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.
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.