The freedom of establishment of companies within the European Union : a critical assessment of an ongoing development

Abstract

The Freedom of Establishment of Companies encompassed in Articles 49 and 54 of the Treaty on the Functioning of the European Union was a matter which created uncertainty amongst Member States, such uncertainty was prevalent due to the limited resources available which would alleviate the interpretation of the freedom of establishment of companies. The limited harmonising rules on the freedom of establishment was led by the diverging theories adopted by Member States which determine the nationality of a company. Despite the abovementioned, the Court of Justice of the European Union adopted several concepts through its decisions in cases like the Daily Mail, Centros, Cartesio, and more recently, Polbud. The decisions ranged from the conclusion that free choice is granted to companies to choose the legal order and form for doing business in other Member States adopted in Centros to other conclusions such as the authorisation of Member States to restrict company emigration effected without conversion purposes. Therefore, although the Court of Justice of the European Union made remarkable efforts in this sphere of law, legislation was still needed to ensure further clarifications. Directive (EU) 2019/2121 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions of the 27 November 2019 introduced aspects of crossborder company law which were necessary after the Polbud decision in 2017. The long-waited introduction of positive harmonisation through a European Union Directive was well needed and it led to a systemised procedural system of conversions, mergers and divisions whilst also safeguarding the interests of company stakeholders. However, whilst the findings on this important progress lead to significant advantages in European company law, the effects of national implementation and application is yet to be seen. Lastly, major issues on the freedom of establishment were touched upon through these amendments, however, the situation on a transfer of a company seat without conversion purposes remains unaccounted for by European Union Law.