How to successfully transform your limited company into a GmbH or UG
You are among the many entrepreneurs who wanted to start a Gesellschaft mit beschränkter Haftung (GmbH, German limited liability company) a few years ago but did not have the required equity capital. So you decided to follow the then-popular trend by forming a Limited Company (Ltd.) in England, which entailed significantly lower costs. Now that your Ltd. is successful and the necessary capital is on your books, you would like to have your company not only domiciled in Germany, but registered there as well. As your legal counsel specialized in corporate law, we can advise and assist you in planning and implementing your Ltd.’s transformation into a GmbH.
It is often difficult for a small enterprise to assemble the € 25,000 in share capital legally required for a GmbH. A popular workaround a few years ago was to form a limited company in England that had its registered seat in Germany. The advantage of establishing a Ltd. was a much lower share capital requirement and a legal structure similar to that of a GmbH. In 2008, German lawmakers responded by providing entrepreneurs with a domestic alternative in the form of an “Unternehmergesellschaft haftungsbeschränkt,” also commonly known as a “mini GmbH” or “one-euro GmbH” and referred to under the acronym “UG,” for which the minimum initial capital contribution is a mere € 1. This change of the law caused a sharp decline in the number of Ltds being formed, along with a corresponding rise in the number of UGs established in Germany. The UG qualifies as a “Kapitalgesellschaft” (company limited by shares) and is fully liable for corporate income tax and trade tax. Like every other type of company limited by shares, a UG must publish its annual financial statements. The big advantage in this case is that the UG legal form will be fully recognized as a business partner by your counterparties in the German business world.
Companies and business that operate as a Ltd. in Germany, on the other hand, often encounter difficulties in opening customer accounts with certain merchants, since the latter cannot be certain of being able to enforce their claims receivable against the company in England if it should become insolvent. Transforming the Ltd. into a GmbH would clearly make life easier. So how is this done?
Here in Germany, the Umwandlungsgesetz (UmwG, German Transformation Act) provides a statutory basis for implementing this change in legal form. However, a cross-border change of legal form from England to Germany will be significantly more complex and cost- intensive.
The solution: Establish a GmbH or UG here in Germany with the advice of a tax advisor and attorney specialized in corporate law. Sell all the assets owned by the Ltd. to the GmbH, respectively UG, and incorporate these into the latter’s balance sheet. After dealing with all the associated tax implications, complete the process by unwinding the Ltd. in England. This would be the simplest and most cost-effective option for you.
Interested in transforming your limited company? Or do you still have other questions on this or other topics pertaining to your company? Please do not hesitate to contact us: As a law firm specialized in corporate law, we stand ready to assist you.