Asset protection through an English limited company - curse or blessing?

First of all, it should be explained that an English limited company (Ltd.) is an unlisted corporation under English company law.

 

A distinction must be made here between a "private company limited by shares" or "private company limited by guarantee" - colloquially known as a "foundation limited".

 

Even before Brexit, the limited by shares was not expedient in terms of asset protection due to the shares generally being held as private assets.

 

The civil law consequences of Brexit for the Limited:

Brexit, i.e. the withdrawal of the United Kingdom from the European Union, and the end of the transition period on December 31, 2020, will have a significant impact under civil law on the recognition of companies founded in England in Germany.

 

The legal form of the "private company limited by shares" or "private company limited by guarantee" is particularly affected.

This is because the United Kingdom, as a third country, can no longer benefit from the fundamental European freedoms of the TFEU.

Before the withdrawal, freedom of establishment guaranteed that companies founded in England were also recognized in other contracting states, such as Germany.

 

This was done in accordance with the so-called "incorporation theory" of the European Court of Justice (ECJ), irrespective of the company's actual place of administration.

 

In contrast to the foundation theory under European law, the German Federal Court of Justice (BGH) follows the so-called "domicile theory" in its established case law.

 

This states that the company law of the country in which the company has its actual registered office applies.

This means that an English company whose management activities are carried out from Germany must comply with the German incorporation regulations.

 

For this reason, limited companies that were effectively founded in England but whose registered office is in Germany are no longer recognized as such in Germany.

Consequence of the non-recognition of the Limited under civil law:

German company law does not recognize the Limited, therefore the so-called type constraint applies; i.e. the English company is classified as the legal form in Germany whose formation requirements are actually fulfilled, regardless of its name.

It is absolutely irrelevant whether the company is registered at Companies House.

 

In the case of a multi-person limited company, this would be either a civil law partnership (GbR) or a general partnership (oHG).

With regard to the aspect of asset protection, it should be emphasized that the share is still the private property of the shareholder and is therefore subject to execution.

 

In the case of an asset-managing one-person limited company, the assets are transferred to the sole shareholder by way of universal succession.

It is attributed unchanged to the individual. If a commercial business exists, the one-person limited company is assessed as a sole trader in accordance with Section 1 (1) and (2) HGB.

Due to the significant civil law implications of Brexit and the resulting non-recognition of the Limited in Germany, this company form is not a suitable means of effective asset protection.

Entrepreneurs and wealthy private individuals should therefore consider alternative legal forms that are also recognized across borders and thus offer legal security.

Contact us today for a free initial consultation and find out which legal structures will effectively protect your assets.