Competition of Legal Systems

Goods, services and capital already move freely across European borders, and now the European Court of Justice has paved the way for the free "movement" of legal forms for registering and regulating companies.

German corporate law will thus also have to compete with the corporate legal forms of other European Union member states. Anyone wishing to operate a business within the EU will in the future be able to choose from the full range of European legal forms - and then use them in other EU member states. Except in clear cases of fraud, national lawmakers won't be allowed to put up national obstacles.

The EU judges have hardly dismantled the protection of German contractual partners, nor have they "kicked off a race toward the lowest protective standards," as critics claim. After all, all EU citizens are free to choose their business partners, and in doing so may consider their legal form as well.

No doubt, companies that are based in Germany will engender the highest level of trust among their customers if they present themselves as a business partner using a German legal system. Founding a cheap

mail-box company abroad will thus harbor considerable risks for the owner.

The best news, however, is that Germany will become more attractive as a location for holding companies. Germany's major blue chips are hardly likely to found pseudo firms abroad to escape Germany's system of employee co-determination, which is unpopular with employers. But start-ups, merged businesses and holding companies will no longer have to live with the interference of labor union officials on their supervisory boards.

That makes it all the more important to ensure that these sorts of regulations for foreign investors don't creep back in through the back door of planned EU directives.