A letterbox company may be understood as a company incorporated in the territory of a state where it is not carrying out any business activity, the main reason for incorporating the company in this state being the interest in its company law rules. Prior to the company law reform of 2008, Germany was considered to have a rigid and formalistic procedure of incorporating private limited companies. Hence, many German businessmen made use of the more flexible and cheaper incorporation procedure in the United Kingdom. As a further development, in order to comply with European law, German courts abandoned the real seat theory and adopted the incorporation theory which leads to the application of the company law of the place of incorporation.
European Company Law