The German legislative bodies Bundestag and Bundesrat have passed the “Fourth Act to Amend the Transformation Act.” Upon promulgation in the Federal Law Gazette, an amendment to the Transformation Act that is relevant in practice will enter into force promptly.
The amendment will make it possible for companies in UK legal form that maintain their registered office in Germany to perform a cross-border merger into a commercial partnership under German law in the future. Options include not only a conversion into a German GmbH & Co. KG, but also into a German UG & Co. KG, which enjoys the advantage of only minimal minimum capital having to be raised.
The amendment to the Transformation Act is due to the upcoming BREXIT: Companies domiciled in Germany in the UK legal form of a Private Company Limited by Shares (Ltd.) or of a Public Limited Company (PLC) will lose their freedom of establishment upon BREXIT becoming effective and will no longer be recognized in their legal form in Germany. As suggested by previous Federal Court of Justice jurisdiction, these companies would consequently be treated in accordance with the standard legal forms available in Germany – depending on whether they operate a commercial business or not, this would mean either in the legal form of a general partnership (OHG) or of a partnership under civil law (GbR). For shareholders, this “reinterpretation” would entail clearly negative consequences, in the most serious case unlimited and personal liability of shareholders also for existing liabilities of the company.
The additional possibility of a cross-border merger of corporations into German commercial partnerships gives companies affected by BREXIT now a material option for an orderly change into a German corporate form that avoids the aforementioned negative liability consequences for shareholders.
With some 8,000 to 10,000 companies domiciled in Germany in the legal form of UK limited companies alone, the forthcoming amendment of the Transformation Act is of high relevance.
The amendment in the law offers affected companies additional relief in the form of a transitional provision: In order to perform a cross-border merger into a German commercial partnership, it will be sufficient for companies in UK legal form to have their merger plan notarized prior to BREXIT becoming effective. All further steps of the merger procedure may also be taken after BREXIT has entered into effect. It is merely necessary to ensure that the closing of the merger is applied for at the Commercial Register after two years at the latest.