important
in the 1960-1970, the difference between:

Companies organised mainly by Civil, private and public Law. Right now, there more tendency to
privatise companies or make them mix bodies being companies that entities that are partly private
and partly public and that mean of course, there’s always been at the level of government, i.e public
authorities, a tendency to adopt some other entities, so specialised in certain sectors/ certain
activities in order for the development of the economy. In the 60’s and 70’s, where the main
ideology that was pursued in origin, the statute intervene directly in the economy, doing it through
its bodies and was developing sort of public companies, they had their own regime, had some
privileges over private companies but so the definition to make clear, is whatever the origin of the
investment whether the public or private are all considered by the Treaty because they all there to
derive some economic activities at European Level.

Then also, the definition is quite broad, in the sense that, so people are talking about Legal Persons
in the definition of the TFEU Article 54(2), so since other legal person… in fact the definition is meant
to be broad enough to travel than focussing on Legal Entities. An entity vague. Entity shows there
something more than a shareholder ( Principle of regrouping Shareholders), but an entity can be
considered that there is a legal person, something close, but what is certain is that the definition we
know it now, that TFEU Article 54 is considering all of those types of Companies. So, legal person
(restricted) entities in broader sense so to say, so including the system of undivided property that we
have in German Law. We can see in some cases, that will be dealt with Court of Justice of the EU has
to deal with partnership that sometimes, in German law for sure, don’t have a legal personality
separate from their members.

LEGAL PERSON AND NON LEGAL PERSONS:

For those who are non profit making, so in principle, we exclude non profitable organisations, and so
there is a tendency for the European Union to look at all the forms of economic activities, even those
that are non profit making. Now there’s also the last element that appear in TFEU Article 54, that
those companies, can be formed with law of Member of States…

In order to benefit from Freedom of Establishment, a company must be considered broadly as a

citizen of the European Union. We know that for physical person, that the basic of the Treaty.

Now, how do we transpose this concept of Citizenship to Companies?

That’s wat the Article doing in that part:

- Must formed accordance to the law..

- Must registered office (Central, principal, Registered place)
All the 3 concepts must be used.

Infact 1957 and still mostly today it was a kind of summary of Principles of Private International Law
that was defining the nationality for most of the Member State. That is for Luxembourg, for instance,
in order for a company to be considered Luxembourgish it MUST have its Central Administration in
Lux as seen in the Treaty.

In order to be considered as Company in UK, the law will not require you to have your Central
Administrative in the UK. In the UK only Registered Office will be required to be in UK.

What is the difference between Central Administration and Central Office?

The Central administration that the concept that was adopted the Court of Justice of the European
Union refers to the place where the company is centrally managed. So, this is where the Central is
located and centrally managed; so usually where it holds its general meeting. So most companies are
obliged by Law, to hold every year a general meeting of shareholder, reunion of shareholder,
discussing various topics of the company and one IMPORTANT element of GENERAL MEETING;
approve company annual account. People will look physically where the annual General Meeting is
to be held as an indication of the place where the Central Administration of the company is.
Another element, people will look at the place where the company is meeting its Board of Directors
( for managers) that means the organ in charge of managing the company on a day to day basic. So
the General Meeting once every year on exception case can be 2 or 3 times.

General Meeting is not a permanent organ; usually you can’t use the General Meeting as managing
organ. The managing organ is something else, according to the type of company you have, it will
have a different name. If you talking about a PUBLIC LIMITED LIABILITY COMPANY, talk about BOARD
OF DIRECTORS because for a public limited liability Company, you have an obligation that you will
find in mostly all legal system, that 7-9 or by several people not just one, you need have a Board of
Directors. WHY? Because that’s usually a type of company normally meant to manage huge
investment and considered not wise to have just one person in charge, managing this type of
company.

To avoid abuse of power, that why have this legal obligation to have an oversight by Board of
Directors that is constituted of Several Persons.

In a Private Limited Liability Company you can have just one manager; they can be several but most
classical is one Manager. So, the place it is centrally managed will be determined from looking at the
place where it will physically have its holding of General Meeting and the meeting of the company
managing organs. So this is a very concrete relation between the Company and the Territory which
it derive its Citizenship. The so called NATIONALITY of Company, in fact define the Statute of the
Company that will apply to this company because this company is centrally managed in Luxembourg,
it means Luxembourg Company Law is going to be applied in this company.

TO NOTE: The place that the company was formed doesn’t matter, whether Belgium, France doesn’t
matter. But where, it is centrally managed is important. If its centrally managed in Luxembourg,
under the Luxembourgish.

Now the UK, most Scavandian country, the Netherland has another legal system. The company
CITIZENSHIP will be based on the place where the company formalities were done (statutory office,
registered office). That’s where the formalities were done. For UK, they only need to conform to the
UK law, Official paper UK. That does explain why there are so many UK active companies across the
continents; it can be done through Internet and don’t need to be centrally managed in UK.

3rd ELEMENT:

The principal place of business was active in 1957 but not now. So people will look where the
company is actively producing its goods. In 1957, ( context of protection), this principal place
became difficult to use and as the company increase in size and thus said that they need to have a
criteria to be based on. So, the Treaty say, to be eligible to be a European Entity Company, you need
be a citizen (national) of the EU and there is a problem in that system..

In US, each state of UNION has their separate company law system. All the States use the same
criteria in order to allocate their CITIZENSHIP to companies and that is the one of the register office
of statutory seat. So here, we see within the European Union, we have some problems arising from
the fact that some States in the European Union to allocate their citizenship according to what
criteria: STATUTORY OFFICE AND REGISTERED OFFICE, others might use the PRINCIPAL
establishment.

Now, there are different philosophies:

The UK and Germany have radical views concern the company. Germany main prominent the so
called administration REAL SEAT THEORY, now retained in France, Belgium and Luxembourg. The
Northern Europe tend to go for registered office (INCORPORATION), for example UK, Netherlands
etc..

And so, there are different views concerning the big topic concerning the MOBILITY OF THE
COMPANY. So what we mean by mobility of a company and that’s where we get to FREEDOM OF
ESTABLISHMENT that would be the possibility of a company to move freely within the European
Union. So when you look at the physical persons, would be benefitted of FREEDOM OF
ESTABLISHMENT ( eg a doctor in Germany can practice in the different European Union States).

WHAT IS THE FREEDOM OF ESTABLISHMENT?

TFEU ARTICLE 49: “Within the framework…restriction”

 Before the EU, if doctor in France could not perform in Italy, follow the equivalence etc..
 Restrictions on Member State...TFEU Article 49 paragraph 2: right to take up, pursue
activities. You as a professional/ set up an undertaking etc..
 So, the idea is that we talking about an establishment relating to companies there is infact
TWO forms of establishment that need talk about and that’s:

SECONDARY ESTABLISHMENT AND PRIMARY ESTABLISHMENT (Both common idea of mobility)

To get an entity, you need to make sure that the company comply with the condition formatted by
the local legal system and these conditions can be different from one Member State to another, eg
UK Company ( file paper in UK)

FRANCE( have central management in FRANCE)

That is the reason for which people talk about 2 different types of MOBILITY OF COMPANY. For
example a company formed in Lux, under the LUX law, is a Lux citizen and decide to move to Italy
and become an Italian Company. Interest of that: different laws..better tax incentives.. more
interesting.

The PRIMARY ESTABLISHMENT is that the possibility to move from one state to another, changing
citizenship. How to do that? When you are a company, there are 2 ways:

1. The Cross Border Merger: That is an Indirect way to be mobile. Here you a Lux company and
want to move to Italy, so what can be done?
CREATE A SUBSIDIARY in Italy:
That is another legal person, control of shareholder (100% of shares). Then you have a
merger happening between the Company. The Italian will take over the LUX Company. So
one will disappear and the other will absorb all the shareholders/ assets. This is done
through MERGING: Direct move, its indirect in a way because you need create a subsidiary.

2. It is a more direct way, most problematic and that’s the TRANSFER OF SEAT. So it mean a
company that is located in Lux having its seat ( official address) will have to be transferred to
Italian Address ( transfer of seat). Now the problem is that it create a discrepancy within the
European Union- The company Seat. FOR UK LAW THE COMPANY SEAT IS THE OFFICIAL
ADDRESS- WHEN WAS REGISTERED.

For Member States, changed of Nationality, not only its official address moved to Italy but
also having its Central administration transferred to Italy ( Both need to be transferred)
because if its not moved, it will still be considered a Luxembourg Company.

IMPORTANT:

So we see for a mobility company, there is a difference between the Member State in the
wat that the change of PRIMARY ESTABLISHMENT can be made.

THE SECONDARY ESTABLISHMENT IS SETTING OF AGENCIES, BRANCHES OR SUBSIDIARIES AND IT’S

A FORM OF EXERCISE OF MOBILITY, EXERCISE FREEDOM OF ESTABLISHMENT OF COMPANIES THAT
IS LESS RADICAL THAN PRIMARY ESTABLISHMENT.

SECONDARY ESTABLISHMENT: You remain a Lux Citizen, but you are going to do business in another
Member State and the fact that you doing business in another Member State is going to materialize
in a permanent form under the form of either an AGENCY, or a BRANCH or a SUBSIDIARY.

What is the difference between Branch, Agency and Subsidiary?

The most common form of Secondary presence in another Member state, is in form of subsidiary.

WHAT IS A SUBSIDIARY?

 A subsidiary is another Company that is completely independent but just under the control
of another company ( the so called parent company)
 It is the most common form of the secondary Establishment because from the point of view
of the Member states, in our case, the Italian company is complete Italy Company with
 separate legal personality, the peculiarity is that the controlling shareholder of this company
is a former citizen of the Lux company.

TO NOTE: The NATIONALITY of a shareholder has no importance with the nationality of the
company.

WHAT IS A BRANCH?

The presence of a company but in a less complete form than a subsidiary.

WHAT IS AN AGENCY?

It is the least elaborating. The name is given to refer a contract of mandate. You have legal
representative. That is customer is Italy will deal with Lux..

THERE ARE 2 WAYS A COMPANY CAN EXPRESS ITS PRESENCE:

The big topic when we looked at Article 49, it talks about FREEDOM OF ESTABLISHMENT but then is
talking about ONLY second form of ESTABLISHMENT and says nothing about the Primary.

In 1957, it was considered at that time, that the second establishment could be guaranteed but
Primary was not guaranteed. WHY? At that time there was difficulty, some going with registration,
some.. and there was only 6 Member states..
CASE LAW: To understand the freedom of establishment
What happens when someone of EU national goes to a Member State and have a body of
company law more promising than in another Member state, create a Company there and
then return to their Home Country and want to create a BRANCH there and we realised
that the BRANCH is the one that is accomplishing 100% of economic activity and then
people become reluctant concerning the freedom of Establishment.

Centros Ltd v Erhvervs- og Selskabsstyrelsen

Centros Ltd, a wine import and export business, was registered in the United Kingdom and
applied in Denmark, where it traded, to register there. The Danish authority, Erhvervs- og
Selskabsstyrelsen, refused on the basis that the company was attempting to circumvent the
Danish requirement for companies to pay up a minimum of share capital. In Denmark this was
200,000 Danish kroner, while in the UK the minimum capital requirement was £1. The Danish
registry justified its enforcement of the rule as a way to protect creditors and prevent fraudulent
insolvency. Centros Ltd argued that it had the right to be recognised in Denmark under the
provisions of freedom of establishment in the EC Treaty, articles 52 and 58. The Danish court
referred the matter to the European Court of Justice (ECJ).

Judgment
The European Court of Justice held that the Danish authorities' refusal to recognise the company
was contrary to articles 52 and 58, and that its rules on minimum capital were not justified by the
aim of protecting creditors by anticipating the risks of fraudulent bankruptcy due to the insolvency
of companies having inadequate initial capitalisation. The national authorities could adopt less
restrictive measures, such as enabling creditors to obtain necessary guarantees, or could adopt
measures preventing or penalising fraud, if necessary with the cooperation of another Member
State.
R (Daily Mail and General Trust plc) v HM
Treasury
Facts
The Daily Mail, a newspaper company, was resident in the United Kingdom. It wanted to transfer
residence to the Netherlands and set up a subsidiary or branch in the UK instead. This was to be
done for the purpose of selling a significant part of its non-permanent assets and using the sale
proceeds to buy its own shares without having to pay the tax normally due on such transactions
in the UK. It could not do this without permission from the UK Treasury. It argued this
contravened its right of establishment under (what is now) the Treaty on the Functioning of the
European Union article 49.

Judgment
The Court of Justice held that TFEU article 49 did not apply, and so the rules requiring UK
Treasury permission could operate. Given the wide variation in national laws about the required
factor connecting a company to the national territory for the purposes of incorporation, and also
the wide variation of national laws on transfer of a company’s head office from one place to
another, companies cannot rely on articles 49 and 54.

19 ... it should be borne in mind that, unlike natural persons, companies are creatures of
the law and, in the present state of Community law, creatures of national law. They exist only
by virtue of the varying national legislation which determines their incorporation and
functioning.

20 As the Commission has emphasized, the legislation of the Member States varies widely in
regard to both the factor providing a connection to the national territory required for the
incorporation of a company and the question whether a company incorporated under the
legislation of a Member State may subsequently modify that connecting factor. Certain States
require that not merely the registered office but also the real head office, that is to say the
central administration of the company, should be situated on their territory, and the removal of
the central administration from that territory thus presupposes the winding-up of the company
with all the consequences that winding-up entails in company law and tax law. The legislation
of other States permits companies to transfer their central administration to a foreign country
but certain of them, such as the United Kingdom, make that right subject to certain
restrictions, and the legal consequences of a transfer, particularly in regard to taxation, vary
from one Member State to another.
21 The Treaty has taken account of that variety in national legislation. In defining, in Article
58, the companies which enjoy the right of establishment, the Treaty places on the same
footing, as connecting factors, the registered office, central administration and principal place
of business of a company. Moreover, Article 220 of the Treaty provides for the conclusion, so
far as is necessary, of agreements between the Member States with a view to securing inter
alia the retention of legal personality in the event of transfer of the registered office of
companies from one country to another. No convention in this area has yet come into force.
22 It should be added that none of the directives on the coordination of company law adopted
under Article 54(3)(g) of the Treaty deal with the differences at issue here.
23 It must therefore be held that the Treaty regards the differences in national legislation
concerning the required connecting factor and the question whether - and if so how - the
registered office or real head office of a company incorporated under national law may be
transferred from one Member State to another as problems which are not resolved by the
rules concerning the right of establishment but must be dealt with by future legislation or
conventions.
Überseering BV v Nordic Construction
Company Baumanagement GmbH
Facts
Überseering BV, a Dutch company, was told that because its shares had been all acquired by
Germans but it had failed to reincorporate under German law, it had no legal identity in Germany
and could not, therefore, enforce a contract to develop land in Düsseldorf against Nordic
Construction. German law took the view that companies should only be recognised as having
legal rights under the law where their "real" seat was. This was Germany (as Überseering was
"really" operating there), but it could not have legal standing unless it was first incorporated under
German law. Thus, German law did not follow the "incorporation" view, that it would acknowledge
legal standing according to a foreign law when a company was incorporated in the Netherlands.
Überseering BV argued that this represented a restriction on its right to freedom of
establishment, and this was prohibited by TEC article 43 and 48 (now TFEU articles 49 and 54).
The German court referred to the ECJ the question of whether German law could lead to this
result.

Judgment
The European Court of Justice held that TEC articles 43 and 48 precluded German courts
denying legal capacity to companies like Überseering BV, because it was fundamental that
states recognised companies incorporated abroad, regardless of whether member states had
conventions on mutual recognition of companies under article 293. Despite change in ownership,
Überseering BV was still a valid company in the Netherlands.[1] There was no countervailing
justification by any overriding requirements relating to the general interest to not uphold the right
of freedom of establishment.

3 The Zivilprozessordnung (German Code of Civil Procedure) provides that an action

“ brought by a party which does not have the capacity to bring legal proceedings must be
dismissed as inadmissible. Under Paragraph 50(1) of the Zivilprozessordnung any person,
including a company, having legal capacity has the capacity to be a party to legal
proceedings: legal capacity is defined as the capacity to enjoy rights and to be the subject
of obligations.

4 According to the settled case-law of the Bundesgerichtshof, which is approved by most

German legal commentators, a company's legal capacity is determined by reference to the
law applicable in the place where its actual centre of administration is established
(`Sitztheorie' or company seat principle), as opposed to the `Gründungstheorie' or
incorporation principle, by virtue of which legal capacity is determined in accordance with
the law of the State in which the company was incorporated. That rule also applies where a
company has been validly incorporated in another State and has subsequently transferred
its actual centre of administration to Germany.
5 Since a company's legal capacity is determined by reference to German law, it cannot
enjoy rights or be the subject of obligations or be a party to legal proceedings unless it has
been reincorporated in Germany in such a way as to acquire legal capacity under German
law.
[...]
59 A necessary precondition for the exercise of the freedom of establishment is the
recognition of those companies by any Member State in which they wish to establish
themselves.
60 Accordingly, it is not necessary for the Member States to adopt a convention on the
mutual recognition of companies in order for companies meeting the conditions set out in
Article 48 EC to exercise the freedom of establishment conferred on them by Articles 43
EC and 48 EC, which have been directly applicable since the transitional period came to
an end. It follows that no argument that might justify limiting the full effect of those articles
can be derived from the fact that no convention on the mutual recognition of companies
has as yet been adopted on the basis of Article 293 EC.
61 Second, it is important to consider the argument based on the decision in Daily Mail and
General Trust, which was central to the arguments put to the Court. It was cited in order, in
some way, to assimilate the situation in Daily Mail and General Trust to the situation which
under German law entails the loss of legal capacity and of the capacity to be a party to
legal proceedings by a company incorporated under the law of another Member State.
62 It must be stressed that, unlike Daily Mail and General Trust, which concerned relations
between a company and the Member State under whose laws it had been incorporated in
a situation where the company wished to transfer its actual centre of administration to
another Member State whilst retaining its legal personality in the State of incorporation, the
present case concerns the recognition by one Member State of a company incorporated
under the law of another Member State, such a company being denied all legal capacity in
the host Member State where it takes the view that the company has moved its actual
centre of administration to its territory, irrespective of whether in that regard the company
actually intended to transfer its seat.
[...]
66 ... unlike the case before the national court in this instance, Daily Mail and General
Trust did not concern the way in which one Member State treats a company which is
validly incorporated in another Member State and which is exercising its freedom of
establishment in the first Member State.
[...]
68 At paragraph 20 of that judgment, the Court pointed out that the legislation of the
Member States varies widely in regard both to the factor providing a connection to the
national territory required for the incorporation of a company and to the question whether a
company incorporated under the legislation of a Member State may subsequently modify
that connecting factor.
69 The Court concluded, at paragraph 23 of the judgment, that the Treaty regarded those
differences as problems which were not resolved by the Treaty rules concerning freedom
of establishment but would have to be dealt with by legislation or conventions, which the
Court found had not yet been done.
70 In so doing, the Court confined itself to holding that the question whether a company
formed in accordance with the legislation of one Member State could transfer its registered
office or its actual centre of administration to another Member State without losing its legal
personality under the law of the Member State of incorporation and, in certain
circumstances, the rules relating to that transfer were determined by the national law in
accordance with which the company had been incorporated. It concluded that a Member
State was able, in the case of a company incorporated under its law, to make the
company's right to retain its legal personality under the law of that State subject to
restrictions on the transfer of the company's actual centre of administration to a foreign
country.
71 By contrast, the Court did not rule on the question whether where, as here, a company
incorporated under the law of a Member State (`A') is found, under the law of another
Member State (`B'), to have moved its actual centre of administration to Member State B,
that State is entitled to refuse to recognise the legal personality which the company enjoys
under the law of its State of incorporation (`A').
[...]
76 It follows from the foregoing considerations that Überseering is entitled to rely on the
principle of freedom of establishment in order to contest the refusal of German law to
regard it as a legal person with the capacity to be a party to legal proceedings.
[...]
82 In those circumstances, the refusal by a host Member State (`B') to recognise the legal
capacity of a company formed in accordance with the law of another Member State (`A') in
which it has its registered office on the ground, in particular, that the company moved its
actual centre of administration to Member State B following the acquisition of all its shares
by nationals of that State residing there, with the result that the company cannot, in
Member State B, bring legal proceedings to defend rights under a contract unless it is
reincorporated under the law of Member State B, constitutes a restriction on freedom of
establishment which is, in principle, incompatible with Articles 43 EC and 48 EC.
As to whether the restriction on freedom of establishment is justified
[...]
84 The German Government has argued in the alternative, should the Court find that
application of the company seat principle entails a restriction on freedom of establishment,
that the restriction applies without discrimination, is justified by overriding requirements
relating to the general interest and is proportionate to the objectives pursued.
[...]
92 It is not inconceivable that overriding requirements relating to the general interest, such
as the protection of the interests of creditors, minority shareholders, employees and even
the taxation authorities, may, in certain circumstances and subject to certain conditions,
justify restrictions on freedom of establishment.
93 Such objectives cannot, however, justify denying the legal capacity and, consequently,
the capacity to be a party to legal proceedings of a company properly incorporated in
another Member State in which it has its registered office. Such a measure is tantamount
to an outright negation of the freedom of establishment conferred on companies by Articles
43 EC and 48 EC.