The impending Brexit poses a threat to many smaller companies in this country that are incorporated under the British legal form of a Limited company. Upon the United Kingdom's exit from the EU, these Limited companies could lose their local recognition.
Similar to a GmbH, a Limited company has limited liability. However, its faster establishment and the low initial capital of only one pound have made the Limited company attractive to German founders as well. Since Great Britain is still a member of the EU, young entrepreneurs can relocate their administrative headquarters to Germany immediately after establishing a British Limited company. The legal form continues to be recognized as such. According to the Munich Chamber of Industry and Commerce, up to 30,000 German entrepreneurs have used this model.
EU exit March 2019: Entrepreneurs liable with private assets
If the United Kingdom leaves the EU as planned on March 29, 2019, and no transitional arrangement or agreement is reached by then, limited companies in Germany will be treated like an OHG or a GbR.
The reason for this is that the limited company is no longer recognized. As a result, entrepreneurs are liable with their personal assets.
Change legal form: if possible before Brexit
Therefore, companies currently operating as limited companies face various alternatives. A cross-border merger allows the company to be merged into a limited liability company (GmbH). The advantage is that business can continue seamlessly. The GmbH then becomes the legal successor to the limited company and can continue to operate.
This option is often not suitable for smaller limited companies, as the merger process involves significant bureaucratic and financial effort. Fees for commercial registers, notaries, etc. are incurred. Due to the imminent Brexit, this option is only suitable to a limited extent—and primarily for larger companies with sufficient capital.
Establishment of a UG (limited liability) and liquidation of the Ltd.
The UG (limited liability)—or colloquially known as a "mini-GmbH"—is another option for German limited companies. Unlike a GmbH, a UG requires only one euro of share capital upon establishment, comparable to a Limited. With a UG (limited liability), a merger for acquisition would be possible.
More international options
Another option is to convert to a European SE or to transfer individual rights or assets to other German companies. Establishing a new company as a limited company in Ireland or Malta is also conceivable. This is significantly more complicated in practice, and all assets and long-term supply contracts must be transferred. Without professional advice, this option is virtually impossible.
Another option is the Dutch BV. Similar to the GmbH and Limited, this legal form also has limited liability. The required share capital for a BV is now only €900, making it attractive for smaller companies. This is also possible with a change of legal form. From a tax perspective, a change of legal form can be more advantageous than a merger.
Otherwise, the possibility of liquidation still remains, making it all the more important to address the issue in the run-up to Brexit.
If you have any questions about this topic, please contact:
Petra Busse | 089-5116-1313 | petra.busse@muenchen.ihk.de
