‘Seat’ and ‘COMI’ Concepts for Country of Incorporation for a Company Formation UK


The efforts made by European Law Harmonisation have led to an ease in the dealings between different member states of the EU. However, there still exists some major differences between the companies that cannot be overcome easily via harmonisation schemes. One such issue is to define the home of a company. Commonly known as “Country of Incorporation”. This topic remains in the limelight of this article. The article is informative for those who are nationals of different member states but intend to register with companies house UK.

Different Cultural Practices

The practices followed commercially in different member states may vary. Due to this vast variation it is not easy to cover them by a single set of rules. Rules will have to be altered in regard to different cultural practices. For instance, in the United Kingdom, the majority shares of any company are owned by investors or public members. Moreover, the shares actively undergo trade in Stock exchange. There are countries where the shares are easily transferable from one owner of the shares to another by merely handing over the certificate of shares to that person. Apart from this, there are countries where companies bestow their major shares upon Banks. The banks either own them or hold on the behalf of the original owners of those shares. Hence, it becomes clear that it is not easy to govern all the practices under one common law. Again for instance, a takeover bid is suitable according to the rules followed by the British company register, whereas the same bid may get hindered by different accounting practices of different areas.

Issue with the dual-definition of Country of Incorporation of a Company

Deciding the country of incorporation of a company may seem an easy task. However, for the case of offshore company formation UK or in other country, this too has to face difficulty as the legislature of different areas define the country of incorporation differently. Particular jurisdictions provide lawful regulations which have to remain undamaged such as the division of the states holding the membership of EU. This division is done on the basis of the country of incorporation. One group considers that the country of incorporation of a company is the state whose laws are being followed by the company. The second group believes that the country of incorporation must be the place where the main office of the company has been established. The states belonging to the first group are United Kingdom and Ireland. Whereas, Germany and France follow the rule of the second group.

As France considers the area where the main office is established as the country of incorporation of a company, if any French company wants to shift its main business abroad it will have to windup its main office in France and shift it abroad. However, in case of a company belonging to the United Kingdom, the company will have to just open its offices abroad without winding up its main office in UK. Also, it can have its main business anywhere. Hence the rules for offshore company formation UK are more lenient. The case under study gives an example of utilising the laws of UK for benefit.

Case study of Country of Incorporation

The dichotomy of types of country of incorporation, makes it clear that the issue is too vast to be managed by a single law. However, the case under study shows that freedom of option given to companies may be greater in extent than the expectations.

Centros Ltd Case

This case depicts the scenario where the company wanted to open a branch in Denmark. A husband and wife, Mr. and Mrs. Bryde decided to open a company together in the United Kingdom. They both belonged to Denmark, hence, they were Danish. There company was incorporated in the United Kingdom. According to the Danish Law, it is necessary to form a company by contributing a minimum capital that has been pre-decided and some additional amount should be paid with that capital before the company is incorporated. As the company was formed in United Kingdom, only 100 pounds as a nominal capital was paid. Moreover, the company never underwent trade in UK. However, sometime later the couple intended to open a branch of their company in Denmark as well. The legal authorities of Denmark refused to register the company stating that the intention of the couple was to save the company from the law of paying additional amount. The court said that the authorities of Denmark were hindering the freedom given by Treaty of Rome’s 52nd and 58th articles by refusing to register the branch.

The Court Held:

  • The court does not disagree with the rule that a company having its main branch registered in any other state holding the membership of EU, and runs its business in accordance to the rules of that state, is allowed to open its subordinate branch in any other state. Therefore, it is a basic rule that a company that has been formed under the laws of any other member state may open its branch in Denmark.
  • However, if the company Centros, did business in England and Wales the board would not have objected its registration in any other state.
  • The Danish government states that the matter is solely relevant to Denmark and hence there is no violation being done of the 52nd article of the Treaty of Rome. The owners of the company are nationals of Denmark and own a company that does no real business in UK. Rather they intend to conduct business in Denmark via a branch, thus, it may save them from the rule of capital imposed by Denmark.
  • However, this claim has no reasonable basis that a company registered its main office under the laws of a separate state with membership, just because it intended to open a company in any other state later and conduct its main business over there. This act is justified under Community Law.
  • It cannot be denied that the couple had the intention to secure their company from the law of paying additional capital yet this basis cannot be used to create an obstacle for the freedom given by the Treaty of Rome via articles 52 and 58. As these articles cover the independence given to any British registered company, for registering its branch in any other member state.
  • Article 52 gives the owners of Centros the authority to act as self-employed and manage business under the conditions given by the member state where the company is established. Article 58 imposes that for the companies established according to the rules of a certain member state, the same treatment as given to a regular national of the member states should be given to its administrative office situated within the community.
  • As a consequence to the above mentioned rights given to a company, the companies may enjoy carrying on their business in any member state via a branch or an agency or a subsidiary. The purpose of the place where its main office is registered is just to provide a connection between the branch of that company and the laws of the member state where the main office is established.
  • However, if the companies having their main offices registered in any other member state, are stopped from forming branches in any other member state, there right of establishing the branches with freedom under articles 52 and 58 is usurped.
  • The Denmark’s authorities claim that as the aim behind the formation of the company under the law of United Kingdom was to merely avoid the Danish law of capital, the Danish government has the authority to take steps that prevent any such misuse of the laws for the purpose of circumvention of any national law. This the Danish government may do by refusing to register the company. This fact cannot be denied that a state has the right to take measures that help in prevention of the abuse of the rights given by the Community Law.
  • However, in such scenarios, it is suitable for the courts to take in to account these cases and stop any person taking benefit from the community law, but it is not allowed to make an assessment of any such case on the basis of the objectives for which the provisions of the community law have been devised.
  • The provisions of community law are purely related to the freedom of choice of member state for the establishment of a company’s main office. Therefore, the company has the right to choose any country whose rules may seem suitable to the company for the establishment of its main office. And it also has the right to open branches in different member states. Hence, it is unjust for the Danish authorities to reject the request for registration of Centros in Denmark.

COMI form of Country of Incorporation

Another rule used for deciding the place of incorporation of business is COMI. The full form of COMI is Centre of Main Interest. This concept proves more relevant at the time of insolvency of a company. COMI is used to define the authority of judgement with which any firm is linked most relevantly in the case of lawsuits of insolvency taking place offshore. It finds its utilisation in both the regulation of EC on the lawsuits of insolvency cases as well as in the UNCITRAL Model Law which is also relevant to offshore bankruptcy of the companies. For EC regulation, it is to be determined that which of the European Union member states should be given priority if different member states start the methods of insolvency for different companies in competition. For Model Law, the concept of COMI is used in a way that is required for the determination of the extent up to which any particular jurisdiction’s courts have to recognise and provide help in the lawsuits of insolvency that have been initiated by varying jurisdictions.

The European Union manifests the concept given by COMI. And COMI has no relation with the national law. Hence, it is required by the European Union to provide a consistent interpretation of COMI. In contradiction to a directive, this measure is incorporated in a regulation and has a consistent effect and direct application.

Neither the Insolvency Regulation nor the Model Law provides a definition of COMI. The introduction of COMI given by the EC insolvency regulation mentions that COMI should refer to the area where the debtor administers majority of his interests related business regularly so that it can be ascertained by the outsiders per para 13 of Preamble. It is presumed by the Model law as well as the Insolvency Regulation that COMI is the place where the company’s office is registered for a debtor of corporate as per article 3 of Insolvency Act and the article 16(3) of Model Law. However, the presumption is fragile in the Insolvency Act and is subjected to replacement on a regular basis.

Conclusion

The article sheds light upon the benefits of freedom of choosing the place of establishment of the main office of a company. It seems that the laws given by United Kingdom are easier to implement hence it would be wise enough to register with companies house UK. However, before British company register check the rules that are more relevant to the nature of the company being established, as process of registration can be done in an effective way.

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