The English legal form Limited Company by Shares, colloquially called Limited (abbreviation: Ltd.) via abbreviationfinder, is a corporation with limited liability – similar to the German GmbH . Your partners are therefore not liable with their private assets.
What is a limited exactly?
This type of company is generally incorporated in England, under English law and in the English language. The company is entered in the commercial register there. It is possible to register a branch in Germany and set the economic focus here. There is no statutory upper or lower limit with regard to the nominal capital. The share capital of the Limited is divided into shares, but it is not listed on the stock exchange. Each of the shareholders is liable in the amount of their contribution, whereby private liability is usually excluded.
How do GmbH and Limited differ?
For founders, the question naturally arises as to which corporate legal form is suitable, also to minimize liability risks. The Limited not only offers the desired limitation of liability, but also cost advantages when setting up. It is often difficult to establish a GmbH for smaller companies and freelancers, as this is not only complicated, but also expensive. The GmbH requires a share capital of at least 25,000 euros, while the Limited does not require a minimum amount. Only one British pound (1.13 euros: as of June 2018) has to be deposited. In addition, the Limited has the lead when it comes to entry in the English commercial register, as the cost-intensive involvement of a notary is no longer necessary.
In addition, the Limited scores significantly better than the GmbH when it comes to the duration of the formation. The time factor plays a major role in establishing a GmbH . Due to the bureaucratic hurdles that exist in Germany, it can take a few weeks or even months before the relevant permits are available. With regard to the necessary number of founders, the company forms are on par. Both can be set up as a one-person company.
Downside to creditworthiness
But the Limited does not only have advantages. Due to the extremely low share capital, opening a business account can be difficult. For example, some banks fundamentally question the creditworthiness of this legal form and refuse to provide such companies with business accounts. A clarifying discussion with the house bank is therefore recommended before the establishment.
Establishing a Limited
If you want to set up a limited company, you have to contact the English Companies House, which keeps the commercial register. Some documents have to be submitted there. Specifically, these are the registration application and the company’s articles of association, which consist of two parts, the “Articles of Association” (provisions on the internal organization and management of the company) and the “Memorandum of Association” (provisions on the external relations of the company). The memorandum includes the following information:
- Company name
- Head office
- Corporate purpose
- Limitation of Liability
- Share capital and denominations
- Names of the founding shareholders and the respective number of their shares
With the entry in the company register and the issue of the certificate of incorporation by the authority, the foundation is completed.
Central organs of the Limited
The central organs of a limited company include the shareholders (shareholders) or partners, the managing director (director) and / or the executive board (board of directors) as well as the company secretary, which is a special feature of English law. He is responsible for communication with the Companies House.
Since the reform of British company law in 2006, the appointment of a secretary is no longer compulsory for the establishment of a Limited, so that the way has been cleared for the one-person Limited, as there no longer has to be at least two natural persons, but only one more. However, with the change in the law, the duties of the secretary have not ceased. These can be delegated to a limited service provider who takes care of the appointment of an administrator who is familiar with all regulatory requirements.
Registered Office – the company’s official seat in Great Britain
If you want to set up a limited company, you need a registered office, which can be in England, Scotland, Wales or Northern Ireland – the Registered Office. It is not just an address that is used to deliver mail such as official communications. There must be a contact person who enables authorized third parties, for example, to view the directory of shareholders. Limited service providers also take care of these aspects.
Duration of the formation process and legal advice
A foundation can take place within a few days. As a rule, however, it never takes more than one to two weeks to complete the start-up process. Legal or notarial support is not absolutely necessary. In the case of a more complicated formation with several parties involved, however, it is advisable to consult a lawyer. In-depth legal advice from a lawyer who specializes in English law is important when it comes to special regulations. Legal advice cannot do any harm with regard to BREXIT either.
When does the Limited have legal capacity?
It acquires its legal capacity after the certificate of incorporation has been issued, so that it is only then allowed to start its business activity and conclude contracts. In contrast to German law, the limited company does not exist as a parent company before it is entered in the English commercial register (such as the GmbH in formation). Anyone who does business beforehand on behalf of the de facto non-existent company is personally liable in case of doubt.
Registration of the Limited in Germany
Anyone wishing to operate an independent branch of the Limited in Germany must arrange for the company to be entered in the German commercial register via a notary. To do this, there are a few things to do. First of all, the company needs a German business address, which has to be communicated to the trade office. The founding documents and certified translations of the English documents must also be submitted there. However, it may take some time before the company is registered. As a rule, three to eight weeks can be expected. German law applies to the activities of the Limited in Germany. English law only comes into play when it comes to internal differences.
How exactly is the liability of the Limited?
The liability of the Limited for its liabilities extends in principle only to the company’s assets, which include the contributions made by the shareholders and the undistributed profits.
Liability of the shareholders
Each shareholder of a Limited is liable in the amount of the contributions made by him, so that there is a limitation of liability to the shares taken over. In addition, the Limited alone is liable, so that the private assets of the shareholders remain unaffected in the event of liability. Incidentally, there is no obligation to make additional contributions, so that the deposits do not have to be increased.
Liability of the managing director
The director of the Limited – in Germany comparable to the managing director – is liable for damage resulting from non-compliance with his contractual or legal obligations. In addition, he can be made liable to third parties, unless it is clear from contracts that he is acting as a representative of the Limited. The managing director’s liability also includes illegal behavior in the event of the company’s insolvency. Furthermore, the so-called direct liability can be relevant if proof is provided that the foundation serves the sole purpose of installing liability shielding. This personal liability also applies in the following cases:
- Abuse of Company Assets
- Disregard of the company’s interests with consequential damage for the shareholders
- Fraudulent acts in the context of bankruptcy
- Criminal offenses
- Deletion in England without notification to the German branch
Private wealth: is it actually effectively protected?
A deposit of one pound is enough to set up a limited company. Anyone who, as a founder or small business owner, opts for this type of company can benefit from a limitation of liability without a significant minimum share capital. The shareholders can increase the share capital by subscribing for shares of any size. If you stick to the deposit of one pound for the time being, this is the crux of the matter. Strictly speaking, such a company is insolvent after buying stamps.
German insolvency law with an economic focus in Germany
The limited economic capacity to act must of course be ensured. The managing director or board of directors will usually give the company a private loan to bridge dry spells in the initial phase. He usually takes back these financial resources as soon as business is going better. But the company goes bankrupt shortly afterwards, and pulling out the loan amount leads to a problematic situation. For example, a managing director who is aware of the company’s impending insolvency can be held personally liable if he continues the company’s business operations.
In principle, German law applies to the Limited if the company’s economic focus is in Germany. Thus, German insolvency law applies, which, in contrast to English law, includes an obligation to file for insolvency . Failure to comply with this obligation, such as in the case of delay in bankruptcy, threatens the managing director with liability with his private assets. He is then liable for the company’s liabilities and, in the worst case, can be prosecuted.
Realistic assessment of the minimum deposit is important
The liability can therefore extend to higher sums than the paid-in share capital. If this is measured too low, private assets are threatened right from the start of business activity. Limiting liability to the minimum amount of one pound therefore makes little sense. If you start your own business and start without a private loan to your limited company, you should set the minimum deposit high enough to create a solid basis for coping with the first few months and the start-up costs so that your private assets are actually protected.
What are the costs of setting up a limited company?
The official fees for establishing a limited company in England are currently around 30 euros. However, German founders are usually dependent on the involvement of a limited service provider. Starting a business on your own is hardly recommended, unless the individual situation speaks for it.
Numerous start-up agencies, lawyers and tax advisory firms are available to offer professional support. The limited service providers mostly offer package solutions that include both the postal address and the order of the secretary. Depending on the provider, the prices for this service are between 250 and 350 euros. The costs are incurred annually, so that a comparison of providers can prove to be worthwhile.
Added to this are the costs for the certified copy of the articles of association and the certified translation. Most limited service providers also cover this area. The pricing varies considerably depending on the scope, specifics under company law and the level of difficulty. Prices between 50 and 250 euros per document are possible here.
Limited & Co. KG
The Limited & Co. KG is the German counterpart to the GmbH & Co. KG, but can be set up faster and cheaper. The Limited assumes the role of general partner in the partnership, so that the former personal liability of the partners in the limited partnership is limited to the assets of the Limited. Since the KG is a common and popular form of company law in Germany, the Ltd. & Co. KG also has a higher reputation than the Limited. In addition, there are other advantages over a “normal” limited solution:
- Partnership: therefore simple taxation
- Reimbursement of trade tax or offsetting against income tax
- Private withdrawals possible
- Company under German law, English Limited only complementary
- UK administrative burden lower
Mini-GmbH: limited liability company (UG) – alternative to a limited company
The limited liability company (UG) is a special form of the GmbH. With this so-called mini-GmbH, the legislator has been providing business start-ups with the option of simplified establishment of a GmbH since 2008. But not only the process is now proving to be less complex, the initial share capital of just one euro also increases the attractiveness of this type of company, so that the mini GmbH is now considered a real alternative to the English limited company.
Increasing popularity of the mini GmbH
The UG or Mini-GmbH, also commonly referred to as 1-Euro-GmbH, is enjoying increasing popularity with founders. This eliminates the hurdle of raising the share capital of 25,000 euros required to found a regular GmbH. However, there is an obligation to gradually build up reserves in this amount from parts of the annual surplus.
Advantages and disadvantages of the limited liability UG
At first glance, the temptingly low share capital of just one euro is associated with certain disadvantages. Founders have to expect that they have to go in advance for payments of any kind and that they encounter difficulties in credit negotiations with banks. So the granting of large loans is unlikely. Compared to the English limited company, the Mini-GmbH offers a considerable advantage, since German law applies here. Founders do not expose themselves to the financial risk of legal advice, which is much more expensive in England. In addition, there are no annual follow-up costs for the service of the Limited service providers.