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The transition from UG to GmbH does not establish a new company

December 2018 - Corporate & Commercial. Legal Developments by GRP Rainer LLP.

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The costs associated with transitioning from an Unternehmergesellschaft (UG), a form of German private limited liability company also referred to colloquially as a “Mini-GmbH”, to a full GmbH cannot be passed on to the GmbH. The Oberlandesgericht (OLG) Celle, Celle’s Higher Regional Court, ruled that the transition in no way represents the establishment of a new company.

When it comes to establishing a company, it is common for the founders to initially opt for the UG as their chosen corporate form. General speaking, the reasons for doing so are financial in nature; 1 euro is sufficient share capital in the case of a UG, whereas 25,000 euros are required in the case of a GmbH. Notwithstanding this, the low share capital requirements often give rise to concerns regarding the financial standing of the UG. We at the commercial law firm GRP Rainer Rechtsanwälte note that for this reason it is common after a while for the UG to be “converted” into a full GmbH.

To turn a UG into a GmbH, it is necessary to increase the share capital. However, the transition from a UG to a full GmbH in no way represents the establishment of a new business. Thus, the costs associated with the transition do not constitute formation costs and cannot be passed on to the GmbH. That was the verdict of the OLG Celle in a ruling from 12 December 2017 (Az.: 9 W 134/17).

In the instant case, the company was originally established as a UG with a share capital of 100 euros. A few months later, the share capital was increased to 25,000 euros and the firm was changed into a GmbH. In addition, the amended articles of association provided that the GmbH would bear the costs associated with the formation up to a certain amount. In the original articles of association, the UG was charged with the formation costs.

The OLG Celle found the provision in the amended articles of association pursuant to which the formation costs were to be shifted onto the GmbH to be invalid, which prevented the GmbH from being registered in Germany’s Commercial Register, the “Handelsregister”. The Court stated that while it is possible in principle for the costs incurred in connection with establishing a GmbH to be imposed on the company as formation expenses, there were no formation expenses of this kind in this case because the company had not been newly established. Instead, it had merely grown from a UG to a GmbH by virtue of a capital increase.

Lawyers who are experienced in the field of company law can advise on selecting the most suitable corporate form.

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