Brexit is coming. And a "hard Brexit" will particularly affect companies with a limited company legal form, of which there are still several thousand in Germany.
Limited Company – a legal form that also enjoys some popularity in Germany due to its low capital requirements. However, in the event of a "hard Brexit," these companies would no longer be able to rely on the European freedom of establishment. This would result in the loss of limited liability and would also call into question the validity of newly concluded transactions. Affected companies are therefore advised to use the remaining time until Brexit to seek timely advice and, if necessary, convert to a German legal form.
“Hard Brexit” poses existential questions for companies
Negotiations on the United Kingdom's exit from the European Union are toughIf no agreement is reached by the end of March 2019, the European treaties – and thus the fundamental European freedoms – will no longer apply to the United Kingdom. This is referred to as a "hard Brexit." This poses existential questions for companies registered as so-called letterbox companies in the United Kingdom but conducting business in Germany. This particularly affects companies with the legal form of a limited company, of which there are still several thousand in Germany.
Letterbox companies from EU member states are legally recognized in Germany due to the European freedom of establishment. However, this is different for letterbox companies from so-called third countries, which would also include the United Kingdom after a hard Brexit. German law applies to these. A Limited company operating in Germany would therefore no longer be treated like an English corporation, but like a German partnership or - if there is only one partner - like a sole proprietorship. A hard Brexit could result in the limited liability company of the Limited company being eliminated, meaning that the partners would thus be personally liable for the company's liabilities, warns the Federal Chamber of Notaries. The applicable regulations regarding power of representation could also change. Failure to observe this could result in transactions concluded after Brexit being invalid.
Solution: Transfer of the Limited into a German GmbH
Affected companies should therefore use the time until Brexit to adapt their structure in a timely manner. Notaries offer comprehensive advice on legal options and competent implementation of the necessary steps. As a result, converting the limited company into a German GmbH will often be advisable.
There are several options for this: For example, the shareholders could liquidate their limited company in the United Kingdom and transfer the assets individually to a new German company. However, this approach is usually impractical and also disadvantageous from a tax perspective.
Alternative options include a cross-border merger or a cross-border change of legal form. In this case, all assets and contractual relationships are automatically transferred to the new company with a German legal form. However, since mergers and changes of legal form are based on European law, they must be implemented before Brexit. Those who are (still) wary of these legally complex solutions could at least consider placing a German corporation between themselves and the Limited Company as a "liability buffer."
