The German government wants to help the estimated 8,000 to 10,000 companies that are incorporated under British law but are based in Germany.
“Many small companies and people who set up their own business, have in the past, opted for the British Limited (a form of incorporation) which is simple to set up,” Justice Minister Katarina Barley told Handelsblatt. Such companies are active in Germany but can use European laws to suit their business needs. “Brexit poses a serious challenge for them. We want to help them.”
Brexit could deprive firms organized as a “private company limited by shares” or a “public limited company” of their legal status.
That could have serious consequences for shareholders, according to a justice ministry spokesman. It could mean that shareholders become personally liable with their private assets, also for the company’s old debt.
Convert or set up a GmbH
Ms. Barley, who has a British father, wants the new law to enable firms to convert to German forms of incorporation.
One option is for companies to become a limited partnership (Kommanditgesellschaft), in which a German limited liability company, which is known here as a GmbH; or an entrepreneurial company with limited liability (Unternehmergesellschaft) could take a stake as a personally-liable shareholder.
That would spare companies having to come up with the €25,000 ($29,060) needed as minimum capital to set up a GmbH in the six months left before Brexit, the justice ministry said.
The transformation will remain optional but the ministry made clear it won’t provide guarantees for firms that fall victim to the corporate legal implications of Brexit. To do so would place other firms at a disadvantage, it said. That means people who don’t bother changing the legal status of their firms risk automatically finding themselves saddled with major new liabilities.
Companies that take up the offer will be able to do so before Britain leaves the EU or before the end of any transition period that Britain and the EU agree to.
Heike Anger is a correspondent in the parliamentary office of Handelsblatt in Berlin. To contact the author: email@example.com.