In corporate law, what is the difference between the seat theory and the incorporation theory? Where do I find the list of countries (jurisdictions) adhering to each?
- Real seat theory1 provides that the place where the company has its ‘real seat’ (its principal place of business) will determine which company law system is applicable to company relationships.
- Incorporation theory2 the company and its relationships are subjected to the law of the country where they have their registered office, and in which they have been incorporated.
The greatest difference between the two theories is their effect on the cross-border transfer of the company seat, both from the home and host state perspective. The real seat theory brings some draconian limitations to the cross-border transfer of the real seat by making the company subject to different national legal order each time its real seat moves to another state. The incorporation theory allows it by accepting in its legal order companies that are formed in other states without requiring a reincorporation. For the latter, it does not matter where the company’s real seat is located: once a company fulfils the formation requirements in its state of incorporation, it is recognised everywhere, but always subject to the rules of the incorporating state.
[..] the possibility of a cross-border transfer depends on Member States company’s private rules. Member States are free to decide on the appropriate conflict of law rule, and it is clear that if the incorporation theory dominated in the EU, there would be more freely moving companies.
1 Portugal, Spain, Italy, Germany, France are examples of real seat states.
2 United Kingdom, United States, Switzerland, Ireland, Denmark and Netherlands are incorporation states
Source: KSLR EU Law Blog