On June 23 2016 the United Kingdom voted in a referendum to determine whether it should remain a member of the European Union. The country voted by a margin of 52% for a future outside the European Union. As of today, there is substantial uncertainty surrounding the consequences of Brexit. However, from a corporate law perspective, it can be assumed that limited companies registered with the Commercial Register in Austria will be confronted with far-reaching legal consequences.

Limited companies

The registered office of an Austrian limited company established in the United Kingdom must be located in the United Kingdom. The main reasons for choosing to establish a limited company are:

  • the low minimum requirements for share capital payable on establishment of the company, compared to the high minimum share capital under the Limited Liability Company Act; and
  • the swift procedure for establishing a limited company.

One of the fundamental principles of EU law is the freedom of establishment. However, post-Brexit, and without any bi or multilateral treaties in place, this principle will no longer apply to relationships between Austria and the United Kingdom. In particular, the loss of the freedom of establishment principle will affect existing limited companies in Austria. While these companies are established under UK law, they are nonetheless intended to develop business activities in Austria (or other EU member states). Further, although the registered office of a limited company must be located in the United Kingdom, the administrative office may be moved to Austria. However, after the loss of the freedom of establishment principle, the basis for the legal recognition of a limited company in Austria will cease to exist. As such, the 'seat' theory may apply once again. If it does, limited companies may qualify as a local Austrian entity with the consequence that they may be qualified as partnerships rather than corporations, which will lead to personal liability for shareholders. The formation of a branch office in Austria is also possible. However, if a local branch office is established, a permanent representative with habitual residence in Austria must be appointed post-Brexit.

Possible remedies

To avoid these negative consequences, several remedies may be possible before Brexit comes into force – in particular, limited companies may wish to convert to Austrian limited liability companies. Despite the absence of a directive on cross-border conversion, a claim may exist under primary law, stemming from the European Court of Justice decision in Vale.(1) Another possibility is the cross-border merger of a limited company with an Austrian limited liability company. Companies should consider these potential remedies and take active measures to evaluate the most appropriate company structure and the related costs.

For further information on this topic please contact Fabian Kacic or Marco Thorbauer at Schoenherr by telephone (+43 1 5343 70) or email (f.kacic@schoenherr.eu or m.thorbauer@schoenherr.eu). The Schoenherr website can be accessed at www.schoenherr.eu.

Endnotes

(1) ECJ, July 12 2012, C-378/10. See also Austrian Supreme Court, 6 Ob 224/13 d.

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