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


  • We gratefully acknowledge helpful information on the relevant Polish reform from Anna Rojewska of the Morawski & Wspólnicy law firm (Warsaw) and on the Hungarian reform from Emese Szilagyi of the Weitnauer law firm (Munich). We are indebted to Scott Baker, Douglas Cumming, Andrew Griffiths and Andreas Michl as well as the participants in the CFS/LEMF Summer School ‘Law and Economics of Contracts’, the 8th Annual Conference of the German Law and Economics Association, the 6th Annual Conference of the Italian Society of Law and Economics and the 28th Annual Conference of the European Law and Economics Association.


Reiner Braun

Centre for Entrepreneurial and Financial Studies

Technical University of Munich

Arcisstrasse 21

80333 Munich




This article explores how company law reforms, particularly the reduction or abolition of minimum capital requirements, in various European jurisdictions affect the decision of entrepreneurs to incorporate by means of a private limited liability company (LLC). Since the landmark rulings 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 of incorporation independently of their real seat. As a result, the proliferation of the United Kingdom private company limited by shares has posed a competitive threat to many European legislators. The article analyzes whether the reforms adopted in Spain, France, Hungary, Germany and Poland have promoted the popularity of domestic legal forms and encouraged entrepreneurship more generally. Using a difference-in-difference approach, a strong impact is recorded in both respects, especially if the minimum capital requirement was reduced or abolished.