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The Function of Corporate Law and the effects of Reincorporations in the U.S. and the E.U.

Mucciarelli, Federico (2012) 'The Function of Corporate Law and the effects of Reincorporations in the U.S. and the E.U.' Tulane Journal of International and Comparative Law, 20 (2). pp. 421-468.

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Abstract

In the US, corporations can be incorpomted in any of the filly states and can "rehbcorporate" afterwards in any other state. Howeve, the competence of the state where a company is incorporated is limited- on the one hand it is restricted by federal laws and on the other han4 it regulates only the "internal affahs" of corporate activities. Consequently i the US reincorporations are a relatively easy task, because they only shil rules that address the shareholder-boardre lation, while creditorsa nd other stakeholdersa re not affected In the EU we find a partially similar scenario. In the last decade, the European Court of Justice has liberalized initial incorporations and in 2005 the cross-border directive opened the doors to freedom of reincorporation from one Member State to another In the EU, however, remcorporations have a much different impact than on the other side of the Atlantic, because the agency problems between shareholders and the board are bundled with the agency problems between shareholders and creditos, all being in the competence of the Member State of incorportion. In the EU therefore, any change of the applicable corporate law risks jeopardizing creditors. Sophisticated creditors will discount this risk from the credit rate or will protect themselves through specific covenant, but unsophisticated creditors will bear entirely the nsk of opportunistic reincorpoations. For this reason, many EU Member States provide mechanisms for creditors'protectionin case ofreincorporation,o ften by requiringt he debtor to give a security or to pay the debts that are not yet due. These mechanisms are aimed at avoiding negative externalities, yet they make reincorporations more expensive and will impede a certain number of efficient transactions

Item Type: Articles
Keywords: Company Law , Federalism , Reincorporation , Choice of Law , Creditors' Protection , Regulatory Competition
SOAS Departments & Centres: Faculty of Law and Social Sciences > Department of Financial and Management Studies > Centre for Financial and Management Studies (CeFiMS)
ISSN: 10694455
Depositing User: Federico Mucciarelli
Date Deposited: 08 Oct 2012 09:28
URI: http://eprints.soas.ac.uk/id/eprint/14294

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