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Managing director duties when acquiring a shelf company

When acquiring a shelf company, the managing director has the same obligations as when registering in the commercial register for the first time. The acquisition of a shelf company occurs when the "empty shell" of a corporation is used to restart the business, but there is no longer a business operation to which it is economically linked. This is the result of a decision by the Berlin Appellate Court ("KG").

Facts of the case

The decision of the KG Berlin is based on the following facts: In March, the managing director of a limited liability company ("GmbH"), which has been registered in the commercial register for several years, applied to change the company's name and business purpose for entry in the commercial register. The registry court then informed the managing director that it suspected a case of a new economic formation and that such a new formation had to be disclosed to the court. Accordingly, when registering, the managing director also had to provide an assurance that the capital contributions had been made and were freely available to the GmbH. A balance sheet and profit and loss account for the previous year must also be submitted. The court's assumption could only be disproved by evidence to the contrary. After the required evidence was not submitted even after a deadline was set, the registration court rejected the application by order. The notary who submitted the application lodged an appeal against this.

The decision of the KG Berlin of October 12, 2022 (case no. 22 W 48/22)

The KG Berlin dismissed the appeal as unfounded. In the court's opinion, the new economic formation should have been disclosed by the GmbH when registering. In addition, the required assurance of the managing director regarding the capital stock made and freely available to him had not been provided. Consequently, the GmbH's application for registration was correctly rejected.

The rules of the so-called "new economic formation" were also to be applied to the case to be decided. This is the case if the "empty shell" of a corporation still exists, but when business activities are resumed, there is no longer any business operation that can be linked to it in any economically significant way. According to the case law of the Federal Court of Justice, indications of an economic re-establishment can be that the company name or the object of the company is changed, the registered office is relocated, the management is replaced or shares are sold, whereby these circumstances can, but do not have to, go hand in hand with an economic re-establishment. As these indications were present here and could not be refuted by the complainant, the court considered the case of a new economic formation to be given in this case. 

Practical advice

In practice, companies that have already been founded are often used to take on new business, as this shortens the formation process. For example, a notary appointment is sufficient to acquire a company and subsequently be able to enter into legal transactions. However, the case in question shows that there are also some pitfalls to be aware of here and that the start of the new business activity needs to be carefully prepared.

In principle, the legislator provides provisions for raising and maintaining capital to compensate for the limited liability of the GmbH. These regulations could be circumvented if an existing GmbH could easily be used to start a completely new business activity instead of being founded. The formation provisions are therefore applied accordingly if, from an economic point of view, a new business activity is taken up. In this context, the Court of Appeal convincingly confirms the standard developed by the Federal Court of Justice. It clearly sets out the indications that suggest such a "new formation". In particular, if the name and object of the company are to be changed, the management replaced or possibly the registered office of the company relocated, it must be examined whether the company has been economically re-established.

If this is the case, particular attention must be paid to the managing director's duty of disclosure to the register with the corresponding assurances regarding the contributions made that are freely available and the disclosure of the balance sheet and profit and loss account. If the company fails to meet these obligations, the managing director and the shareholders may be personally liable. In order to avoid this risk, it is therefore advisable to take care and prepare thoroughly when "falling back" on existing companies.

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