Companies and company law on the move
German approach

Companies and company law on the move

Transfer of central management abroad
In recent years companies from EU member states have repeatedly tried to cross the border into other EU states. This phenomenon began with attempts to transfer the head office of a company from one EU member state (home state) to another (host state). While some EU member states (eg, the United Kingdom) were always liberal in this respect, most states were hostile towards company mobility, as it triggers competition among jurisdictions, which they feared could lead to a 'race to the bottom'. The 'incorporation theory' (the UK approach) was thus positioned against the 'real seat theory' (the German approach).

However, companies had a powerful ally in the European Court of Justice (ECJ), which repeatedly ruled in favour of transnational mobility on the basis of the freedom of establishment enshrined in Articles 49 and 54 of the Treaty on the Functioning of the European Union. A series of favourable judgments started with Centros,(1) and included landmark decisions such as Überseering(2) and Inspire Art.(3)

The legitimate fiscal interests of home states (exit taxation) were dealt with in Hughes de Lasteyrie du Saillant,(4) Marks & Spencer(5) and, most recently, National Grid(6) which partly overruled the older Daily Mail judgment.(7)(8)

Cross-border merger within the European Union
The ECJ extended its mobility-friendly rulings to cross-border mergers. Its SEVIC judgment(9) was issued only two days before the EU Cross-Border Mergers Directive (2005/56/EC) came into force. Under the directive, EU member states had 24 months to enact legislation that would allow cross-border mergers on the same terms as mergers between domestic companies. The United Kingdom passed the Companies (Cross-Border Mergers) Regulations 2007, while in Germany the Transformation Act was integrated by Sections 122a–122l. It is now possible to merge a German limited company (GmbH) into a UK limited company or vice versa. However, the EU directive does not encompass cross-border mergers of (limited) partnerships.

Transfer of registered office abroad
Some companies have tried to transfer both their administrative and statutory seat (registered office) from one EU member state to another. In Cartesio, dated December 16 2008, the ECJ decided on the transfer of the corporate seat of a Hungarian limited partnership to Italy. Cartesio wanted to remain a Hungarian partnership even after its transfer to Italy. However, the Hungarian courts rejected this request and were backed by the ECJ.

In a new ongoing case, the ECJ must decide on the transfer of both the administrative and statutory seat of the Italian company VALE COSTRUZIONI srl to Hungary. Unlike in Cartesio, VALE wants to become a Hungarian limited company (cross-border conversion). Courts and legal scholars throughout Europe expect significant clarifications to be made by the imminent ruling.

German approach

German company law has traditionally been hostile to the international mobility of companies. If the directors of a German company moved abroad, the German company was deemed to have been wound up. If the directors of a foreign company moved to Germany and directed the company's affairs from there, such company was no longer recognised. The latter approach was abandoned after the ECJ's 2002 Überseering ruling with respect to EU companies. Germany, as a host state, now accepts that EU companies may be directed from within Germany, without attaching to such circumstances any negative impact on their recognition. The same applies to companies from EEA states and to US companies on the basis of a treaty of friendship, commerce and navigation of 1954;(10) but not to other non-EU companies such as Swiss companies(11) or companies registered in Singapore.(12) In addition, following a reform of German corporate law, since November 2008 German companies may transfer their central management without being liquidated.

Nuremberg Higher Regional Court decision
Most recently, the Nuremberg Higher Regional Court(13) had to decide on the transfer of a Luxembourg private limited company (Sàrl) to Germany. The Sàrl decided to transfer both its administrative and statutory seat to Germany and to convert into a GmbH. Such cross-border conversion is provided for under Luxembourg law, but not under German law. Except in the case of a cross-border merger, it is not possible to move the corporate seat to Germany from abroad and seek registration in the German Company Register.

The court decided that:

  • German law does not provide for such cross-border conversion; and
  • the rulings of the ECJ do not require Germany to allow such conversion.

According to the court, the expected ECJ judgment in VALE would have no impact on the case at hand. To reach this conclusion, the court analysed the opinion on VALE, rendered by Advocate General Jääskinen on December 15 2011.(14) The advocate general found that in order to carry out the conversion, the applying company must comply with all legal requirements of the host state regarding limited liability companies (eg, in relation to minimum capital requirements). The host state may, for example, require that the company's assets be verified by an accountant in order to protect compliance with minimum capital requirements.(15)

On this basis, the Nuremberg Higher Regional Court highlighted the fact that the Sàrl had provided neither a report on the conversion nor an evaluation report nor up-to-date balance sheets at the point of time of the conversion. These and other formal non-compliances excluded registration of the conversion. The court did not mention whether the applying company could still fulfil the formal requirements listed by the court, but it explicitly granted leave to appeal to the Federal Court of Justice.


Unfortunately, European company law is still fragmented. Several ECJ rulings have failed to clarify issues surrounding corporate mobility within the European Union. European legislation deals only with single issues, but does not cover the whole range of possible transfers of companies. The proposal for a directive on the transfer of statutory seats within the European Union has been dropped. It is hoped that the ECJ will seize the opportunity to clarify matters further when ruling in VALE.

Companies cannot live with uncertainty as to their legal status, as this can seriously hamper their business activities and lead to unwanted, and sometimes catastrophic, fiscal effects. Therefore, innovative paths into foreign countries should be avoided. Legal counsel must seek out well-trodden paths while waiting for the ECJ to break new ground. In particular, the possibilities offered by the EU Cross-Border Mergers Directive should be carefully considered. In VALE the advocate general rightly remarked that the applying company could have used a cross-border merger to achieve the same result.(16) The same is true for the case reviewed by the Nuremberg Higher Regional Court.

For further information on this topic please contact Karl von Hase at GSK Stockmann & Kollegen by telephone (+49 211 86 28 37 31), fax (+49 211 86 28 37 44) or email ([email protected]


(1) March 3 1999.

(2) November 5 2002.

(3) September 30 2003.

(4) November 3 2004.

(5) December 13 2005.

(6) November 29 2011.

(7) September 27 1988.

(8) Cf Mörsdorf, EuZW 2012, 296.

(9) December 13 2005.

(10) Federal Court of Justice, January 29 2003, NJW 2003, 1607; Federal Court of Justice, July 5 2004, NJW-RR 2004, 1618; Federal Court of Justice, October 13 2004, GmbHR 2005, 51.

(11) Federal Court of Justice, October 27 2008, NJW 2009, 289, 'Trabrennbahn'.

(12) Federal Court of Justice, October 8 2009, GmbHR 2010, 211.

(13) Nuremberg Higher Regional Court, February 13 2012, DB 2012, 853.

(14) C-378/10, BeckRS 2011, 81910 (an English translation is not yet available).

(15) Biermeyer/Holtrichter, 18 Colum J Eur F 52 (2011),

(16) C-378/10, BeckRS 2011, 81910, point 35.