## Facts

- Two Danish nationals resident in Denmark sought to conduct business in Denmark.
- Danish law required a minimum paid-up share capital to form a Danish private limited company.
- To avoid that requirement, they incorporated Centros Ltd. in the United Kingdom, where the minimum capital requirement was substantially lower.
- Centros was validly incorporated under UK law but conducted no business in the UK.
- They applied to register a Danish branch of Centros to conduct the company’s activities in Denmark.
- The Danish Trade and Companies Board refused registration, reasoning that the arrangement effectively established the company’s principal place of business in Denmark while circumventing Danish minimum-capital rules.
- The Danish Supreme Court referred questions to the Court of Justice of the European Union for a preliminary ruling on compatibility with EU freedom of establishment rules.

## Issues

1. Whether EU freedom of establishment permits a host Member State to refuse registration of a branch of a company validly incorporated in another Member State when the company conducts no business in its incorporation state and intends to operate entirely in the host state.
2. Whether such a refusal can be justified by creditor protection, fraud prevention, or ensuring a “real” link between the company and the incorporation state.

## Decision

- The court held that the host Member State may not refuse to register the branch in these circumstances because the refusal restricts freedom of establishment.
- Incorporating in a Member State with less restrictive company-law rules, and operating in another Member State through a branch, is not by itself an abuse of EU law.
- General reliance on domestic minimum-capital policy to deny branch registration was not justified and was disproportionate.
- Member States remain able to adopt targeted measures to prevent or penalize fraud, including measures addressing attempts to evade obligations to creditors, but they cannot impose a blanket denial of branch registration for that reason.

## Legal Principles

- Freedom of establishment protects the right of companies validly formed under one Member State’s law to set up branches in other Member States.
- “Incorporation shopping” (choosing a more permissive incorporation regime) is lawful absent specific proof of abusive or fraudulent conduct.
- Restrictions on establishment must be justified by an overriding public-interest reason and must be suitable and proportionate; refusing branch registration to enforce minimum-capital rules generally fails proportionality where less restrictive creditor-protection tools exist.
- Host states may combat proven fraud or evasion of obligations through specific enforcement measures, including cooperation with the incorporation state, rather than denying establishment as a general rule.

## Conclusion

The court required Denmark to recognize the branch of a company validly incorporated in another Member State and held that a host state cannot block branch registration solely to apply its own minimum-capital regime, though it may pursue proportionate, targeted anti-fraud and creditor-protection measures.


Centros Ltd. v. Erhvervs- og Selskabsstyrelsen (Cent. & Cos. Bd.), Case C-212/97, [1999] E.C.R. I-1459 (ECJ 1999)