Is a company allowed to transfer its registered office to another Member State even if this company is not engaged in economic activities in this Member State?
Transfer of registered office
Is it acceptable that a company registered in one EU Member State transfers its registered office to another Member State where it is converted into a company under the law of another Member State? Even if this company continues to conducts its business in the initial country? The Court of Justice of the EU decided that it is possible to only transfer the registered office to another Member State, when it does not engage in economic activities in that State. In addition, the Court of Justice decided that no restrictions may be imposed, even if the registered office is transferred only for financial reasons.
Mandatory liquidation allowed?
In a matter submitted to the Court of Justice, the question was raised whether imposing mandatory liquidation prior to a removal from the commercial register constituted a breach of freedom of establishment. In this particular case, the company intended a removal from the commercial register in the Member State it was initially registered in and to transfer the registered office to another Member State. In the initial Member State the company would have to undergo a liquidation procedure first, which was precisely what the company did not want.
Freedom of establishment
The question is whether mandatory liquidation is compatible with the right to freedom of establishment. The Court of Justice of the EU decided that this would indeed be a restriction of the freedom of establishment. Member States of the EU are not allowed to impose mandatory liquidation on companies that intend to transfer their registered office to another Member State, unless this is justified by compelling reasons of public interest, such as the protection of creditors or employees.
In addition, a transfer of the registered office falls under freedom of establishment even if the company does not conduct its business in the respective Member State. A company’s transfer of its registered office solely for making use of favourable legal rules is, in principle, no breach of the law.
What can we do for you?
Freedom of establishment means that entrepreneurs and companies are free to establish themselves in another Member State even if they do not engage in business there. This freedom includes the right of companies to change their existing structure under the law of another Member State.
Do you have any questions regarding freedom of establishment or would you like to set up a Dutch bv or nv? Please contact us: