Incorporation theory vs. real seat theory
EU Company Law
Exam question
Discuss the two opposing theories: incorporation theory v. real seat theory.
Introduction
Why is the subject interesting?
Incorporation theory
Definition
•Determines the applicable company law by reference to the country in which the company was
incorporated (and registered).
◦The connecting factor being the country of incorporation.
Real seat theory
Definition
•Determines the applicable company law by reference to the country in which the company has its
actual real seat (head office).
◦The connecting factor being the actual corporate seat.
“Background”
Incorporation theory used in UK, Scandinavia and the Netherlands
Real seat theory developed in France and used in most continental countries.
•The doctrine was developed in Belgium and France in the nineteenth century,
•and according to it, a conflict of company laws must be settled in accordance with the law of the state
in which the central administration is located.
•The doctrine is traditionally considered protective because the main philosophy behind it is that a
company must be subject to the law of the state in which its corporate centre of gravity is located.
◦This is because it is assumed that the majority of the corporate stakeholders will be located
there.
▪Such stakeholders include shareholders, creditors, employees, and suppliers.
◦It is also assumed that societal interests are best served when a company is subject to the law of
the state where its central administration is located.
◦These assumptions seem to be somewhat outdated.
▪Information technology now makes it possible for management to be located geographically
somewhere other than where the economic activity of a company is centred, and the
members of the supervisory board do not have to be in the same country when meeting.
▪Many companies do a great deal of business outside the state of incorporation,
•and creditors, suppliers, and investors today are spread over many countries.
Incorporation theory vs. real seat theory – EU Company Law 1
