The Legal Framework of Regulatory Competition Based on Company Mobility: EU and US Compared

Abstract

The phenomenon of regulatory competition, if it exists at all, has at least two prerequisites: On the “supply-side” there must be incentives for corporate law-makers to tailor their products according to the needs of those who decide about the place of incorporation (or re-incorporation). On the “demand-side”, there must be a real and not only a theoretical possibility to choose the applicable corporate law by choosing the place of (re-)incorporation. Whether such a possibility is a real or theoretical one primarily depends on the costs of such a move compared to its benefits. For the decision about the place of the real seat of a company, “good” or “bad” corporate law is only one factor, very often a minor one among other legal and factual determinants such as corporate and other taxes, labor and environmental law, the accessibility of raw material and product markets or the existence of qualified work force. As long as the choice of a certain corporate law is linked to the choice of the real seat of the corporation, freedom to choose the applicable corporate law only exists on a theoretical level. Corporate law can only be chosen as part of a much larger bundle. If, however, companies are able to opt for a corporate seat that is independent from its real seat (and hence at relatively low costs), the freedom to choose the applicable corporate law becomes a real one and that way the second prerequisite for regulatory competition mentioned above will be fulfilled.