Hungary: required link between company seat and governing law is lawful

The European Court of Justice has ruled that a member state can require companies incorporated under its laws to retain its registered seat within that member state while it continues to be governed by its laws.

This judgment has been keenly awaited by businesses throughout the EC as it concerns freedom of establishment under the EC Treaty.

The case was brought by Cartesio, a limited partnership incorporated under Hungarian law, which applied to amend the commercial register to change its registered seat from Hungary to Italy but remain governed by Hungarian law. The application was rejected because, under Hungarian domestic law, a company can only be governed by Hungarian law if its registered seat is in Hungary.

Cartesio appealed to the ECJ, claiming that this infringed its right to freedom of establishment under Articles 43 and 48 of the EC Treaty. However, the ECJ ruled that companies were creatures of national law and that a member state was entitled to require companies incorporated under its laws to retain a connection to its national territory in order to maintain its status of incorporation.

However, the ECJ ruled that, subject to any overriding requirements in the public interest, member states could not impose restrictions on a company wishing to be governed by the law of another member state and to move its registered seat (or other connecting factor) to that member state, for example by requiring it to be wound up or liquidated and then re-incorporated in the new member state.

Law: Case C-210/06 Cartesio Oktató és Szolgáltató Bt; EC Treaty Articles 43, 48