Personal liability despite English Limited in Germany

Germany: With the end of the Brexit transition phase, the possibility of using the legal form of the British company in Germany with legal certainty ended.

In the past, British companies, such as the so-called Limited, which were founded in Great Britain but primarily operated in Germany and were administered from Germany, were recognized as a British legal form.
This was based on the case law of the European Court of Justice on freedom of establishment.

With the expiry of the Brexit transition period on 31.12.2020, this possibility no longer applies. Since 01.01.2020, the UK has been a third country, and since 01.01.2021 it is also to be treated as such. The negotiated agreements which are intended to mitigate the consequences of the Brexit in some areas, such as the trade agreement between the United Kingdom and the EU of 24December 2020, do not contain any provisions on the question of the recognition under civil law of companies of British legal forms with their registered office in the United Kingdom and their administrative headquarters in the EU.

Therefore, there is no longer any basis under civil law for such companies, in particular the so-called Limited’s („private company limited by shares”). In this case, the prevailing opinion is that the „domicile theory” of the Federal Court of Justice (BGH) applies. According to this theory, the company statute applicable to a company is determined by the law of the country in which it has its headquarters. 

However, since the legal form of the British Limited is foreign to German company law in this form, it is now subject to the regulations of the German standard legal forms, i.e. those of an OHG or GbR. And in instances where there is only one shareholder, he or she becomes a sole proprietor. 

This also means that, in accordance with the German regulations, the partners are personally liable for the liabilities created by the company.

Especially in cases where up to now a legal prosecution or enforcement of claims has not been feasible due to the lack of company assets, there might now be new possibilities to access the assets of the natural persons behind the company.

Both shareholders of Litmed and creditors of such a company should now react to the new legal situation.

Source: BMF Information per 30.12.2020

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