Albert Schroedere Fachanwalt für Handels- und Gesellschaftsrecht Fachanwalt für Steuerrecht

Brexit and Company Law - Deadline for the "German" Limited

The shareholders of an English limited company with its administrative headquarters in Germany are facing personal liability as a result of Brexit. The current limitation of liability as ruled by the European Court of Justice hangs by the silken thread of European law. As soon as the United Kingdom has left the EU and the expected transitional period has expired, German law will again apply unaltered with regard to English companies domiciled in Germany. And German law still stipulates that a foreign company which is de facto domiciled in Germany is to be regarded as a German company, even if it is registered in a foreign trade register and bears a foreign designation of legal form. The Federal Government estimates that 8,000 to 10,000 English Limiteds are domiciled in Germany. These are then treated as OHG or GbR because they have not complied with the formation formalities of a GmbH. Consequence: their shareholders are personally liable for the company’s debts.

A timely conversion into a German legal form can remedy this situation. The options are: (1) a cross-border change of legal form into a GmbH, (2) a cross-border merger into a GmbH, (3) and soon also a cross-border merger into a (GmbH & Co.) KG. The European Court of Justice - and in part also the German law - created the first two possibilities several years ago. The merger into a (GmbH & Co.) KG – or also UG (haftungsbeschränkt) & Co. KG – is about to be made possible by a change of German corporate law. This is good news for companies with limited capital resources, because KGs do not need minimum capital. The UG (haftungsbeschränkt), however, is still practically not an option as a target company of, as such cross-border merger  would be regarded as a contribution in kind which remains inadmissible if the share capital is less than EUR 25,000. The Federal Government also plans to extend the deadline for a cross-border merger from England so that a timely shareholder resolution is sufficient, i.e. the date of the entries in the registers is not decisive. All this is provided for in the recently published draft act of August 27, 2018, which is now beginning its way through the legislative process.

But beware: a cross-border merger must take into account the requirements of the English legal system as well as those of the German legal system. It is therefore crucial to start in good time.

Albert Schröder

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