Attorneys engaged in handling transnational businesses operate in many different ways. The work relating to transitional businesses is quite complex and it requires that lawyers in this type of work must have a basic understanding of the transnational aspects of the law. For example, disputes relating to corporations often involve the application of international law and in many cases the nationality of a corporation becomes an issue. Accordingly, this article examines the issue of nationality of corporations and its various colours.
In businesses where multinational corporations are engaged, the nationality of a corporation becomes an important issue for a number of reasons. These reasons amongst other include:
-- The rights and duties of a corporation's officials including its directors, managers and shareholders are to be determined by the laws of its domicile.1 However, in many European countries, the internal affairs of a corporation are governed by the laws of its real seat, that is, the place from where its day-to-day affairs are governed.
-- Under the international law, the rights of a corporation depend upon its nationality.2
-- By reason of its nationality, a corporation may incur liabilities.
-- Restrictions on a corporation's activity can be imposed where it be a foreign national.
In order to determine that what law will govern its internal affairs, generally place of incorporation or place of management is considered important and relevant.
In addition, the following factors too have been considered relevant:
(i) Shareholders' nationality
(ii) Directors' nationality
(iii) Nationality of its officers
(iv) Nationality of its employees
(v) Nationality of the holders debt obligations
(vi) Patent and trade mark owner's nationality
(vii) Place of domicile of manufacturing activities
(viii) The place of business
(ix) The nation with which corporation is aligned
One must keep in mind the following considerations as well:
(a) Enforcement authorities must be able to gather desired facts and information about the corporation without hindrance.
(b) The official determination must be predictable.
(c) The test should be reasonably evasion proof.3
Generally the corporations are required to keep update and handy information in respect of its employees, shareholders etc; within the European Union, the ability of corporation to choose their nationality in order to avoid certain requirements has been a subject of controversy.4
These issues have given rise to disputes and a number of interesting points in this regard have been decided by ECJ, for example:
-- So long as a corporation stands recognised as a valid corporation by one country, the other EU members are bound to recognise it.5
-- One EU member cannot impose a tax to discourage an individual from changing his tax residence.6
-- EU member cannot discourage from establishing foreign companies.7
-- EU members have to recognize the merger of a national company with a foreign company as it be a merger between two national companies.8
Now a company incorporated under the law of a member state may transform into Societas Europeae (SE) if it has had a subsidiary incorporated under the laws of another member state for at least two years.
From the above, it is evident that use of different tests to determine corporation's nationality makes sense and the existing laws provide sufficient cause to protect shareholders, creditors and that is why the public laws are to be reformed by individual countries to attract foreign businesses.
(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi)
1. In the United Kingdom and the United States this is the law of jurisdiction of incorporation.
2. In the Barcelona Traction case, [1970 I.C.J. 3] (Belg. V. Spain)the International Court of Justice held that only Canada had standing to bring a claim of expropriation on behalf of a company incorporated in Canada having its registered office there.
3. For understanding these problems, see Washington Radio Stations, Inc, 10 P & E Radio Reg. 878[1955]
4. See Article 43, 46 and 48 of EC Treaty concerning the right of establishment.
5. Uberseering Bv V. Navdic Constr Co. Bacemanagement GmbH (NCC), 2002 E.C.R. 1-9910
6. Hughes de Lasteyrie du Saillant v. Ministere de l' Economics des Finances at de l'Industrie, 2004 E.C.R I - 2409.
7. Id.
8. Sevic sys. AG v. Amts gericht Nanwied, 2005 E.C.R I-10856.