What is the full form of LTD
The Limited-Gesellschaft (Ltd.) and Brexit
Great Britain is expected to leave the EU on March 29, 2019. In addition to numerous questions about cross-border business transactions, this can include also be of importance for craft businesses that are organized in the legal form of a "Limited" (Ltd. company). The legal form of the Ltd. company could no longer be recognized in Germany in the future.
The Ltd. company is a legal form derived from British law. It is essentially comparable to a German GmbH. The company's liability is, however, limited to a lower level than that of a GmbH.
The background to the "withdrawal" of the legal form of the Ltd. company is as follows: A company resident in a state must also have a legal form of the law applicable there. However, the Ltd. company does not know German law. In the past, EU regulations on the so-called freedom of establishment made it possible to set up such a Ltd. company in Great Britain and then move the headquarters to Germany. In this way, a Ltd. company could have a business location in Germany.
In the event of an unregulated Brexit, however, there is now the risk that the freedom of establishment no longer applies to companies that were founded in Great Britain. This would mean that the legal form of a limited company would no longer be recognized in Germany.
This would mean that the Ltd. company would no longer be a legal form. All claims of a previous Ltd. company, but also those that exist against the company, would then be transferred to its shareholders themselves. Then the partners would be liable for the corresponding liabilities with their entire assets, including their private assets.
In individual cases, this can represent a considerable risk.
In order to avoid unlimited liability with private assets, Ltd. companies or their shareholders should take precautions.
Change legal form
Under certain conditions, the legal form can be converted, i.e. changed. This would be legally possible by way of a so-called "merger". In this case, the rights and obligations of the Ltd. company would be transferred to another company and the Ltd. company would be dissolved. The new company would then succeed the Ltd. company and all business relationships would be maintained and continued by the successor company.
Different legal forms can be considered for the new company.
As mentioned, the German GmbH is similar to a British Ltd. company. Therefore, a change of legal form to a GmbH could be an option. Either an existing GmbH would have to take on the former Ltd. company or a new GmbH would have to be founded by way of a so-called merger. In view of the required share capital of at least EUR 25,000.00 when founding a GmbH, the choice of the new legal form could also be a UG (limited liability). Other types of company are also conceivable.
In all cases of change of legal form - in addition to the necessary examination of which company form is the most sensible in the specific case - it must be noted that a merger is a (time) consuming and costly process.
Even if the Ltd. company were dissolved, the shareholders would not be liable for any liabilities of the Ltd. company with their private assets. A dissolution and liquidation would have to be carried out more quickly than changing the legal form.
In contrast to a change in legal form, however, business operations would be completely discontinued. It would be necessary for the shareholders to found a new company in a different legal form if they want to continue to be socially organized in the market.
In summary, we advise all Ltd. companies to deal with their future after Brexit as soon as possible.
As a member of the Dortmund Chamber of Crafts, you are welcome to use our extensive range of advice for further advice. You can reach us by phone on 0231 / 5493-0 or by email to [email protected]
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