Abstract: In EU law there are two theories claiming to determine lex societatis. According to the first - the incorporation theory - a corporation is founded and operates based on the municipal law of the state where the registered office was declared, irrespective of the place its actual corporate activity occurs or its decision making bodies are situated. This theory is followed in countries as Great Britain, Netherlands or Ireland. The second theory - the real seat theory or head office theory (siege reel or Sitztheorie) - is defended in its pure form in Germany and asserts that the law applied to a trading company is the law of the state where its central administration seat is situated. Hence, a state applying the real seat theory will recognize a trading company as falling into the scope of its own legal system if the mentioned company has its actual administration seat on its territory, irrespective of the circumstance that the registered office was declared to be on the territory of another state. The real seat theory constitutes an extreme limitation of the freedom of settlement for trading companies within the common market. Four cases decided by the European Court of Justice (Centros, Daily Mail, Überseering and Inspired Art) are relevant for illustrating the evolution of the European jurisprudence on freedom of settlement within the European Common Market. In the absence of legislative harmonization among EU member states, each state seeks to achieve by several legal means the protection of its own legal system against alleged encroachments from trading companies created under foreign law, aiming at the indirect obligation of trading companies incorporated in another EU member state to fulfill also the incorporation requirements of its legal system, notwithstanding the fact that according to EC Treaty these companies can rely on the general protection granted to legal entities.

 Key words: trading companies, corporate seat, lex societatis, incorporation theory, real seat theory, European Court of Justice