English limited company, a liability brake for the financial services provider

RA Johannes Fiala (Munich) has compiled a brief information for experten.de. The question is: Why a Limited ? Benefits and risks.
In view of more than 20,000 liability suits per year, financial service providers need to limit their liability as much as possible. Typical means of design are the insurance of the residual risk by a pecuniary damage liability insurance, but also the proper documentation of the advice as well as the examination of the products and product providers for seriousness. RA Fiala explains this with a picture: ?each additional steel door, by which the opponent must weld himself first times by, is recommendable! Whoever wants to protect himself from liability, and above all wants to see his own assets as a financial service provider in a safe haven, would do well to also use the possibilities of company law. Since Europe is growing together, an English corporation, such as the Limited Company, is also a possibility. The English Limited Company as an alternative to the GmbH? The English Limited Company by Shares (Ltd.) is a form of company with limited liability. The following must be observed when registering a Ltd. with the English commercial register: – A natural or legal person must be appointed as Director – A natural or legal person must be appointed as Secretary – An office address (Registered Office) must be given in the UK – Memorandum (Articles of Association) & Articles of Association of the company must be submitted – Witnessed application forms must be submitted An Annual Return and, depending on turnover, a more or less detailed balance sheet must be sent to the Registrar of Companies every year. In principle, it is possible to appoint trustees for all positions, i.e. director, secretary and shareholder. In order to secure the actual beneficial owner, a trustee contract is concluded with the trustees which, among other things, also contains a disclaimer for the trustees. There are many offers on the Internet to help with the formation of an Ltd. Such offers range from the service of arranging the formation of an Ltd. in the UK for the principal to critical comments on where the most common mistakes are made.
The advertised advantages of a Ltd. in short form are advertised among other things the following advantages: ? Formation time 14 days ? Formation can take place from Germany, no journey to England necessary, anonymity of the founder fully guaranteed ? Quick foundation also possible in 24 hours ? low entry and registration costs ? Ltd. shelf companies immediately available ? no notary visit required ? anonymous formation possible ? No compulsory membership of the Chamber of Industry and Commerce and no compulsory master craftsman’s diploma ? Low company taxes in the UK, legal tax reduction with correct construction of the Ltd ? No VGA (hidden profit distribution) as with a German GmbH ? VAT assessment only from 51,000 GBP / turnover per GF ? worldwide legal capacity ? worldwide establishment of business branches possible ? no British nationality required for director (managing director) and shareholders ? no personal liability on private assets ? Liability on the natural person only in very rare cases (criminal offences / disproportion between turnover and liability) ? Minimum deposit 2 British pounds (GBP) ? Professional ban or affidavit (so-called “oath of disclosure”) are no obstacle ? Representative business address in London available ? Possibility of telephone forwarding to Germany etc. Without going into detail about these advantages, the founder must be aware of the fact that he gives up control over the foundation of his company if he engages a proxy. Thus, the agent may terminate the contract during the incorporation stage. This can happen especially with low-cost providers, because the formation is not worthwhile for him if documents have to be submitted several times, for example because the name of the company has been submitted incorrectly or documents are missing etc. Once the Ltd. is established, the entrepreneur should take the fate of the company into his own hands. If he can only be reached in the UK via a secretarial service there, but he makes the entrepreneurial decisions in Germany, then it is a pure letterbox company with at least consequences under tax law. It is therefore advisable to set up a branch office in Germany. This is possible because it is sufficient because the Ltd. has been effectively established once in accordance with UK regulations.
Independent establishment (branch) A branch is not a separate legal entity from the main establishment. It is legally and organisationally part of the company of the main branch and in this respect subject to the law of the main branch. If the branch is established by a foreign company, it is subject to the foreign law applicable to the parent company. According to the HGB, a branch is an establishment which is physically separate from the main business and which is created as an additional, permanently intended centre of the business. The typical characteristics of a branch: – The branch must be organised in such a way that it is possible to participate in business independently, i.e. it must be able to continue to exist if the main branch ceases to exist. – It handles business that is typical for the whole company. The branch must have a certain degree of independence in that it has its own management with its own freedom of disposition, separate accounting, its own balance sheet and its own business assets allocated by the main branch. – Since the branch is not an independent company but part of the overall company, the name of the branch is usually identical to the name of the main branch. Additions (e.g. “Zweigniederlassung Deutschland” or “Niederlassung Frankfurt”, etc.) are possible. – The head of the branch represents it independently in dealings with third parties. However, the debtor of liabilities is always the natural or legal person of the head office. The branch of a Ltd. is entered in the commercial register according to §§ 13 d to 13 g HGB. Pursuant to § 13 e HGB, the following must be submitted: – Address and object of the branch office, – Designation of the home register and the register number there, – Legal form of the main branch office and the national law applicable to it, – The permanent representatives of the branch office authorised to represent it in and out of court, – Certified translation of the memorandum and articles of association of the company of the main branch office. The branch office thus receives its own registered office, its own commercial register number and its own place of jurisdiction. The registration must be filed with the Commercial Register in notarized form. Furthermore, the commercial branch requires a business registration. It may happen that the District Office or Trade Licensing Office requires a certificate from the Ltd. stating that the Ltd. is registered for corporation tax or income tax and VAT. It can also happen that the authority even wants to know whether the Ltd. has a managing director or authorized representative with permanent residence in Great Britain.
The typical difficulties of registering an independent branch of a Ltd. While German law is applicable for the treatment of the branch, the law at the head office of the company is decisive for the main branch. It follows that the question of the proper formation of the company is not subject to review by the German registry courts, but the question of whether it is a foreign company at all that could establish a branch in Germany is. In the case of a Ltd. pursuant to § 13 e para. 2 of the German Commercial Code (HGB), whether this company has any legal existence at all, i.e. in this case whether it is recognised as a legal entity. Under UK law, it is sufficient for a company to be incorporated if it has formally established a (statutory) registered office in the UK, even if the business is carried on abroad (the so-called incorporation theory). If it is established that the Ltd. exists under British law, it has the same status as natural persons, provided that it carries on a trade, Art. 48 EC Treaty. It is therefore interesting to ask how the situation is to be assessed if the Ltd. does not have an actual administrative seat in the country of incorporation. Under UK law, this is harmless. Under German law, the question of the legal capacity of a legal person depends first of all on where its actual administrative seat is located. The law of the country of the actual administrative seat then determines the question of legal capacity (so-called seat theory). For the question of the possibility of establishing a branch of a Ltd. it is furthermore important that there is a main establishment in the UK at all; because without a main establishment the establishment of a branch is conceptually inconceivable according to the seat theory. This means that even if a foreign company has legal capacity in the country of incorporation, it may not have legal capacity in the Member State in which the branch is established, because the seat theory applies there. In Germany, the seat theory prevails. In the past, there have always been problems in registering the branch of a Ltd. because the incorporation theory has not been recognized. This view has since been rejected by the ECJ and the BGH, so that the registration of a branch office in Germany must be recorded by the commercial register. It remains to be seen whether all registry courts will now guarantee problem-free registration. In this case, the registration should definitely be entrusted to a lawyer who is familiar with the arguments against a de-registration that have been rejected by the higher courts up to now. For up to now it has been argued that the registration of a branch office of a Ltd. only serves to limit liability and to disadvantage creditors. This argument cannot be dismissed out of hand in any case if it is already established that the Ltd. has disadvantaged creditors in the past because it was not sufficiently endowed with capital. To work out exactly here that the shareholders are not liable for the undercapitalisation of the Ltd (and therefore the branch should be registered) requires careful legal reasoning. If, furthermore, the Ltd was not demonstrably active in the UK at all and if, in addition, its business activity was not sufficiently provided with (liability) capital, the abuse objection can also lead under English law to the shareholders being personally liable for the outstanding liabilities of the Ltd in the UK. Therefore only serious company founders can contribute to the fact that also the Ltd. is slowly recognized in Germany. If public opinion remains sceptical about a Ltd., the founder can be helped by setting up a Ltd. & Co. KG in Germany. This means that a German (limited) partnership is the contracting party, and the personally liable partner is the Ltd.

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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