date | theme

15. October 2020 | Conversion Law: Significance and Application in the Transformation of Enterprises

October 19, 2020 | Found UG (limited liability) – An alternative to the GmbH

12. January 2021 | Conversion Tax Act – Scope and Exceptions

15. January 2021 | Cross-border conversion: German law violates fundamental freedoms

19. October 2021 | Rebranding or conversion: What happens to your company? (this contribution)

Does a rebranding of your company represent a process like a transformation or are we talking about something fundamentally different? In doing so, the different forms of company law must be considered in a differentiated manner. For a UG, the term renaming is considered a preplanned process and thus includes the transformation into a GmbH. Consequently, a UG will also end up in a GmbH in the future due to company law regulations. This is different for partnerships, in the following we also briefly consider them.

You want to transform your company, or rebrand it? What exactly is the difference here and is there one at all? In addition, many entrepreneurs ask themselves whether they have to meet special requirements and requirements for this. Now you first look at the source legal form of the two terms and compare it with the ultimately desired legal form.

It is important to note that conversions take place not only from partnerships to corporations or vice versa, but also within the various legal forms. Nevertheless, they are significantly different from renames, as conversion processes often involve significantly more effort and have a more significant impact on the company. As a result, renaming often acts exclusively as a naming for the company. Excluded from this is the legal form of UG (haftungsbeschränkt), since this legal form is changed in the long term into a GmbH. At least see § 5a Abs. 1 GmbHG. In the following, we will go into more detail.

The special thing about the change of name is that the company basically remains the same for the time being. Because the company does not change the legal form and especially does not change the legal entities in a change of name. Most of the time, only the company name actually changes and nothing else when a company is talking about it.

In general, any company that is willing to bear the costs can be renamed. Nevertheless, the company name is a very special topic at a company, as it is rather unusual to change it frequently. But there are always reasons that speak for a name change, especially for strongly growing companies or companies that are increasingly in the public focus or get into this. These include a changed strategic orientation, legal conflicts resulting from the company name, an expansion and more international orientation of the company or a change of shareholders.

It should be noted that a shareholder resolution is required. It is also important to emphasize the notarized statutes, which are also necessary for conversions. Finally, the company absolutely requires a business conversion, so that this is legally valid and can be used. So much for the legal requirements of a rebranding. In addition, a company at best also takes into account organizational company internal changes. The need to change the entire external appearance by changing the name is costly on the one hand and also requires detailed communication of the name change. Otherwise, the company threatens to lose some of its reputation due to the change. Thus, medium-sized companies definitely have to calculate this in advance in order not to buy unnecessary costs.

However, caution should be exercised in certain legal forms, because explicitly in the case of the UG, the terms are confusing. If a UG is converted into a GmbH, then this is also a case for the change of name. At first it does not sound like it, but the legal form of the UG (haftungsbeschränkt) is only intended as a preliminary stage to the GmbH and ultimately converts or trades in a GmbH by resolution of the shareholders. Nevertheless, essential requirements must be observed. The decisive factor is the existing share capital within the entrepreneur company (limited liability). As is well known, a company needs at least 25,000 euros in share capital for the legal form of a GmbH. In order to achieve this, § 5a para. 3 S. 1 GmbHG, UG is obliged to form a reserve in the amount of 25% of the annual profit, provided that loss carry forwards are deducted therefrom.

In addition, a capital increase helps to achieve this share capital. This can be done by a simple cash contribution, by a contribution in kind or from company funds. Each process must be distinguished with regard to the requirements. Because the cash capital has to be first only up to half, in the case of the contribution in kind, however, the full value. In the case of a capital injection from UG’s capital reserve, this must be confirmed by a balance sheet and an auditor. However, the latter is considered the most expensive of the three options mentioned.

Now to the definition of conversion. Here, a change of legal form of the company usually takes place and thus also other legal circumstances for the company result. Nevertheless, there are processes called conversions of companies, which usually continue to maintain the same legal form. For example, in the case of the split, several corporations are subsequently left from an existing corporation. Confusing isn't it? We bring light into the darkness for you.

First of all, when a company is converted, one thinks of a change of legal dress, as something is now changing. First of all, the change of form of societies is discussed. This is because either a corporation assumes the legal dress of a commercial partnership or a partnership is converted into a corporation. The new law on the option model for corporate tax provides another, very similar option for commercial companies. Nevertheless, it applies to the legal entities involved that nothing changes in the owners and their participation relationships.

Nevertheless, as already mentioned, there are also other forms of conversion that do not lead to a change in the legal dress, but cause a change in the legal entities. These include division, separation and merger. For example, in the merger, either two existing companies merge into a newly created company or an existing company merges into another existing company. On the other hand, separation and division take place, since either a division or similar is transferred from one company to another (division) or two separate, separate entities emerge from one company (division). Thus, organizational, legal and tax conversions represent a rather strong change for companies compared to the change of name.

We now consider the GbR as a comparison to the corporations, whereby the process is usually similar to an UG. Because a GbR converts even more directly into an OHG than a UG into a GmbH. Here, however, one usually speaks not of a rebranding, but of a conversion. This is the case at the time when GbR has the business operations of a commercial trade, so no specific capital is necessary for this. In addition, the personal liability of the shareholders applies to a GbR as well as to all other partnerships, but these are not designated as limited partners or general partners. The state of a commercial trade in turn occurs if the company according to type and extent a business operation set up in a commercial manner according to § 1 para. 2 HGB leads. In addition, this requires an entry in the commercial register which is basically not necessary for a GbR.

Basically, when changing the name, this is done without too much effort. Nevertheless, some costs have to be taken into account. This is an advantage at UG, as you can change to a GmbH incredibly quickly, so that the recognition increases in legal traffic and more attractive projects can be tackled. Nevertheless, the change from a GbR to a personal trading company is considered even easier to implement. If you have any questions about new legal forms, we will be happy to provide you with tax-optimal advice.