The pending Brexit can be dangerous for many smaller companies in Germany that were founded using the British legal form known as a limited company. As soon as the United Kingdom leaves the EU, limited companies might lose their local recognition.
Limited companies are similar to a GmbH (Gesellschaft mit beschränkter Haftung – a company with limited liability) in that both involve limited liability. Until now, a limited company’s faster founding process and lower initial capital requirement of at least one pound are what made them attractive to German founders as well. Because the UK is still a member of the EU, young entrepreneurs can immediately move their administrative headquarters to Germany after founding a British limited company. The legal form is then still recognized. According to the Munich Chamber of Industry and Commerce (IHK), up to 30,000 German entrepreneurs have used this model.
EU Withdrawal in March 2019: Proprietors are liable with private assets
If the United Kingdom leaves the EU on 29 March 2019 as planned and no transitional arrangement or final agreement is established by then, limited companies will be treated like an oHG (Offene Handelsgesellshaft – a General Partnership) or a GbR (Gesellschaft bürgerlichen Rechts – a Civil-law partnership) in Germany.
This is because limited companies will now longer be recognized and, as a consequence, proprietors will be held liable with their private assets.
Changing the legal form: preferably before the Brexit
Companies currently operating as limited companies have various alternatives in this situation. With a cross-border merger, the company can be merged into a GmbH. The advantage in this case is that business can continue seamlessly. The GmbH becomes the legal successor of the limited company and can continue to operate.
This option is often not a viable alternative for smaller limited companies because the merging process involves major bureaucratic and financial burdens. Fees are charged for the Register of Commerce, notaries, etc. Due to the approaching date of the Brexit, this option is only suitable to a limited extent — and primarily for larger companies that have sufficient capital.
Founding a UG and liquidation of the Ltd.
A UG (limited liability) (Unternehmensgesellschaft (haftungsbeschränkt) – an entrepreneurial company with limited liability, also known as a “mini GmbH,” is another option for German limited companies. In contrast to a GmbH, a UG requires just one euro of initial capital for its founding, which makes it comparable to a limited company. With a UG (limited liability), a merger by absorption is also a possibility.
Further international options
A further option is transforming into a European Company (SE) or the individual transfer of rights or assets to other German companies. Another possibility would be to reestablish the company in Ireland or Malta. Doing so is significantly more complicated in practice and all economic goods and long-term supply contracts would have to be transferred. This option is virtually impossible without professional consulting.
Another option is the Dutch BV (besloten vennootschap – a private limited liability company). Similar to a GmbH and Ltd., it is also a legal form with limited liability. The initial capital for a BV now amounts to just 900 euros, which makes it an interesting option for small companies as well. Changing the legal form is also possible. From a tax perspective, changing the legal form can be more advantageous than a merger.
Otherwise, the option to liquidate is always open, which makes it all the more important to tackle the issue before the Brexit occurs.
If you have any questions on the subject, please contact:
Petra Busse | +49 (0)89-5116-1313 | petra.busse@muenchen.ihk.de