Common Law vs. Civil Law: A Quick Guide for Your Business – Corporate / Commercial Law
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Imagine running a business in a country other than your home country. What would be the legal framework? Would that allow you to move forward with your innovative ideas? Would the compliance requirements be similar to what you already know? Considering the number of countries in the world where you can do business, the possibilities seem endless. If you are already running a business outside of Great Britain, why not consider expanding it there?
Such a scenario has many advantages, described in previous Jordans blog posts. Incorporating a UK business is a very straightforward process, and once the business is established it can operate anywhere in the world. In addition, when a company is formed in the UK, investors have access to tax-advantaged investment opportunities, as well as a strong and reputable legal system.
Let us focus on this last aspect. What are the characteristics of the English legal system, and where could it be placed among other systems in the world? Historically, an important distinction has been between the common law and civil law traditions, and their various hybrids. Since common law is an English development, it is found in countries influenced by Anglo-Saxon heritage: therefore, a businessman from the United States, Australia, South Africa or Hong Kong may encounter more similarities between the legal frameworks in their home country and the UK than in (for example) Germany, Italy, Brazil or China. Understanding the fundamental differences between common law and civil law families makes it easier to operate multi-jurisdictional businesses.
What are the main differences?
Statistically, civil law systems are more widespread than common law systems (the figures are estimated at 150 and 80 countries, respectively); however, the common law is used by the greatest number of people in the world. Historically, civil law systems derive from the Roman Empire, and as a result of the adaptation of ancient Roman legal principles by the rulers and legislative bodies of continental Europe during the 18th century, comprehensive legal codes were established. On the other hand, the common law developed in England after the Norman conquest by judges deciding on individual cases brought before them, drawing inspiration from local customs, legal principles applied in various parts of the country and the decisions of the monarchs. .
Accordingly, the main difference between the civil law and common law traditions lies in the sources of law and the role of judges. In civil law systems, the emphasis is on legislation as the primary source of law, while in common law systems, judges play a more active role in setting legal precedents. What does this mean for investors who enter into contracts in a different jurisdiction? Traditionally, trade agreements drafted in civil law countries tend to be rather brief, using general terms (since there is no need to reformulate codified law); in common law countries, however, their equivalent equivalents are longer and more detailed, and the intent of the parties, legal definitions, etc. tend to be described more descriptively. Furthermore, commercial dispute resolution varies between civil law and common law traditions, with an inquisitorial model in the first and adversarial in the second.
Are there any practical consequences of all of the above for investors based in civil law countries who are considering setting up a company in the UK? As pronounced as the above differences may appear, most countries have legal systems reflecting aspects of civil law and common law structures. Although England is the birthplace of common law and therefore decisions of higher courts can affect your business, written laws governing this area are also plentiful. A notable example is the Companies Act 2006 (the longest piece of legislation in the UK), the scope of which clearly corresponds to the civil law spirit of deep codification.
Establishing or expanding your business abroad can seem like a demanding exercise at the best of times, but faced with a fundamentally different legal reality, it can become even more difficult. This is why being aware of the essential differences between the two systems can provide you with crucial information before making key business decisions.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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