¹ Case C-127/97 Centros Ltd v Erhvervs-og Selskabsstyrelsen [1999] ECR, I-1459.

² Case C-208/00 Überseering BV v Nordic Construction Baumanagement GmbH [NCC] [2002] ECR I-9919.

³ Case C-167/01 Kamer van Koophandel en Fabriken voor Amsterdam v Inspire Art Ltd [2003] ECR I-10155.

⁴ eg Halbhuber, H, ‘National Doctrinal Structures and European Company Law’ (2001) 38 CML Rev 1385Google Scholar; J Bisacre, ‘The Migration of Companies within the European Union and the Proposed Fourteenth Company Law Directive’ (2001) 3 ICCLJ 251; M Andenas, ‘Free Movement of Companies’ (2003) 119 LQR 221; E Wymeersch, ‘The Transfer of the Company's Seat in European Company Law’ (2003) 40 CMLR 661; F Wooldridge, ‘Überseering: Freedom of Establishment of Companies Affirmed’ (2003) 14 EBLR 227; S Lombardo, ‘Conflict of Law Rules in Company Law after Überseering: An Economic and Comparative Analysis of the Allocation of Policy Competence in the European Union’ (2003) 4 EBOR 301; P Oliver and W-H Roth, ‘The Internal Market and the four Freedoms’ (2004) 41 CMLR 407; A Looijestijn-Clearie, ‘Have the Dikes Collapsed? Inspire Art a Further Break-through in the Freedom of Establishment of Companies?’ (2004) 5 EBOR 389; F Jacobs, ‘The Evolution of the European Legal Order’ (2004) 41 CMLR 303; G-J Vossestein, ‘Exit Restrictions on Freedom of Establishment after Marks & Spencer’ (2006) 7 EBOR 863; F Mucciarelli, ‘Company ‘Emigration’ and EC Freedom of Establishment: Daily Mail Revisited’ (2008) 9 EBOR 267.

⁵ Case C-210/06 Cartesio Oktató Szoláltató bt [2008] ECR I-9641.

⁶ cf art 54(2) TFEU (ex-art 48(2) EC): the wording of this provision is misleading (‘and other legal persons’); it covers entities that enjoy separate legal personality as well as civil or commercial partnerships that under the applicable law are not afforded separate legal personality.

⁷ Überseering (n 2) para 52.

⁸ Inspire Art (n 3) para 95; referring to Centros (n 1) para 17, and Case 79/85 Segers [1986] ECR 2375 para 16.

⁹ Eleventh Council Directive 89/666/EEC of 21 December 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State [1989] OJ L 395/36.

¹⁰ Centros (n 1) para 17; Inspire Art (n 3) para 97.

¹¹ Inspire Art (n 3) para 95–96.

¹² Case C-411/03 SEVIC Systems AG [2005] ECR I-10805 para 19.

¹³ SEVIC (n 12) para 31.

¹⁴ Case 81/87 The Queen v HM Treasury and Commissioners of Inland Revenue, ex parte Daily Mail and General Trust plc [1988] ECR 5483 para 24.

¹⁵ Überseering (n 2) para 61–73.

¹⁶ Inspire Art (n 3) 103.

¹⁷ Daily Mail (n 14) para 19.

¹⁸ Case C-9/02 Lasteyrie du Saillant [2004] ECR I-2409 para 42.

¹⁹ Case C-446/03 Marks & Spencer plc v HM's Inspector of Taxes [2005] ECR I-10837 para 31.

²⁰ The Court held that the restriction was justified to the extent that the losses incurred by the non-resident subsidiary could be taken into account in the subsidiary's State of residence.

²¹ Marks & Spencer (n 19) para 33.

²² SEVIC (n 12) para 31: ‘Articles 43 EC and 48 EC preclude registration in the national commercial register of the merger by dissolution without liquidation of one company and transfer of the whole of its assets to another company from being refused in general in a Member State where one of the two companies is established in another Member State, whereas such registration is possible, …, where the two companies participating in the merger are both established in the territory of the first Member State.’

²³ The Report of the High Level Group of Company Law Experts on a Modern Regulatory Framework for Company Law in Europe, Brussels, 2002, 20, urged the Commission to bring forward a revised proposal for a Fourteenth Directive on the Transfer of the Registered Office. In its Communication to the Council and the European Parliament on modernising company law and enhancing corporate governance in the European Union—A plan to move forward, COM(2003)284 final, 20, the Commission expressed its intention to present a new proposal for a Fourteenth Directive in the short term.

²⁴ Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies [2005] OJ L310/1.

²⁵ Commission Staff Working Document: Impact assessment on the Directive on the cross-border transfer of registered office, 12.12.2007, SEC(2007) 1707, 5–6.

²⁶ Companies Act 2006, s 1139(1).

²⁷ Companies Act 2006, s 1136. Alternatively, the records may be kept at some other place permitted by regulations to be made under Companies Act 2006, s 1136.

²⁸ GmbHG, § 4a(2); AktG, § 5(2), as in force until 30 October 2008. In light of the right to freedom of establishment and in order to create a level playing field for domestic companies, Germany has already changed its law in this respect. Since 1 November 2008, German private and public companies may choose their operational headquarters freely within the Community. Only the registered office as stipulated in the articles of association must be situated in Germany. cf Gesetzentwurf der Bundesregierung: Entwurf eines Gesetzes zur Modernisierung des GmbH-Rechts und zur Bekämpfung von Missbräuchen (MoMiG), BR-Drucksache 354/07, 25 May 2007, 65, 65 and Gesetz zur Modernisierung des GmbH-Rechts und zur Bekämpfung von Mißbräuchen (MoMiG), 23.10.2008, BGBl. 2008, I Nr. 48, 2026. Current Hungarian law contains a similar rule in regard to movements within the European Union, art 7/B. of Law No V of 2006 on Public Company Information, Court Registration Proceedings and Voluntary Dissolution Proceedings (2006. évi V. törvény a cégnyilvánosságról, a bírósági cégeljárásról és a végelszámolásról).

²⁹ P Merle, Droit commercial: Sociéte commerciales (11^th edn, Paris, Dalloz, 2007) para 83.

³⁰ Commission Staff Working Document (n 25) 5.

³¹ Cartesio (n 5) para 41–53.

³² AG Maduro, opinion in Case C-210/06 Cartesio Oktató Szoláltató bt [2008] ECR I-9641, para 2–4.

³³ Cartesio (n 5) para 99.

³⁴ On the correctness of this assumption under Hungarian law, see further discussion (n 97).

³⁵ AG Maduro (n 32) para 23.

³⁶ ibid para 25.

³⁷ ibid para 26.

³⁸ ibid para 28.

³⁹ Case C-251/98 Baars [2000] ECR I-2787, para 28; Case C-9/02 Lasteyrie du Saillant [2004] ECR I-2409, para 42, to which AG Maduro (n 32) refers in note 48 of his opinion.

⁴⁰ AG Maduro (n 32) para 28.

⁴¹ ibid para 30.

⁴² ibid para 30.

⁴³ ibid para 31.

⁴⁴ ibid para 32.

⁴⁵ AG Maduro (n 32) para 34.

⁴⁶ Cartesio (n 5) para 104.

⁴⁷ ibid para 105–106.

⁴⁸ ibid para 107.

⁴⁹ ibid para 108.

⁵⁰ ibid para 109.

⁵¹ ibid para 110.

⁵² cf art 49 TFEU (ex-art 43 EC); W Schön, ‘Niederlassungsfreiheit als Grundungsfreiheit’ in P Hommelhoff, P Rawert and K Schmidt (eds), Festschrift für Hans-Joachim Priester zum 70. Geburtstag (Dr Otto Schmidt, Köln, 2007) 737, 739–743.

⁵³ Case 8/74 Dassonville [1974] ECR 873 (free movement of goods); Case C-76/90 Säger [1991] ECR I-4221 (freedom to provide services); Case C-415/93 Bosman [1995] ECR I-4921 (free movement of workers); art 63 TFEU (ex-art 56 EC) explicitly refers to ‘restrictions on the movement of capital between Member States and between Member States and third countries’.

⁵⁴ Case C-55/94 Gebhard [1995] ECR I-4165, para 37.

⁵⁵ Joined cases C-267 and 268/91 Keck and Mithouard [1993] ECR I-6097.

⁵⁶ cf Case C-384/93 Alpine Investment BV v Minister van Financiën [1995] ECR I-1141, para 37.

⁵⁷ Gebhard (n 54) para 37.

⁵⁸ Cartesio (n 5) para 110.

⁵⁹ ibid para 111.

⁶⁰ ibid para 112.

⁶¹ ibid para 113.

⁶² For this consultation process and the Commission's suggestions cf http://ec.europa.eu/internal_market/company/seat-transfer/2004-consult_en.htm (last visited 6 April 2009).

⁶³ Regulation (EC) 2157/2001 of 10 August 2001 on the Statute for a European Company (SE) [2001] OJ L 294/1, supplemented by Directive 2001/86/EC of 10 August 2001 on employee participation [2001] OJ L 294/22.

⁶⁴ Regulation (EC) No 1435/2003 of 22 July 2003 on the statute for a European co-operative society (SCE) [2003] OJ L 207/1, supplemented by Directive 2003/72/EC of 22 July 2003 on employee participation [2003] OJ L 207/25.

⁶⁵ Regulation (EC) 2157/2001, art 7; Regulation (EC) No 1435/2003, art 6.

⁶⁶ Regulation (EC) 2157/2001, art 8; Regulation (EC) No 1435/2003, art 7.

⁶⁷ Regulation (EC) 2157/2001, art 9(1)(c)(ii)(iii); Regulation (EC) No 1435/2003, art 8(1)(c)(ii)(iii). Council Regulation (EEC) 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG) [1985] OJ L 199/1 follows somewhat different rules. Although the official address must be at the place where the grouping has its central administration or where one of the members has its central administration (art 12), the official address may be transferred within the Community with or without change in the applicable law (Art. 13, 14).

⁶⁸ Cartesio (n 5) para 115–120.

⁶⁹ ibid 121–123.

⁷⁰ ibid para 124.

⁷¹ AG Maduro comes to the conclusion that Hungarian company law follows the real seat theory (n 32) para 23. However, this conclusion does not seem to be in accordance with the respective Hungarian provisions. See further (n 97).

⁷² cf the holding in Cartesio (n 5) para 110.

⁷³ cf (n 28).

⁷⁴ Cartesio (n 5) para 112.

⁷⁵ ibid para 112.

⁷⁶ Überseering (n 2) para 52.

⁷⁷ ibid para 63.

⁷⁸ This assumption might not be of great practical relevance. Market actors that wish to take advantage of the regulatory regime in B will presumably incorporate in B in the first place and conduct all business operations in A, which is the Centros scenario (but cf Oberlandesgericht [Higher Regional Court] Zweibrücken, Wertpapiermitteilungen (WM) 2005, 2140: transfer of the registered seat of an association formed under French law from France to Germany). However, for expository purposes all alternatives of a transfer of seat shall be analysed in light of the case law of the ECJ.

⁷⁹ cf P Mankowski and OL Knöfel, ‘Registrierung’ [Registration] in H Hirte and T Bücker (eds), Grenzüberschreitende Gesellschaften [Cross-border Corporations] (2^nd edn, Carl Heymanns, Köln, 2006) § 13, para 2.

⁸⁰ For example Umwandlungsgesetz [Reorganisation of Companies Act], § 198(2).

⁸¹ cf H-F Müller, ‘Internationales Gesellschaftsrecht’ [Private International Company Law] in G Spindler and E Stilz (eds), Aktiengesetz [Stock Corporation Act] (CH Beck, München, 2007) para 12.

⁸² Cartesio (n 5) para 112.

⁸³ Unless it is argued that the rationale of Centros and Inspire Art requires the receiving Member State to allow conversion without re-incorporation. In this direction S. Grundmann, Europäisches Gesellschaftsrecht [European Company Law] (CF Müller, Heidelberg 2004) para 779; A Wiśniewski and A Opalski, ‘Companies’ Freedom of Establishment after the ECJ Cartesio Judgment' (2009) 10 EBOR 595, 615, 618.

⁸⁴ Cartesio (n 5) para 111.

⁸⁵ ibid para 109 (emphasis added).

⁸⁶ ibid para 110 (emphasis added).

⁸⁷ ibid para 110 (emphasis added).

⁸⁸ ibid para 111.

⁸⁹ ibid para 113.

⁹⁰ In German: Anknüpfung; French: rattachement; Dutch: aanknoping. In the translations, the ECJ again uses the same term in paras 109 and 110.

⁹¹ Cartesio (n 5) para 111.

⁹² ibid para 110.

⁹³ ibid para 109.

⁹⁴ Unless, as discussed above, arts 49, 54 TFEU (ex-arts 43, 48 EC) are invoked in respect to the incorporators.

⁹⁵ Cartesio (n 5) para 110.

⁹⁶ AG Maduro, opinion in Cartesio (n 32) 23.

⁹⁷ Art 18 of Decree-Law No 13 of 1979 on Private International Law Rules (a nemzetközi magánjogról szóló 1979. évi 13. törvényerejű rendelet) provides that ‘(1) The legal capacity of a legal person, its commercial status, the rights derived from its personality and the legal relationships between its members shall be determined in accordance with its personal law. (2) The personal law of a legal person shall be the law of the State in the territory of which it is registered.’ Cf Cartesio (n 5) para 20. Para (2) of the article clearly states that the registered seat shall be the connecting factor. Thus, Hungarian private international company law is based on the incorporation theory. This connecting factor is then, for certain cases, qualified by virtue of the interplay of art 1(1) of Law No CXLIV of 1997 on Commercial Companies (a gazdasági társaságokról szóló 1997. évi CXLIV. törvény), which stipulates that the Company Act shall govern only such companies ‘which have their seat in Hungary’ ibid para 11, and art 16(1) of Law No CXLV of 1997 on the Commercial Register, Company Advertising and Legal Procedures in Commercial Registration Matters (a cégnyilvántartásról, a cégnyilvánosságról és a bírósági cégeljárásról szóló 1997. évi CXLV. törvény), which defines the seat of the company as ‘the place where [the company's] central administration is situated’ ibid para 17. The latter two provisions are not conflict of law rules. They circumscribe the scope of application of the Hungarian Companies Act by requiring a Hungarian company to have its real seat in Hungary. It can in some cases be difficult to distinguish between a provision of a purely substantive nature that contains an international element, ie that applies if a certain element is satisfied abroad or within the territory of the lex causae, and provisions that contain a hidden conflict of laws rule, ie that determine their international scope of application notwithstanding the lex causae. The second type of rule has been described as a ‘self-contained’ (J Kropholler, Internationales Privatrecht (6^th edn, Mohr Siebeck, Tübingen, 2006) § 13 IV 2) or ‘self-satisfied’ provision of substantive law (G Kegel, ‘Die sebstgerechte Sachnorm’ in E Jayme et al (eds), Gedächtnisschrift für Albert A Ehrenzweig (CF Müller, Karlsruhe, 1976). The Hungarian provisions are not ‘self-contained’, they do not decide about the application of Hungarian substantive company law notwithstanding the lex causae. Conversely, they decide about the exclusion of that law in certain situations (when the company's real seat is not located within Hungary), which presupposes its applicability pursuant to different rules (art 18 of Decree-Law No 13 of 1979 on Private International Law Rules) in the first place.

⁹⁸ In the literature this correlation between the Court's definition of the material scope of arts 49, 54 TFEU (ex-arts 43, 48 EC) and the relevance of the term ‘connecting factor’ for purposes of real seat and incorporation theory often seems to be overlooked. For example, AF de Sousa, ‘Company's Cross-border Transfer of Seat in the EU after Cartesio’, Jean Monnet Working Paper 07/09, available at www.JeanMonnetProgram.org, 33, claims that ‘Hungarian law apparently followed a strict version of the real seat theory.’ However, had that been the case the applicable law would have changed and pursuant to paragraphs 111–113 of the judgment the Hungarian restrictions would have been within the scope of freedom of establishment. Moreover, on the basis of the bifurcation of the term ‘connecting factor’ suggested here the alleged ‘squaring of the circle’ (at 47) by the Court presents itself as a consistent distinction between the situations in paragraphs 110 and 111 of the judgment (as long as the reaction of the receiving State is not taken into account, see case 2 and case 4). In a similar vein, M Szydło, ‘Case C-210/06, CARTESIO Oktató és Szolgáltató bt, Judgment of the Grand Chamber of the Court of Justice of 16 December 2008, not yet reported’ (2009) 46 CMLRev 703, explains, on the one hand, that the Court in Cartesio affirmed that a company's right to reincorporate in another Member State was within the scope of arts 49, 54 TFEU (ex-arts 43, 48 EC) (at 717), but alleges, on the other hand, that pursuant to Cartesio companies are not protected if they lose their status as a company incorporated under the law of a particular Member State because they are dissolved or a change of the applicable law takes place (at 713). A Johnston and P Syrpis, ‘Regulatory competition in European Company Law after Cartesio’ (2009) 34 ELRev 390, argue that ‘any attempt by a company incorporated in a real seat Member State to move its real seat out of the jurisdiction is likely to result in the company being wound up’, despite such a move resulting in an ‘attendant change’ in the applicable law (Cartesio, n 5 para 111).

⁹⁹ Cartesio (n 5) para 111.

¹⁰⁰ ibid para 112.

¹⁰¹ The Court in Cartesio uses the term ‘conversion’ somewhat ambiguously, see eg paragraphs 111–113 of the judgment. ‘Conversion’ may be understood narrowly as the change of a company into its functional equivalent in another legal system, for example of an English limited into a German Gesellschaft mit beschränkter Haftung (GmbH), or broadly as any change of form of business association, for example of an English limited into a German partnership (Gesellschaft bürgerlichen Rechts pursuant to German Civil Code [BGB], §§ 705–740). The laws of some Member States understand conversion in the latter, broader sense, see eg Umwandlungsgesetz [Reorganisation of Companies Act], § 191(2). Such an interpretation of the Court's decision in Cartesio could result in unintended liability. Assume, for example, that the directors of a limited company registered in A relocate from A to B and that both A and B apply the real seat theory. The relocation may be interpreted as the transfer of the real seat from A to B (confer the facts of Überseering, n 2). An unqualified application of Cartesio would lead to the following result: The transfer of the real seat causes a change in the applicable law. Hence, possible impediments to the transfer imposed by A are prohibited by the Treaty, provided that B allows the company to relocate and change into a form of company under its own laws. This is the case and does not require any registration or other explicit legal act by the directors of the company if the partnership law of B provides that a partnership comes into existence whenever two or more persons act together to promote the achievement of a common purpose (eg German Civil Code [BGB], § 705). Depending on the partnership law, the involuntary change of the limited company into a partnership may entail joint (or joint and several) unlimited liability of all members (eg in the UK pursuant to Partnership Act 1890, s 9, and in Germany pursuant to Commercial Code [HGB], § 128, see the decisions of the Federal Court of Justice in BGHZ 142, 315; 146, 341). Thus, rather than protect the interests of the company's directors and members and facilitate free movement, Cartesio would mandate the application of unfavourable partnership law. There are two ways to avoid this result. First, note that the case described here constitutes a conflict between the holdings in Cartesio and Überseering. According to Cartesio, since conversion of the company into a partnership under the laws of B is permitted, A is not entitled to require liquidation ((n 5) para 111). However, a company in liquidation satisfies the requirements of Überseering (n 2) para 52: It is a company that has been ‘validly incorporated in one Member State (‘A’) in which it has its registered office', and it has, in this scenario, ‘moved its actual centre of administration to Member State B’. The rules governing a company in liquidation may be more advantageous for the members of the company than partnership law. Consequently, Überseering demands that Member State B recognises the company as a company in liquidation governed by the laws of A and that it does not apply its own partnership law. The first solution to the quandary is, therefore, to accord precedence to Überseering and disapply Cartesio. Second, the unintended consequences can be avoided by interpreting the term ‘conversion’ more restrictively and require an intentional decision of the company for conversion in order for the effects of Cartesio to apply (see A Wiśniewski and A Opalski, ‘Companies’ Freedom of Establishment after the ECJ Cartesio Judgment' (2009) 10 EBOR 595, 615–616). This is preferable since it allows the parties to choose what is more appropriate in the individual case. At the same time, there is no reason to permit conversion (and hence the consequences of Cartesio) only if the host Member States provides for a functional equivalent of the home Member State company form (as A Wiśniewski and A Opalski advocate, ibid 616–617), as long as conversion into a non-equivalent form is consonant with the wishes of the parties concerned (see also D Zimmer and C Naendrup, ‘Das Cartesio-Urteil des EuGH: Rück- oder Fortschritt für das internationale Gesellschaftsrecht?’ (2009) Neue Juristische Wochenschrift 545, 548).

¹⁰² cf case 2.

¹⁰³ For example Einführungsgesetz zum Bürgerlichen Gesetzbuch (EGBGB) [Introductory Law to the Civil Code] art 4(1).

¹⁰⁴ Cartesio (n 5) para 110. Most real seat states will demand dissolution if the registered seat is transferred to another country even though the applicable law does not change: cf B Großfeld, ‘Internationales Gesellschaftsrecht’ [Private International Company Law] in J Kropholler et al (eds), J von Staudingers Kommentar zum Bürgerlichen Gesetzbuch (13^th edn, de Gruyter, Berlin, 1993) para 599–604.

¹⁰⁵ cf (n 83).

¹⁰⁶ Provided that the substantive company law of the Member State of incorporation is structured as Hungary's law in Cartesio.

¹⁰⁷ cf the ambiguous results that empirical surveys in the US have produced, for example L Bebchuk et al, ‘Does the Evidence Favor State Competition in Corporate Law?’ (2002) 90 Cal Rev 1775, with references.