The most prominent example of the economic impact that competitive federalism has had in the United States is without question the State of Delaware. Delaware, the third smallest state of the country, is the leading legal residence for both U.S. and international corporations. Over 50% of all publicly traded companies in the United States, including 60% of the Fortune 500 companies, have chosen Delaware as their place of incorporation. As a result, Delaware represents an important potential model for furthering competition among member states of the European Union, a model that gains more practical relevance with every decision of the European Court of Justice (ECJ) regarding freedom of establishment and freedom of movement. This article does not directly discuss the potential advantages of a European market for incorporations. Rather it seeks to demonstrate that a national market for incorporations can be established in Germany, the EU’s largest economy, thereby adding the sixteen German federal states as individual participants to a (future) European market and creating opportunities for less prosperous German states to improve their financial situation through an attractive regulatory framework.
In 2002, the German Federal Constitutional Court’s decision in the Altenpflegeurteil case enabled states for the first time to regulate corporate law so long as the constitution’s “necessity clause” did not apply. The necessity clause, derived from Art. 72 II of the German Constitution (GG), applies if federal legislation is necessary either to ensure the equality of living conditions throughout Germany or to safeguard the economic and legal unity of the nation. However, even if the 16 states passed different legislation regulating corporate charters, it would neither affect the living conditions of the German people to the extent that they become unequal nor represent a threat to the legal or economic unity of the country. Therefore, the necessity clause is not applicable in this case, and federal legislative authority regarding corporate charters is unnecessary. Even though the states have not yet taken advantage of their ability to pass corporate law, the Altenpflegegesetz decision provides the opportunity for German states to establish a competitive market for incorporations.
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