William & Mary Business Law Review


Since the decision of the European Court of Justice in the Centros case, it has become popular in company law to draw comparisons between the United States economic constitution and the Single European Market. Since then, fears of a European “Delaware Effect,” which would create a “race to the bottom,” have hounded the debate on European company law. In this discussion, however, the unique constitutional framework of both the EU and the U.S. is seldom regarded. This constitutional framework, nevertheless, determines the behavior of both the legislators at state level and the market participants. This Article compares the impact of two major principles of both constitutions on company law: the U.S. dormant Interstate Commerce Clause and the Freedom of Establishment and the Freedom of Capital in the EU Treaties. The Article finds that the U.S. constitutional framework is more lenient on states and thereby grants them broader discretion to regulate company law. Further, it will argue that this is rooted in the specific legal set-up of the two common markets. The European Single Market, unlike the U.S., grants explicit free movement rights to capital and direct investments, establishing a modern framework. Further, European legal doctrine is faced with the paradox that the Treaty on the Functioning of the European Union (TFEU) equates natural persons and companies, whereas in reality, companies differ from natural persons in many respects. The U.S. constitutional framework instead relies on the concept that companies are creatures of state law in order to grant states larger powers.