At the time of analysing how to set up a corporation UK different techniques must be known. This article discusses that how a company can be incorporated in a different state and run its main business in a different area. The place of incorporation of a company is mentioned in company registration document UK and this place of registration becomes the nationality of the company and is retained throughout the formation of the company. The rules regarding the residency vary from state to state and the reason of the difference in opinion has been discussed in this article.
Residency of a Company
A company can own a residency as well. It is determined by the area where the real business of a company is situated and where the office of the company is kept. This is also the place of the control and centre of administration of the company. Let’s discuss the case of De Beers Consolidated Mines limited for better elaboration of the scenario.
De Beers Consolidated Mines limited
The background of the case can be known from the verdict.
Lord LoreBurn LC held:
Lord James of Hereford gave a similar verdict while Lords Robertson, Macnaghten and Atkinson agreed.
This case study is an answer to how to set up a corporation UK with a nationality of one state and a residency of another. This rule also applies on the countries that have made their laws following the laws of England for UK incorporation company’s, on the jurisdictions of the United States and the Netherlands. However, in other countries of Europe, it is strictly observed that the place of registration and main business of the company should be the same. If the company chooses to shift its chief seat, it will have to windup.
Approach for Residency of a Company
Any company has the authority to keep a residency in a state where the main business of the company is run. There is a debate on the approach that is chosen for the residency of the company. If the English approach is taken as a standard, the companies will try to register in countries with the easiest laws and run their business at some other place. This may result in a competition between the member states and they would form easy laws for the companies so that more incorporations attract to their states. Moreover, the revenues generated and the commercial standards would decline to a level that cannot be accepted. Hence the EU members, such as Germany, have worked hard to keep the rule of seat going. For example, in the law of EU for a company in Europe.
Residency Rules in the United States
In the United States, the states have been competing in jurisdictions to gain the attention of more and more incorporations. The small state of Delaware has succeeded in doing so. This idea is termed as a race to the bottom by many. Whereas some other people believe that it is a way of marketing for the corporations and gives a path to free competition. Studies show that the commercial standards of Delaware are not substandard. In fact, Delaware is leading as various expertise of company laws has been concentrated at one place.
The Notion of COMI
The company registration document UK mentions the place of incorporation of the company. There is a difference between the idea of incorporation and seat and the idea of COMI, that is, centre of main interest which plays an important role in the insolvency cases abroad. The rules given by the European Insolvency Regulation (EC) and the Cross-Border Insolvency Regulations are applicable. These two depend on the concept of COMI. Although, if there is no contrary proof, the place of COMI is taken as the place of registration, there are many case laws that give an alternative opinion. Hence, the COMI may differ for different members of the groups of corporations. The UK courts have used a broader approach than the Court of Justice of the European Union. For instance, the case of Re Daisytek and Re Eurofood.
Rights and Freedoms of a Company
It is a common practice in different companies to own a charter that gives the basic rights such as the right of freedom of speech, religion, trade and business. Also it may give a favour against the self-incrimination and the authority that the property cannot be seized without any compensation given. It has remained an ambiguity that whether the companies should be given these favours or not. Courts have given contradictory rulings on similar matters. The language of the legislation creates a difference of opinion. Any charter regarding the rights of human would not embody the rights for a corporation most likely but constitutional freedoms would. The varying culture and history also add to the discrepancy. However, the rights and freedoms are linked with humans, yet, the proceedings of the court can be called for the lifting of the veil of incorporation. An alternative way may be to allow the companies to question any legislation’s constitutionality even when the legislation does not impact the companies directly. As in R v Big M, where the company was permitted by the Supreme Court to challenge the statute on a basis that it violated the guarantee of independence of conscience and faith given by section 2(a) of the Canadian Charter of Rights and Freedoms.
Human Rights Act 1998
The Human Rights Act (HRA) 1998 had included the European Convention on Human Rights (ECtHR) in the local laws of the United Kingdom. The title of the Convention uses Human Rights, some of the provisions of this Convention address legal persons and entitles them to rights like right to property, fair trial while determining the rights of civilians as well as, the freedom to peacefully enjoy the belongings. It has been ordered by the European Court of Human Rights that a company has the right to call for lawsuit for the claiming against the breach of the Convention. Due to the separate legal personality of corporate body, if the rights given by the Convention to a corporate body, are subjected to breach, no particular member will be considered as a victim to that breach. Hence, no member can have any benefit from this Convention or the HRA 1998. Nevertheless, there is an option of derivative claim that a member may bring on behalf of the company if the people responsible for bringing litigation of the company are unable to do so. As in, Credit and Industrial Bank.
It is clear that some of the provisions of the Convention cannot be applied to the corporate bodies, for instance, the right to life, marry and the in-allowance of torture. Whereas, some other provisions can be found applicable such as a fair trial, freedom of expression etc. The decisions given by the ECtHR are more inclined towards piercing the corporate to a greater extent. For instance, considering the shareholders as being victims to any act intended at the company of those shareholders.
The way of determining the residency of a company as given by the case of De Beers can have important results for the taxes. Recently, the Canadian Supreme Court gave a verdict that a trustee company that had its incorporation done in Barbados, had the trust as a resident of Canada because the main business of the company was run in Canada and the tax of Canada was implementable on the trust.
For the company registration United Kingdom the decision of the nationality and the place of incorporation of a company is done according to the regulations as discussed above. The domicile is of the same place where company is being incorporated. But according to the laws of some countries such as the United States, the residency depends on the place where main business of the company runs.