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Does Charter Competition Foster Entrepreneurship? A Difference-in-Difference Approach to European Company Law Reforms

Andreas Engert, Horst Eidenmueller, Reiner Braun, & Lars Hornuf

We study how company law reforms, particularly the reduction or abolition of minimumcapital requirements, in various European jurisdictions affect the decision of entrepreneursto incorporate by means of a private limited liability company (LLC). Since the landmarkrulings of the European Court of Justice (ECJ) in the years 1999, 2002 and 2003,entrepreneurs in the European Union (EU) have been able to choose the country ofincorporation independently of their real seat. As a result, the proliferation of the UKprivate company limited by shares has posed a competitive threat to many Europeanlegislators. We analyze whether the reforms adopted in Spain, France, Hungary, Germanyand Poland have promoted the popularity of domestic legal forms and encouragedentrepreneurship more generally. Using a difference-in-difference approach, we record astrong impact in both respects, especially if the minimum capital requirement was reducedor abolished.

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