German Federal Supreme Court decides on German Based “British” limited companies’ future post-Brexit

Order of the German Federal Supreme Court (Bundesgerichtshof) 16.02.2021 – II ZB 25/17

Authors

  • Ismail Anil Kuru German

Keywords:

Brexit, Germany, limited, liability, partnership

Abstract

In 2021 the German Federal Supreme Court, the Bundesgerichtshof (BGH), decided how British Limited Companies (Ltd), which were well recognised in Germany because of the freedom of establishment pursuant articles 49 and 54 of the Treaty of the Functioning of the European Union, would be treated in the future. The limited liability of the shareholders with a small share capital was unknown in the German legal system before and increased its popularity compared to German company forms such as the GmbH which required a minimum share capital of €25.000. The BGH decided that due to Brexit the British Ltd established in Germany would no longer recognised by the German Company Registry and that the freedom of establishment would no longer be applicable. This decision has the effect that existing Ltds in Germany are automatically transformed into German company forms which changes the liability of the shareholders as well. The two possible German company forms that Ltds can be transformed into are now the OHG which is a partnership that aims to conduct commercial trade, and the Außen-GbR which is a company form constituted under civil law. In both company forms, the shareholders are personally liable which constitutes a tremendous difference to the British Ltd.  In this case commentary the considered German company forms are assessed with the result that another German company form, similar to the British Ltd, which might be more appropriate for shareholders. The UG is a relatively new company form which was created as a counterpart to the Ltd and can be established for the cost of only €1.  However, the decision of the BGH leaves some space for interpretation since existing Ltds might be protected by the grandfather clause. This clause protects rights that were asserted in the past and are no longer compliant with the law due to changes. Nevertheless, practice will show how existing Ltds will be treated in Germany.

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Published

30-10-2023

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Section

Articles