Converting a UK Limited Company into a German GmbH / UG

With the recent developments in UK politics, it is now clear that Brexit is imminent. Since the December General Election in the United Kingdom, the stalemate within the UK House of Commons has been removed, and it is now full-steam ahead.

Although the “Withdrawal Agreement” has been agreed by the European Union and the UK, this is not the end of Brexit. Furthermore, the uncertainty brought about by Brexit in the business and political world still exists and will continue to do so. This article will outline the options available to those who wish to convert their UK-based Limited Company into a German equivalent. We will provide a general overview in this article, but please contact our firm directly if you wish for more personalised information.

UK Limited Companies in Germany and Brexit

Brexit brings difficulties as it is hard to predict what will happen in the future. The Withdrawal Agreement does not outline the future relationship between the EU Bloc and the UK. This may take quite a long time to negotiate, and for UK Limited Companies trading in the EU, uncertainty is not what is needed right now. UK Limited Companies in Germany will not be treated in the manner they were before Brexit.

One of the consequences is that they are likely to lose their Limited Liability status and instead will be relegated to partnership (OHG or GbR status). Consequently, the liability attributable to shareholders will be unlimited. This change, should it occur, will also have serious ramifications when it comes to the tax, how the company is recognised in law, how the company will operate and several other issues. Allied to the issues in Germany that Brexit will cause are the issues that will arise in the rest of the Bloc. How other countries will regulate the UK Limited Company once the country is no longer in the EU is difficult to predict.

Cross-border Merger

One option is to establish a German GmbH or UG company and then merge it with the UK Limited Company. This form of a merger is legislated for by the German Transformation Act (Umwandlungsgesetz). It can take a few months before it is fully completed, which is why it is recommended to start the process as soon as possible. In this option, the assets from the UK Limited Company are transferred over to the German GmbH as capital for the new company. In going through this option, there are several steps and several parties involved, including:

• Legal formation of a GmbH/UG – here it is advisable to obtain assistance from a German corporate lawyer,
• Registration of merger in the German Commercial Register,
• Registration of merger in the UK Commercial Register,
• Tax advisory assistance with the merger.

This form of conversion is quite expensive as it involves several parties to ensure it is concluded correctly. However, although it is an expensive and time-consuming option, it also comes with advantages. Firstly, this option allows for seamless conversion as the German GmbH comes from the UK Limited company that was there prior. This means that contractual relationships do not need to be renegotiated and prior approval from contractual partners is unnecessary.

Establish a Holding Company in Germany for the UK Limited Company

Alternatively, a German holding company can be formed to oversee the UK Limited Company. In this scenario, the German holding company would be the primary legal entity, and the UK Limited Company would be an offshoot of it. However, if the holding company is not established before the Limited Company, problems can arise with contracts and relationships previously established by the Limited Company. Such a move also requires legal assistance from a partner who knows the German legal system inside-out.

 Should I Establish a New Company in Germany?

It is, of course, possible to establish a new company in Germany. However, this brings some disadvantages. As a new legal entity, this company will not simply carry over the previous contractual relationships of the UK Limited Company. In contrast to Option 1, all of the previous contractual relationships would be made open to renegotiation. If the previous firm had beneficial contractual relationships with other firms, these would now have to be negotiated all over again.

In most cases, this option would not be the most advisable. However, should this be the preferred approach, make sure to contact our firm directly so that we can provide advice and aid throughout the process.

German Limited Company Options: Gmbh v UG

Both of these forms of companies operate similarly to the UK private limited company. The liability of shareholders is limited, the number of shareholders is not limited, the company is recognised and operates as its own separate legal entity. In fact, the UG is considered a “Mini-GmbH” and is generally seen as an aid for Start-Up companies to achieve limited liability status. It has only been legislated since 2008 due to § 5a Limited Liabilities Act and is a relatively new form of company in Germany.

On the other hand, the GmbH is the traditional model in Germany, and there are some barriers in place in establishing one. For example, a company needs to have a minimum of €25,000 in share capital to establish itself as a GmbH, whereas this requirement does not exist for the UG. The UG minimum requirement is €1. However, it is worth knowing that when establishing a GmbH that a minimum of €12,500 is to be in cash, and the rest can be “in-kind”, whereas, with the UG, the full amount of share capital is to be in cash.

There are, however, advantages in establishing a GmbH when it comes to your company’s reputation and credit rating. Generally, GmbHs are held as more reliable and have a higher reputation than UGs. To which form a company should consider is dependant on the circumstances of the individual company. Both models of the company have similar attributes to that of the UK Limited Company and will provide the stability that your company deserves.

Our Firm

At Schlun & Elseven Rechtsanwälte, our lawyers offer our clients their expertise on a range of legal issues. As a multidisciplinary, full-service legal firm, we offer legal assistance in German company law, business immigration, and construction and real estate law. In these areas (among others), we provide our clients with the help they need to negotiate the inherent difficulties within the German legal system. Our counsel extends to representation in court and assistance outside of court.

Should you require the assistance of a full-service legal firm when it comes to your Limited Company’s conversion to a GmbH, make sure to contact us directly. Our firm is multilingual and offers services in English and a range of other languages. Our offices are located in Cologne, Düsseldorf and Aachen with meeting room facilities in Berlin, Munich, Hamburg, Frankfurt and Stuttgart.