Centros and the cost of branching

Marco Becht, Luca Enriques and Veronika Korom

ULB Institutional Repository from ULB -- Universite Libre de Bruxelles

Abstract: Following the Centros, Überseering and Inspire Art decisions of the ECJ a thriving market for incorporations has developed in the European Union. Round-trip incorporation is competing with domestic incorporation. Entrepreneurs can set up a shell company in any EU jurisdiction and branch back to their home country to operate a business. The UK Limited is a popular choice in many countries because it is rapidly and cheaply available online with minimum formalities. We develop a taxonomy for measuring the cost of Limited round-trip incorporation. The cost of setting up a Limited is directly observable in the market while the cost of branching is not. We run field experiments to measure the cost of branching. Our analysis reveals that despite the ECJ rulings, branching remains costly or impractical in many cases. Incorporation agents play an essential role in overcoming the limitations to branching. Introduction, To incorporate a business at a lower cost than required by domestic company law, a Danish couple set up a UK shell company, Centros Limited, to operate a business exclusively in Denmark via a branch. Technically this was achieved by registering Centros Limited with Companies House in the United Kingdom and by applying for registration of a branch with the Danish companies register. After the Danish companies register refused registration of the branch, the case was brought to the ECJ, which declared the refusal of registration as being against the EC Treaty. Überseering and Inspire Art confirmed and strengthened the Centros ruling.

Date: 2009-01
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Persistent link: https://EconPapers.repec.org/RePEc:ulb:ulbeco:2013/205630

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