'Cost-Based' and 'Rule-Based' Regulatory Competition: Markets for Corporate Charters in the U.S. and the EU

Regulatory competition in corporate law is increasing in Europe and, not differently from what happens in the US, a market for corporate charters is developing in Europe. This article examines the differences between the US corporate law market, and the European one - to the extent that one exists. The basic idea is that, in Europe, there is a stronger competition for the (first) incorporation of rather small, closely-held corporations; while in the US a small closely-held corporation usually incorporates locally, where its shareholders and directors are located, and reincorporates - often in Delaware - when it is growing and, usually, when it goes public. Discussing the possible causes and consequences of this very important, but often overlooked difference, European regulatory competition is described as cost-based, i.e. relying primarily on the costs of incorporation; while US regulatory competition is considered as affecting more directly the rules concerning the internal affairs of the corporation (and directors' powers and liabilities in particular), and takeover regulation.