Set Up Shop in the UK with Spare Change
If you are an entrepreneur operating in Italy and want to enjoy limited financial liability, you now have another option in addition of choosing to constitute an Srl, Società a responsabilità limitata. Thanks to a ruling of the European Court of Justice, there is now an alternative. You can establish an Ltd, or limited liability company, which is the British equivalent of an Italian Srl, but much less costly. The minimum initial capital for an Srl is €10,000, but just £1 for an Ltd. Administrative costs to constitute the company are around €3000 for an Srl, but only £300-400 in an Ltd.
A study conducted by researchers affiliated with Bocconi, Oxford, and Université Libre de Bruxelles found that entrepreneurs have started to benefit from the new legal possibility. And the UK is emerging as a magnet to establishing new firms from all over the EU. Between 2003 and 2005, more than 67,000 new Ltds originating in other EU countries were established in the UK. A veritable exodus of entrepreneurs from national legal systems is taking place by firms taking advantage of the lower startup costs in Britain.
Several recent rulings of the European Court of Justice, called the Centros rulings, have enabled entrepreneurs to freely choose the country to constitute their company, which can be different from the place where the activity of the firm is actually located.
The outflow of firms toward the UK is an answer to high capital requirement and high constitution costs in countries of origin, the research says. The higher the cost of establishing a new firm, the higher the likelihood that the entrepreneurs of that country will decide to set up their company in the UK. Entrepreneurs can establish firms there without much difficulty, because the process is mediated by brokers that operate in every local market in Europe. Since the constitution of a new company in the UK does not require the intervention of registrars or other administrative intermediaries, it is a quick process which can be managed over the Internet. And the brokers minimize the legal costs of moving from one country to the other.
It is very likely that the trend will continue, if "costly" countries such as Germany, Italy, and the Netherlands don't reform their business laws to make less onerous the formation of a new limited liability company. Conversely, if they imitate France and Spain in passing reforms that reduce startup costs, they will probably stem the flow of firms fleeing toward Great Britain.