In the EU law there are two theories claiming to determine lex societatis. According to the first - the incorporation theory - a corporation is founded and operates being based upon 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.