A ‘Race to the Bottom’ in the EU?

Abstract

The objective of this article is to analyse the incentives of Member States as well as of companies in order to establish whether or not the EU can expect to experience a situation in which there is competition for company incorporations.

In the European literature on competition between company law regimes, it has been argued that if conditions for competition were established in the EU then there would not be competition to the same extent as in the USA, primarily because the European Member States lack a financial incentive to compete. However, the financial incentive can not stand alone, and the full range of the Member States' incentives is therefore examined in the context of interest group theory.

Whether or not a company will forum shop for the most favourable company law depends on whether the decision-makers of the company have a personal incentive to do so. It is examined who the decision-makers are in different situations and it is concluded that regardless of who may be considered to be the actual decision-maker, it is likely that both the promoters of companies and companies themselves will have a number of incentives, varying in kind and intensity, to forum shop.