Private International Law/Multinational Corporations

Structure

Multinational corporations may be structured in a number of ways.

Pyramid

In a pyramid structure, one parent company controls a number of subsidiary companies, each of which specializes in a particular type of business or a particular region of the world. Most MNCs headquartered in the US and Europe are organized around a pyramid structure.

Some pyramids may have more than one company at the top. Shell and Unilever are two well-known examples: both have two parent companies, one in the UK and one in the Netherlands.

Consortium

A consortium is a group of independent companies who collaborate on major business projects. One well-known consortium is Airbus Industrie, which existed for many years as a consortium of four European aerospace companies before it was incorporated as a French company in 2001.

Keiretsu

The keiretsu structure originated in Japan and is still unique to Japanese MNCs. In a keiretsu, a number of nominally independent companies coordinate operations, and exercise control over each other through extensive cross-shareholding. During the Cold War era, major keiretsu such as Mitsubishi, Mitsui and Sumitomo were organized around major commercial banks; today, this system has weakened somewhat.

Unitary nature

Most multinationals are treated as a single company for accounting purposes, but each company is treated separately for tax purposes.

Domicile

Corporations have a form of "citizenship," in that they are formed and headquartered in a particular state. This concept is called domicile. A company's internal affairs are generally governed by the laws of the jurisdiction in which it is domiciled.

In the United States, as in the Netherlands, domicile is based upon the state in which the company is incorporated. Most large companies are incorporated in the state of Delaware, but headquartered in New York or another location; their domicile is considered to be Delaware even if they engage in no business there.

In large parts of Europe, but excluding the Netherlands and other countries, domicile is based upon the company's place of management (called siège in French and Sitz in German). A company may be managed in a different location from its principal place of business, and still keep domicile in the place of management; see Centros v. Erhvervs-og Selkabsstyrelsen, [1999] ECR 1-1459.

Domicile generally determines which laws will apply to the internal affairs of a company. In the U.S. Supreme Court case of Sumitomo Shoji v. Avagliano, 457 U.S. 176 (1982), a New York-domiciled subsidiary of a Japanese company was found to be a New York company; it was therefore subject to U.S. discrimination laws, not to contrary treaty provisions that applied to Japanese companies doing business in the U.S.