Following that we will look at relevant case law to see where ECJ standing is in this issue.
Article 48 states: "'Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States.'
The treaty clearly states that a legal person, such as a company or firm, must be treated in the same way as a natural person, therefore a company must be able to move between member states without any restrictions. Saying that, it should be pointed out that the case of a company is more complicated, as unlike a natural person a company can stand at two different places simultaneously. Matters complicate even further when we consider that a company should be formed in accordance with the law of a Member State. Across Europe recognition of companies differs from Member State to Member State. Broadly speaking Member States take two approaches at recognising a company as having a valid legal personality. Most of them follow the real seat theory, others follow the incorporation theory.
A country which follows the incorporation theory, such as United Kingdom, recognises a company as a legal personality providing it is incorporated in any of the Member States. The incorporation theory gives companies the freedom of choosing the law applicable to them. Meanwhile the real seat theory requires a company to be subject to the law of the country where its effective centre of administration is located. Supporters of this theory say that "a dominant proportion of the promoters, directors, officers, share holders, and debt-security holders of a corporation is more likely to be concentrated in the country where the genuine head office is located than in any other single country." Therefore it is necessary for the company to be subject under the law of the country where its main place of business is, in order to protect costumers, creditors and shareholders of that company.
For example, if a company is incorporated in England, but the company's headquarters or central administration is in Germany, which follows the real seat theory, than France, another country which follows the real seat theory, would recognise this company as subject to German law. As this company is not incorporated in Germany hence is not recognised as a legal personality by German law, then nor would France recognise it as a legal personality. This situation might happen when the growth of a company's branch drives it to become the principal place of business. In such case the company would have to be liquidated and reincorporated, something directors would want to avoid. Such obstacles surly prevent and make it not an easy option for a company to move within European member states, so how has this theory managed to survive while faced with Act 43 and 48 of the EC Treaty on the principle of freedom of establishment.
The treaty gives three connecting factors between a company and a member state namely: "registered office, central administration or principal place of business" to take account of different systems of company law within Europe. Furthermore article 239 states that Member States should enter in negotiations