According to the doctrine of incorporation, the personal status of a company is determined by the state law where the company was created. The actual transfer of the company to another state does not lead to a change in personal status, and the international law based on the legal capacity of the company remains the same.
Explanation:
Each state has its legislation, which has certain features, including concerning the provisions regarding the admission of foreign legal entities to carry out business activities. There are several doctrines followed by a group of countries.
It is believed that the private right of a legal entity is the law of the state where the organization is created and registered. Such a view prevails in the countries of Anglo-American law. A legal entity is often created in one state, has its control center in another, and carries out the primary operations in a third. The state of affairs leads to the fact that a legal entity can avoid meeting the requirements stipulated by the legislation of the country where the foreign organization carries out its practical activities.
According to the incorporation doctrine, a company established in one of the EU member states must be recognized by other countries even if its actual position is located outside the state of incorporation. Thus, the company does not lose legal capacity, which provides it with sufficient mobility when moving the exact location. The main advantage of this doctrine is its certainty since it is much easier to establish the place of a company registration than to determine where its administrative center is placed. However, a number of authors believe that the doctrine of the company establishment has many shortcomings, as it presents unlimited possibilities for numerous manipulations. For instance, the creation of fictitious companies at the location of their offices, the sole purpose of which is to register business correspondence, the so-called mailbox companies.
The ability of the company to take advantage of the flexible laws of the country is also subject to significant criticism. For example, lower tax rates or minimum authorized capital are controversial at the federal level. Nevertheless, companies are trying to avoid the need to comply entirely with the burdensome laws of the country in which they operate. Besides, extensive holdings can freely transfer their administrative center from one country to another without losing their fundamental right to subjectivity. Moreover, they often have several administrative centers in different countries.
The doctrine of the operation center is an attempt to avoid the flaws in the doctrine of incorporation. According to the theory, the personal law of a legal entity is the location of its principal activity. The governing law is the right of the state, which determines the legal status of a corporate body as a constituent entity. However, with such a formulation of the question, the fact that a legal entity may carry out activities in several countries will not be taken into account. Currently, the United Kingdom, Ireland, Denmark, Sweden, Finland, and the Netherlands adhere to the theory of incorporation in various ways. Thus, any company established by the legislation of a foreign state has its own registered office on its territory and is recognized in the host country.