Significant Changes For German Law On Limited Liability Companies

A new law bringing significant changes for limited liability

companies incorporated in Germany takes effect on November 1, 2008.

This article examines the business trends which inspired the new

law as well as how, going forward, the new law will affect the

formation and operation of a German limited liability company

(GmbH).

Background. In recent years, European corporate

structures other than the GmbH have arrived in the German market.

Companies formed under the law of other EU member states have

become more and more popular. Many German enterprises have opted to

organize as English limited liability companies (even though they

have permanent management in Germany) in order to circumvent the

relatively burdensome requirements for forming a

GmbH?that is, higher levels of required capital and a

longer time-horizon to complete incorporation.

As a result of this competition among business forms, the German

government decided to modernize the law governing German limited

liability companies. After considerable debate, the so called

"Law for the Modernization of the German Limited Liability

Company Law and the Prevention of Misuse" ("Gesetz

zur Modernisierung des GmbH-Rechts und zur Bekämpfung von

Missbräuchen" - abbr. "MoMiG") was

adopted. The law takes effect on November 1, 2008.

What will change under the new GmbH law?

The new law is intended to amend Germany's GmbH law in three

significant respects. First, the GmbH formation process will be

accelerated. Under the new law, it will be easier to provide share

capital, and it will be simpler to divide, merge and transfer

shares. Furthermore, there will be measures which will lead to

faster registration, as the registration process at the commercial

registers is streamlined.

Second, the GmbH is expected to become a more attractive way of

incorporating a business. The new law allows a GmbH to locate its

headquarters outside of Germany (which previously was not

permitted) and creates more transparency with regard to share

ownership (which will simplify acquisition processes). It also

provides a long-awaited legal basis for group financing, which will

finally allow the GmbH to participate fully in cash pooling systems

such as are common in other countries.

Finally, the new law stipulates several measures for combating

deceptive and fraudulent business practices, including streamlining

procedures for servicing legal claims, preventing artificial delays

in insolvency filings, and strengthening the...