freedom of establishment - corp

Freedom of Establishment

Right under EU law allowing companies and individuals to set up and carry out economic activities in any Member State under equal conditions

Article 49 TFEU

Prohibits restrictions on the freedom of establishment of nationals of Member States, including setting up agencies, branches, or subsidiaries

Connecting Factor

Legal criterion used to determine which Member State law applies to a company (real seat or incorporation theory)

Real Seat Theory

Company is governed by the law of the state where its actual central administration is located

Incorporation Theory

Company is governed by the law of the state where it is incorporated regardless of where it operates

Daily Mail Case

EU law does not grant a company the right to transfer its central management and control to another Member State without complying with the home state rules

Uberseering Case

A Member State must recognize the legal capacity of a company validly incorporated in another Member State even if its real seat is moved

Sevic Case

Cross-border mergers fall within freedom of establishment and Member States cannot generally refuse them without justification

Cartesio Case

A Member State may prevent a company from transferring its seat abroad while retaining its legal status if national law so provides

Vale Case

Host Member State must allow cross-border conversion under non-discriminatory conditions if it allows domestic conversion

Polbud Case

Freedom of establishment applies to cross-border conversions even without transfer of real seat, and liquidation requirements are disproportionate

Segers Case

A Member State cannot deny benefits to directors of foreign companies solely because the company is incorporated in another Member State

Centros Case

Member States cannot refuse registration of a branch of a foreign company even if it is used to avoid stricter national rules unless fraud is proven

Inspire Art Case

Member States cannot impose additional burdens like minimum capital or director liability on foreign companies’ branches beyond EU rules

Uber Case (Transport Qualification)

Uber was classified as a transport service not an information society service, so it falls under transport regulation not free movement of services

Article 56 TFEU

Prohibits restrictions on freedom to provide services across Member States where the provider is established in the EU

Information Society Service

Service provided at a distance by electronic means under EU law, typically digital platform services

Freedom of Services

Right to provide services in another Member State without establishing a permanent presence there

Abuse of Rights Doctrine (EU Company Law)

Using incorporation in another Member State solely to evade stricter national law is not automatically abuse unless fraud is proven case-by-case

Market for Corporate Control

Disciplinary mechanism where inefficient management can be replaced through takeovers

Secondary Establishment

Right of companies to set up branches or subsidiaries in other Member States without creating a new legal entity

Primary Establishment

Right to create a company in any Member State under its national law

Cross-Border Merger

Operation where companies from different Member States merge into one entity under EU law rules

Cross-Border Conversion

Process where a company transfers its registered office to another Member State while retaining legal personality

Daily Mail Doctrine

Home Member State controls whether a company may transfer its central administration abroad

Freedom of Establishment Scope

Includes setting up companies, subsidiaries, mergers, and other operations facilitating economic activity in another Member State

Restriction on Establishment

Any national rule that makes exercising establishment less attractive or more difficult

Definition of the Gebhard Test

A national measure restricting EU freedoms is lawful only if…

Conditions for Gebhard Test

1. is applied in a non-discriminatory manner

2. is justified by imperative requirements in the public interest

3. is suitable to achieve the objective

4. does not go beyond what is necessary (proportionality)

• Rules on minimum capital are not assessed under the Gebhard test.

Imperative Reasons of Public Interest

Justifications for restricting EU freedoms such as creditor protection, employees, and minority shareholders

Cross-Border Mobility EU Companies

Legal mechanisms allowing companies to move, merge, or convert across Member States while retaining legal personality

Real Seat Transfer Limitation

Member States may restrict outbound seat transfers depending on national company law

Recognition Principle (EU Company Law)

Host State must recognize legal capacity of companies validly formed in another Member State

Freedom of Establishment Abuse Test

Use of foreign incorporation is lawful unless there is evidence of fraud or artificial arrangements

Principle of Equivalence

Host state must treat foreign companies no less favorably than domestic ones in similar situations

Principle of Effectiveness

National rules must not make EU rights practically impossible or excessively difficult to exercise

Directive 2019/2121

EU law regulating cross-border conversions, mergers, and divisions