stheorie) must be applied. In contrast to the ‘real seat doctrine’the ‘theory of incorporation’determines the applicable law for corporations according to their place of incorporation, i.e. the legal system chosen by the founders of the company.

However, the German courts have not yet abandoned the ‘real seat doctrine’ completely. It still remains the general rule, which is only superseded by the Fundamental Freedoms if and insofar as they apply to the case.34 Therefore, the Bundesgerichtshof decided that only companies ‘protected by the Freedom of Establishment’ are governed by the law of their state of incorporation.35 In relation to companies incorporated in states which are not a member of the EU or EEA, the ‘real seat doctrine’ (in its modified form) is still applied.36 Consequently, the BGH has recently decided that a stock corporation incorporated under Swiss Law37 has to be regarded as a limited commercial partnership by German courts.38

5.1.6  Legislative Proposals

To remedy this somewhat complex and unsatisfying situation, the German legislature in January 2008 passed a draft proposal for a revision of the German conflict- of-laws rules on companies and legal entities (hereinafter: the Draft). The Draft embodies the first codification of conflict-of-laws rules on companies and other business entities in Germany by way of a revision of the EGBGB and shall be outlined briefly.39

5.1.6.1  Connecting Factors

According to Art. 10 para. 1 EGBGB of the Draft, there shall be two relevant connecting factors for companies: First, for registered companies the law of their respective state of registration shall be applicable, as this state is considered to be identical with the state of the incorporation. Second, for companies which are not registered, the law under which they have been organized shall apply.

While the registration is a relatively clear connecting factor, the law under which a company is organized is somewhat more difficult to determine. In this regard the explanatory statement of the Draft argues that in most cases creditors can infer the

34  For a more detailed discussion see Schulz and Wasmeier 2010, pp. 657 et seq.

35  Phrase used explicitly in BGHZ 154, 185 (185); translation made and emphasis added by the authors.

36  This is not true in relation to such states privileged by special international treaties, e.g. the United States of America, which is privileged under the Treaty of Friendship, Commerce, and Navigation, signed in Washington on 29 October 1954; for MERCOSUR countries see Sester and Cárdenas 2005, pp. 398 et seq.

37 Art. 620 and 629 Swiss Code of Obligations (Obligationenrecht).

38  BGH, Judgment of 27.10.2008—II ZR 158/06; the case became known as ‘Trabrennbahn’.

39  The Draft was prepared by an academic proposal of a special committee for international company law of the Deutscher Rat for International Private Law (Deutscher Rat für Internationales Privatrecht) which also contained a proposal for a EU Regulation. The proposals are avilabele in English at Sonnenberger and Bauer 2007, pp. 65 et seq.

relevant organization from the market appearance of the company. The company itself, however, could prove this conclusion wrong, e.g. by presenting documents of its incorporation in a different state.

In such cases, i.e. where the market appearance does not match the real situation, creditors and contractual partners shall be protected byArt. 12 EGBGB of the Draft. According to this provision, the law which the creditor has considered bona fide shall apply, meaning that he neither knew about the fact that the company was incorporated in a state different from the impression created by its market appearance, nor that his ignorance can be considered as negligence.

Regarding companies which are neither registered nor possess a relevant internal organization, the Draft determines the lex contractus to be applicable (Art. 27 EGBGB).

It is noteworthy that the Draft does not distinguish between companies incorporated in EU/EEA Member States and in other countries, but that the relevant cases are treated in the same way. The current distinction between ‘privileged’European companies and ‘regular’foreign companies is thereby abolished.

5.1.6.2  Scope of Application

Such national law as determined pursuant toArt. 10 para. 1 EGBG of the Draft shall apply to all phases of the company’s existence (i.e. from its formation until and including its liquidation) and for all questions which are—in Germany—traditionally considered as being part of company law.

The applicable law shall govern in particular:

•the company’s legal nature, its legal capacity and its capacity to cause legal effects by its own actions;

•the company’s formation and all questions arising from its winding-up and liquidation outside of insolvency proceedings;

•issues arising from the company’s legal name which are not concerning its registrability or are subject to restrictions pursuant to competition law;

•the company’s internal organization and financial structure, including the relationships between the company, its shareholders, its directors and other statutory bodies, as well as the protection of minority shareholders and the financial structure and of the company, e.g. capital requirements;

•the representative power of the company’s statutory organs which are empowered by company law to represent the company;

•the acquisition and loss of memberships and all related rights and obligations, including transfer of shares insofar as there are no other preceding rules (e.g. securities law) and including the question of the legitimacy of contracts between shareholders regarding their rights and duties, e.g. voting agreements (while the contracts themselves are subject to the lex contractus);

•the liability of the company itself, its shareholders and members of its statutory organs for liabilities of the company, including the question of limited liability and rules regarding a ‘piercing of the corporate veil’;

•the liability for violating duties arising from the respective company law.

istration) allow such a re-registration and that both their respective prerequisites are fulfilled cumulatively.

This provision allows companies to ‘convert’, i.e. change their legal form into a company governed by the law of another state without prior winding-up or liquidation and enabling them to maintain their legal personality. Thus, a German GmbH could change its legal form into that of a UK Ltd. while still remaining the ‘same company’. The UK Ltd. would be considered the legal successor of the GmbH, being entitled to all rights of the GmbH; as well as obliged by all of the latter’s obligations. Contracts concluded between the GmbH and another party would, by operation of the law, remain valid, now also binding the UK Ltd.

In sum, such a ‘cross-border conversion’ allows the shareholders a choice of the applicable company law ex-post. Those commentators arguing in favor of a competition of national company laws in Europe consider the option of such an ex-post choice of law as a fundamental part of a functioning market for company law. However, whether or not companies will exercise this option to change into the legal form provided by another jurisdiction remains to be seen.

In this context it should be noted, that in 1997, the EU Commission had already initiated an informal proposal for a EU Directive on the cross-border transfer of the registered office of limited liability companies.41 In 2002, the so-called High-Level Group of Company Law Experts urged the EU Commission to consider adopting a proposal for such a EU Directive.42 The EU Commission, in its Action Plan of 2003, undertook to adopt a proposal for a directive in the near future, considering this to be one of its top priorities43 and a public consultation in 2004 showed a need on the part of the market actors towards such a possibility.44 However, none of these projects so far proved to be successful. Presently, the EU Commission has postponed its plans for such a directive for an undetermined period of time.45 However, with a view to the complicated procedure and high incurring costs of a crossborder merger, the so-called ‘Reflection Group on the Future of EU Company Law’ has, recently once again advised the EU Commission to take legislative actions in

41  The text of said proposal is not available on the website of the EU Commission anymore; Ger- man-speaking readers, however, may find the proposal published at ZIP 1997, p. 1721 et seq. and ZGR 1999, p. 157.

42  Report of the High-Level Group of Company Law Experts on a Modern Regulatory Framework for Company Law in Europe as of 4 November 2002.

43  Commission communication to the Council and the European Parliament on modernizing company law and enhancing corporate governance in the European Union—A plan to move forward (COM (2003) 284 final).

44  Results are available at http://ec.europa.eu/yourvoice/results/transfer/index_en.htm (last checked 1 July 2011). It has to be noted, however, that this consultation has to be considered with caution, for only 127 responses were given.

45  Former Commissioner Charlie McCreevy justified this decision with inconclusive economic data, as well as the possibility for companies to transfer their registered offices by using the possibilities offered by the European Company Statute in addition to—more interestingly for small medium-sized enterprises—the possibility of a cross-border merger into a shell subsidiary in another Member State as provided by the Cross-Border Mergers Directive; see Speech at the European Parliament’s LegalAffairs Committee on 3 October 2007, Speech/07/592.