new data on regulatory competition in European company law and the impact of national law reforms, using the example of English company law forms being used by German start-ups. Since 1999, entrepreneurs in the EU have been allowed to select foreign legal forms to govern their affairs. The data show that English limited companies were very popular with German entrepreneurs in the first few years of the last decade but have experienced a sharp decline since early 2006. This decline casts doubt over the claim that the German company law reform from November 2008 ‘successfully fought off’ the use of foreign company forms. Moreover, by contrasting the German data with the corresponding developments in Austria, the paper further demonstrates that the latter jurisdiction is also seeing a similar decline, and without having reformed its company law. Instead of exclusively seeing law reform responsible for the declining number of foreign incorporations, this paper offers a number of alternative or complementary explanations for the striking developments. These findings are important for our understanding of (defensive) regulatory competition and successful lawmaking.Ringe comments that
Corporate mobility has reached a certain level of maturity in Europe. The EU legal framework is established and well understood, and it rests largely on case-law from the European Court of Justice. Beginning with the seminal Centros decision, the Court has effectively opened the borders between EU Member States little by little, and entrepreneurs now de facto have the right to select the foreign corporate law that governs the legal form of their company, at least at the company formation stage. Moreover, researchers have begun to empirically study how the case-law has impacted the market and how the market has reacted. While much effort has been spent evaluating the early market reactions, following the partial market opening made possible by Centros, relatively little attention has been devoted to subsequent developments. This is surprising because the various lawmakers’ responses to the wave of entrepreneurial migration offer a rare glimpse at the effects of regulatory competition and subsequent business’ reaction, as well as providing insights into the relevance and effects of lawmaking and regulatory responses to market pressure.
This paper explores the responses by European businesses to the (limited) occurrences of regulatory competition flowing out of Centros and subsequent case- law. It uses new empirical data on Germany, the most prominent example of a country that was under pressure from regulatory competition. The paper confirms earlier findings that entrepreneurs in continental Europe, at first, increasingly used English letterbox companies to govern their affairs, without doing any business in the UK. The present analysis goes further, however, and shows that incorporation numbers have dropped considerably since 2006, falling to remarkably low numbers today. I then go on to evaluate the role that regulatory reform may have played in this development. Many lawmakers in continental European jurisdictions claim ‘success’ in the sense that the legal reforms of domestic company laws have caused foreign (English) corporations to fall out of vogue with their respective entrepreneurs as these entrepreneurs have begun to increasingly use domestic company types. The data evaluated in this study seem to weaken this claim: first, I show that the number of foreign incorporations in Germany has dropped even before the law reform came into force. Secondly, I go on to compare the German data with the situation in Austria, a natural comparison to make as these two systems share many similarities – with the exception that Austria did not reform its legal system as a consequence of EU regulatory competition. Surprisingly, however, the drop in the number of foreign incorporations in Austria coincided with the development of the reform in Germany; in other words, the rate began to drop at about the same time as in Germany. This may lead to the conclusion that reasons other than legal reform must have played a role in shaping businesses’ preferences. This paper is the first part of a larger research initiative to explore the merits of corporate mobility and regulatory competition in Europe.
The paper is organised as follows. Part II provides the legal and empirical background on developments that have led to the current (limited) scope of regulatory competition for incorporations within the EU. Part III evaluates these developments and offers an assessment of the academic work done so far. Parts IV and V introduce new empirical data for Germany and Austria, shedding light on the implications of the German 2008 law reform and questioning traditional assumptions of its effects on foreign incorporations. Part VI seeks to find explanations for the results and advances a number of possible conjectures. Part VII concludes.